The challenges of cross-border international trade

As the world continues to see a more volatile global trade environment, companies are heading into unchartered territory – facing growing challenges in an increasingly complex trading landscape.

From a macro perspective, fragmentation in trade regimes will likely persist into 2022 and beyond. The World Trade Organization (WTO) is facing its biggest challenge since inception, multilateral trade liberalization efforts are stalled and the dispute settlement mechanism still faces political impasse. Bilateral and regional trade regimes continue to proliferate and although some present enticing opportunities, particularly in emerging markets, they also mean varying degrees of different standards, rules of origin, and tariff and non-tariff measures, which can be difficult and costly to navigate for businesses.

Added to the global picture are rising geopolitical tensions, which are damaging and shifting key commodity and energy supply chains, the economic hangover of the COVID-19 pandemic, with lockdowns in major exporting hubs still causing disruptions, as well as soaring transportation costs driven by broader inflationary pressures. The result is a high level of volatility affecting global trade with consequent planning headaches for supply chain and operations managers.

Supply chains need to build-in resiliency and risk mitigation to weather the storm. How should businesses seek to build this resilience into their supply chains moving forward and bolster their international proposition? Thanks to the emergence of specialist technology and logistics suppliers, international commerce can still be an accessible growth strategy for brands, retailers, and entrepreneurs. Below are some of the major supply chain-related challenges that businesses and their supplier network need to overcome to help build an effective cross-border trading capability:

1. Logistics and supply chain

Tracking orders, determining liabilities for in-transit goods, and meeting promised delivery timeframes can all be more challenging in cross-border trade due to multicarrier handoffs and border delays. Businesses have two core options to handle this international logistics complexity: cross-border shipping or localized fulfilment. Cross-border is shipping from an international location and involves significantly more paperwork than a local shipment. Localized fulfilment is where inventory is stocked within regions included in your cross-border strategy, and shipped to customers domestically from those facilities, helping to reduce international complications.

Technology can further simplify the challenges through multicarrier software platforms (also known as logistics control towers), which can select the most appropriate shipping partners and plan routes, prepare parcels for export and pass on the exporter of record and liability elements to third parties. International commercial terms management can also be covered, which should include Delivered Duty Paid (DDP) to help reduce basket abandonment and prevent unexpected customer charges on delivery.

2. Customer

Customers in international markets expect their journey to feel like a domestic transaction with localized languages, currencies, and customer service functions; any deviation from this and additional international complication may lead to reduced buyer conversion. Basket abandonment is typically higher if translation is inaccurate or if currency conversion is manual; therefore, a successful cross-border trade proposition requires a robust localized checkout process. Specialist technology and logistics providers are established in this space and could be partnered with in order to deliver a seamless and tailored customer experience.

3. Brands

Brands who seek to develop a global direct-to-consumer sales channel are struggling with how to supply customers in international markets, for the same reasons as retailers are. Brands may have traditionally placed more emphasis on their marketing, advertising, and commercial sales functions; however, in order to achieve a direct cross-border, route-to-market and cut out retailer margins, brands should develop their own (or partnered) capability within international tax, customs, and logistics.

4. Tax and customs

International customers being hit with unexpected fees (e.g. customs duties and taxes) which were not displayed at the point of sale can be a violation of some consumer laws and a barrier to consumer confidence in purchasing from abroad. This can also affect repeat business, as customers are unlikely to return. Price transparency and a detailed understanding of fully landed cost components are therefore key enablers for a successful cross-border proposition and DDP pricing. Specialist technology providers can provide both the item customs classification and tax and duty calculation services based on the product type and destination country, which can help prevent unexpected charges later in the parcel journey.

5. Paperwork, regulations and compliance

Customs declarations, manifests, product licenses, packaging requirements, export evidence and invoices – cross-border trade involves significant documentation which varies by market. Simply understanding this regulation provides a challenge to most businesses, let alone full compliance. Certain product categories, such as alcohol, food, cosmetics and electronics, are more heavily regulated than others and their restriction/prohibition into certain markets needs to be checked before remaining legal documentation is completed.

