Untying the Import/Export Knot
In late 333 B.C., Alexander the Great and his army arrived in the Asian city of Gordium to spend the winter. Alexander was told of the legend that surrounded the town's famous Gordian Knot. The legend said that anyone who could untie the exceptionally complex knot would become the king of Asia. So far, no one had succeeded.
Alexander studied the intricacies of the knot and made several unsuccessful attempts to untie it. Finally, in a burst of inspiration or frustration, Alexander pulled out his sword and sliced the knot in half. He and his army went on to conquer more territories in the ancient world than anyone before him.
Modern-day corporate soldiers attempting to import or export goods across borders are struggling to untie their own Gordian Knots. Doing business internationally is rife with complexity. Yet statistics seem to prove that complications aren't slowing the growth of international trade. U.S. exports reached $972 billion in 2002—higher than any year in the booming 1990s. Imports grew even quicker, up more than 13 percent in March 2003 from the past year.
Behind the glare of these big numbers, however, lurks a more sobering reality. Most American companies—particularly small and medium-sized firms—aren't yet participating in the global marketplace. The U.S. Small Business Administration says that slightly more than 200,000 companies engage in international trade. But that's just a fraction of the 12 million firms that have products or services deemed exportable.
In fact, an often-quoted Forrester Research study found that 85 percent of small and medium-sized businesses cannot fulfill orders internationally. Online marketers, who should be more accustomed to dealing with international customers, still turn away about 46 percent of their international orders.
Survey respondents blamed their reluctance primarily on logistical hurdles, specifically cross-border shipping. "Shipping product domestically is a walk in the park in comparison [to shipping internationally]," says industry consultant Adam Gonzalez. He notes that the typical cross-border transaction involves filing 35 documents, interfacing with 25 parties, and complying with more than 600 laws and 500 trade agreements.
The most tangible evidence of cross-border complexity is made of paper. American exporters must provide multiple copies of commercial invoices identifying products being shipped, origin, use, and value. They must include a Shipper's Export Declaration (SED) for single commodities valued at more than $2,500. Some destinations even require a U.S. Certificate of Origin or a NAFTA Certificate of Origin.
Beyond the administrative challenges, there is danger in not knowing what you're doing. Importers can be fined up to 40 percent of the dutiable value of the imported merchandise if they don't pay the proper tariffs or fail to comply with specific customs regulations.
Additionally, the merchandise may be seized if U.S. Customs believes that act was fraudulent. Fortunately, more and more of this paperwork can be submitted electronically, but importers and exporters must have information systems capable of linking into U.S. Customs.
Although customs is the biggest potential bottleneck in international trade, managing the distribution elements of the supply chain might be even more complicated. There are so many players to manage, so many chances for things to go wrong. After all, the typical global supply chain can involve partners ranging from customs brokers and courier companies to freight forwarders, warehousers, customer-service agents, and product-return specialists. That's a supply chain with a lot of links.
Although there's a lot more to doing business internationally than mastering global logistics, I'd like to share three little secrets I've learned that will at least remove the logistics barrier for American companies reluctant to do business across borders.
1. Lose the paper. For any customs agents who might be reading this: I'm not suggesting that companies actually lose the paper—only that they digitize it. Actually, U.S. Customs encourages automation because it helps them more easily target suspicious packages for inspection and generally speeds the process of clearing the growing volume of imported and exported packages.
The government has been building its Automated Export System (AES) since the mid-1990s so shippers can electronically zap required document information to U.S. Customs and the U.S. Census Bureau before the packages even arrive at their overseas destination.
In fact, according to the U.S. Census Bureau, half of all paper SEDs have at least one error, compared to about five percent for electronic filings, and these errors can result in shipping holds. For international shippers, automation of paperwork can mean same-day clearances for just-in-time supply chains, better accuracy, and reduced risk of compliance fines.
2. Know what you don't know. Companies that are active in international trade fall into one of two categories: those that have invested in import/export technology and personnel to handle the logistical complications firsthand; and companies that rely on one or more outside partners to manage functions such as customs, warehousing, transport, and billing.
Companies in the first category tend to be larger and have deeper pockets. Those who outsource tend to have a very clear notion of what they know and what they don't—and prefer to stick to their core competencies.
For example, Georgia-based LXE (an EMS Technologies Company) is a medium-sized company that designs, manufactures, installs, markets, and services wireless computers designed for warehouses, ports, and other distribution facilities.
LXE knows how to design devices that help customers manage inventory, but the company does not have an import department or export experts who know U.S. Customs regulations and the intricacies of international shipments—despite the fact that about 40 percent of the company's business is international.
"We don't get involved in the brokerage business because we don't have internal expertise there," says Earl Wolfe, vice president of operations.
Because orders often come at the last minute and peak at the end of the quarter, Wolfe says his company needs an outside partner that can handle unpredictable volumes and get products and spare parts to customers without delay—and without question.
There's no middle ground when it comes to managing international logistics. Either invest in the people, technologies, and logistics networks necessary to operate a global supply chain, or know what you don't know and turn it over to outside experts.
3. Shorten your supply chain. Whatever approach you take to managing global logistics, it's wise to simplify and shorten your supply chain. Reduce the number of links, and you'll reduce the chances for something to go wrong.
One way is to reduce the number of participants. Consider contracting with integrated carriers that can handle your shipments from door-to-door. Another way is to keep your inventory on the move. When possible, make sure that shipments crossing the border go directly to your customers or your facilities without stops in third-party warehouses along the way.
New-York based Marcel Banziger, a textile supplier to high-end fashion clients such as Oscar de la Renta and Halston, recently discovered the benefits of simplifying its supply chain. To get fabric bundles from manufacturers in Europe and Asia to fashion houses across the United States, Banziger used to rely on multiple logistics partners, including freight forwarders, commercial airlines, customs brokers, and trucking companies.
Today, one company handles all these functions, and the seamless network has enabled Banziger to shave a full day off its transit time. Banziger's customers also can now electronically track the progress of the order every step of the way—a useful tool in a business that is notorious for last-minute orders.
Complexity is a knot that strangles the growth of international business. There are ways to slice though this complexity, however, and help more companies of all sizes participate in the global economy.
I'm not promising that every business can venture abroad and become a success in the global marketplace. But by simplifying the logistics of importing and exporting, the opportunity is there to tap into new markets, grow revenue, and reduce costs by sourcing internationally. In business, that's about as close to conquering the world as we can get.