Large companies have entire departments staffed with teams of trade compliance experts. In a small to medium-sized company, however, the job usually falls to a single manager. Often, compliance is just tacked on to an already-demanding logistics job, which isn’t good. Skimping on trade compliance costs a lot more than it saves.
That’s because trade compliance managers such as you are expected to control costs by managing risk in a trade and regulatory environment that is increasingly filled with risk and uncertainty. Let’s take a closer look at just three of the daunting challenges you face every day.
1. Adjusting to Trade and Regulatory Uncertainty
It’s been a busy – and stressful – few years for trade compliance managers.
- The Trans-Pacific Partnership (TPP) was supposed to open new markets for American products and reduce trade barriers. In 2017, President Trump withdrew the U.S. from the agreement.
- British voters stunned the world in 2016 when they narrowly voted to leave the European Union. Years of Brexit negotiations haven’t produced an agreement, but have caused major uncertainty for British companies and trading partners.
Meanwhile, the United States has squabbled with some of its major trading partners, including Mexico, Canada, China, and India. Trade tensions resulted in increased tariffs, threatened tariffs, new trade agreements, and additional export control regulations.
International supply chain management is difficult enough under normal circumstances, but major changes implemented quickly present a huge challenge. For example, if the Chinese market becomes too expensive, a company may look for markets in other parts of Asia or South America. That expansion carries a number of hidden costs and uncertainties, including:
- Compliance with new trade regulations.
- Creating a new network of suppliers and customers.
- Adjusting to new time zones, language barriers, and cultural differences.
As trade compliance becomes a bigger part of the total cost of ownership (TCO) equation, companies must prioritize compliance and ensure that their employees have the staff, knowledge, and expertise needed to manage accordingly.
2. Correctly Classifying Products and Components
Proper product classification and valuation determine whether tariff and duties should be applied and, if so, how much. The HS (Harmonized System) classifications are key to this process, and it’s easy to make costly mistakes.
For example, India uses the basic HS system used by all countries that are members of the World Trade Organization but adds additional coding requirements to create unique ITC (Indian Trade Clarification) codes. India takes the basic HS codes and adds additional digits for increased specificity. As a result, a company may export the same component to Germany, Russia, Vietnam, and India, but compliance officers have to remember to use the ITC code for shipments to India only.
HS codes are also used to define a product’s end-use in a country. For instance, the same hardware may have both automotive and aeronautical uses. A country trying to protect its domestic air industry might place a 30% tariff on the hardware if it’s coded for aeronautical use while the same component that’s coded as automotive has no tariff.
This is an area where a robust supply chain management system with trade compliance integration is extremely valuable. Most classification mistakes are accidental, the result of human error. An automated system helps mitigate that danger. In cases of error, the system can also flag problems so the company can correct errors before they result in extra costs and regulatory scrutiny.
3. Avoiding Civil and Legal Penalties
As global supply chains grow longer, they’re also more vulnerable to disruptions like natural disasters, labor disputes, and even inadequate transportation infrastructure. Just ask your company’s logistics manager. For trade compliance managers, the risks are different, but the consequences can be equally severe.
It’s tempting to shrug off violations as simple “paperwork errors” that can be corrected. Well, they can be corrected, but there’s usually nothing simple about it.
For example, one of our clients called us for help after a shipment was stuck in customs in a foreign country for six months – millions of dollars in equipment just sitting in limbo for half a year! Our compliance team was able to get the paperwork problem resolved and the product cleared in 10 days.
Violations could cost companies in many other ways as well:
- Fines and penalties: In the United States, penalties can be as much as 40% of the value of the goods, depending on the severity of the violation. In 2013, a Texas company paid $100 million in export violation fines.
- Product seizures: One documentation mistake can put an entire shipment in limbo. Worst case, a country may seize an entire shipment and/or ban your company from importing. For instance, Brazilian authorities may confiscate or destroy a shipment imported without proper documentation.
- Lax business partners: In trade compliance, guilt by association is real. A company is responsible for every link in the supply chain, so if one of your suppliers commits an export violation or an in-country agent pays a bribe, your company could suffer from the bad publicity or even prosecution.
- Legal exposure: In extreme cases, company officers may be charged with criminal violations of import/export regulations.
When it comes to trade compliance, leave nothing to chance. Your company’s supply chain, customer relations, and brand depend on getting everything right the first time.
As the prize-winning columnist Thomas Friedman explained:
“Supply chains cannot tolerate even 24 hours of disruption. So if you lose your place in the supply chain because of wild behavior you could lose a lot. It would be like pouring cement down one of your oil wells.”
Make Flash Global Your Trade Compliance Partner
Compliance problems can hurt your bottom line and damage your company’s reputation. However, trade compliance done right can give your business a competitive advantage in established and emerging global markets.
Flash Global has in-region experts who can help you navigate ever-changing country-specific trade regulations. We help ensure your products are classified correctly to not only expedite passage through local customs but also make sure you don’t incur any more duties and taxes than necessary. We play by the rules each and every time to help mitigate your risk of criminal and civil penalties related to trade compliance violations.
Trade compliance is an integral part of our end-to-end service supply chain solutions, which also encompass service parts logistics, technical services such as test, screen and repair, and field services. We offer support in more than 130 countries to help companies in a wide range of industry verticals scale and grow in the global marketplace.
Trade compliance managers face many daunting challenges. We can help you. Reach out to start a conversation with our experts today.