The level of cohesion and swiftness by which some Western countries have implemented various sanctions packages in the aftermath of the Ukraine invasion suggests an increasing likelihood that trade restrictions, including export controls, could continue to be used in future geopolitical confrontations. Remaining compliant and avoiding the ire of both political and public scrutiny in a quickly changing regulatory environment should require nimble automated screening tools that are properly coordinated and ingrained across enterprise systems.

Specialist technology and logistics partners can be included within international trade strategies to help manage these requirements efficiently with minimal physical paperwork and reduce the likelihood of incurring fines and compliance issues. Services can include automatically flagging restricted/prohibited products, online customs declaration production and identification and response to new regulations.

6. Returns

Customers increasingly expect robust returns policies and propositions, and not offering free returns can make or break sales both locally and cross-border. If it isn’t simple or customer-friendly, many consumers can go elsewhere, even at more expense. Businesses often have limited visibility and control over the returns process, with little indication of what is being returned and its condition until it arrives. Without this visibility, returns can be a costly and time-consuming task and lead to a delay in resalable stock making it back to market – which can only be made worse by the longer transportation timeframes and delays associated with international movements. The cross-border returns process is made more complex due to customs duty and tax implications, which are often different to the outbound movement due to returned goods relief being available on double duty payments.

Working with an end-to-end returns intermediator, with existing multicarrier international capabilities, can help reduce operational pressures for businesses. Consumers want to protect their choice and businesses want to manage their costs, but it can be hard to strike the balance. Specialist partners have the technology to help facilitate parcel tracking, supply chain visibility and a cost optimization route (e.g. exchange, salvage, scrap). Of course, it is recommended that businesses bake the cost of these cross-border returns services into their margins in order to remain profitable.

It is likely that cross-border commerce will increasingly become the norm for buyers in almost all markets. A seamless cross-border supply chain strategy can help broaden the client base, increase sales and heighten global awareness.

Cultivating an international business like this can be daunting, but the rewards can be huge. To accelerate international expansion, companies should focus on building a network of trusted vendors (customers, supply chain partners, and suppliers) to help build resiliency against cross-border challenges and provide specialist support.

Resilient international supply chain means that organizations can be better at anticipating, reacting, and planning for growth opportunities and unexpected disruptions by enabling cross-functional and cross-market integration and collaboration with their vendor ecosystem.

There are several considerations to assist companies as they face these challenges:

• Supply chains should be flexible and resilient enough to adapt and adjust in real-time to changes in international trade flows, new regulations, the impact of disruption (e.g. COVID-19), climate change, trade tensions and other geopolitical movements.
• Technology should be effectively utilized to help reduce operating costs, provide end-to-end supply chain visibility, and unlock a localized customer experience internationally.
• Capability to adapt to digital operations and drive actionable improvements from data is important.
• International logistics networks should be responsive to increasing customer requirements, such as end-to-end order tracking and in-flight delivery changes.
• Collaboration and supplier partnerships are an effective way to manage cross-border complexity through the use of specialist software and expertise.

KPMG professionals work with clients to develop detailed supply chain strategies. These strategies can facilitate a full gap analysis and implementation of tested approaches through the integration of target operating models. Strategic elements include:

• A new international market expansion assessment.
• The evaluation and recommendation of specialist third parties (Request for [x] and commercial negotiation).
• Implementation planning and solution design.
• SME support (customs, tax, legal, supply chain).
• Customer journey mapping.
• Predictive analytics and digital twinning via the KPMG Supply Chain Predictor.

KPMG Powered Enterprise | Supply Chain is an outcome-driven solution designed to support your organization in addressing the challenge of organizing a complex, dynamic supply chain. It helps you to better meet the demands of customers and respond to market changes, while striving to maximize efficiency gains both now and in the future. A helpful jumpstart to your digital transformation, it is enabled by technology and real-time insights.

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