E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
Retailers are depending on web-based systems to help with the complex mix of rules, restrictions and duties when shipping overseas.
For Anthropologie, a multi-channel retailer of women’s apparel fashions and accessories, the prospect of strong overseas sales is hard to ignore. Without even marketing outside the U.S., it receives orders from Europe and other markets, where the currently low value of the U.S. dollar makes its stylish skirts and jewelry bargains. And in Asia, its fashions are so popular local sellers mimic Anthropologie’s branded web presence without permission to re-sell its private label products.
But shipping across international borders has long been too troublesome and costly for Anthropologie to take on in a big way. “We knew there was a surprising number of foreign consumers interested in our retail web site, but we had no good way to get products to them,” says Michael Robinson, managing director of Anthropologie Direct, the retailer’s online and catalog division.
Shipping products overseas, particularly in categories like apparel and consumer electronics where products can contain ingredients from multiple countries, presents a complicated mix of international border restrictions, customs rules, duties and taxes, and many retailers aren’t set up to handle such tasks. “The global economy is problematic because rules and regulations in each country can be radically different,” explains Mitch Scher, president of Vandegrift Forwarding Co. Inc., a freight forwarder for retailers and manufacturers.
Indeed, many online retailers find it impossible to even tell foreign customers the final delivered cost of international orders. “40% of online retailers don’t have their arms around the true landed costs for foreign customers,” says Paula Rosenblum, managing director of research and consulting firm RSR Research LLC.
Relying on web systems
Still, more retailers like Anthropologie are looking overseas to expand their sales. And they are relying on help from web-based shipping management systems designed to automatically figure the cost of shipping across borders. Such systems are offered by companies including E4X Inc., eCustoms and Kewill Systems Plc, as well as by carriers UPS and FedEx Corp. Designed to take the pain out of international orders and shipments, the systems also provide online visibility into shipment status and can convert online displays of retail prices into a foreign shopper’s local currency, including a close estimate of all international shipping costs.
These web-based systems address customs duties and tariffs that can differ widely on products depending on a customer’s country of destination as well as on the country or countries from which products were sourced. Before international shipping systems had the web as an operating base, retailers tried to cobble together customs and other shipping information through phone calls and paper documents, experts say. “We were always typing documents and taking them to a shipping pier, so it was much slower getting information to shippers,” Scher says.
And this data often was inaccurate, as retailers and others involved in shipping entered information such as orders, customs fees and shipment status multiple times into multiple versions of documents. What’s more, lack of speed and accuracy made it difficult for shippers to get a handle on overall shipping costs, much less make the same information available to customers.
Web-based systems enable single entry of order, shipment and customs information-whether by workers or automatically transferred from a networked database-which then is immediately available to all participants through a web browser interface. “The immediate visibility and ability to track goods around the world with accurate data on the Internet is key to managing international shipments,” says Andy Ewart, a customs product manager at Kewill.
As retailers import foreign goods into their U.S. warehouses, for example, they may have to figure multiple sets of cross-border fees based on the source countries. And with many individual products including ingredients and processes from multiple countries-a shirt’s cotton from India and its buttons and assembly from China, for instance-the retailer may be responsible for a complex set of customs duties and tariffs on each product.
Making things even more complicated is combining the import fees with export fees as retailers ship imported products to foreign customers.
The set of cross-border fees on products sourced from China and sent to a customer in Canada, for example, could be quite different from the cross-border fees on the same products shipped from the U.S. to a customer in Mexico or Europe, experts say. Each country has its own set of rules it applies to duties and tariffs on products sourced from or shipped to other countries, depending on the trade balances and level of competition between countries for particular products.
In some cases, import and export fees may be nearly identical on the same products; in other cases they can differ widely. “For a sweater imported into the U.S., a retailer might pay a 20% duty, depending on the fiber content, but the duty on the same garment could be 75% going from the U.S. to Mexico,” says Scher of Vandegrift, whose clients include apparel retailer J. Crew Inc. and brand manufacturers Puma AG and Wilson Sporting Goods Co.
International rules get even more complicated for retailers and manufacturers who design and source products ahead of time for particular seasons.
“Puma, for example, designs its apparel and footwear several months ahead, and to determine accurate pricing it must have an idea of what the duty rates will be on imported and exported products,” Scher says. The particular set of ingredients it puts into a pair of running shoes can result in widely differing rates. “A duty rate for a certain design might be 6%, but a slight adjustment in materials could bring it up to 48%,” Scher adds.
Retailers also need to be aware of opportunities for drawbacks, which allow them to skip payment of customs duties on exported products if they already paid import duties on the same products, Scher adds.
To manage all these ins and outs of international transactions, retailers must first process the international Harmonization Code that accompanies international shipments. Typically about a 10-digit number, the code relates to a set of data such as an internationally accepted definition of a product category according to a product’s ingredients and country of origin data, plus specific rules and tariffs placed on products by the individual countries involved in an international transaction.