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At the Center of Global Trade & Operational Excellence

Item Compliance & Trade Content

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Denied Party Screening (DPS), Reducing Errors & Maintaining an Audit Trail as Businesses Grow

Information Management

Enterprise Resource Planning (ERP)/ Global Trade Management (GTM) Systems & Better Trade Content

Effective Integration

Pharmaceuticals & Biotechnology

Aerospace

eCommerce

Medical Devices

Industry Focus

Bringing it All Together & Self-Assessment Worksheet

About Descartes Global Trade Content

Conclusion

Creating a Unified Approachto Realize Benefits

Processes Management

Minimizing Duties & Taxes& Better Managing HS ClassificationChallenges & Techniques of Market Leaders With A Focus on Key Industry Verticals

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Aerospace

eCommerce

Medical Devices

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Conclusion




Item compliance and trade content are often the meeting point of international trade and operations. External factors, such as the fast-pace of today’s marketplace, government regulations, changing denied or sanctioned party lists and industry-specific considerations, intersect with operational challenges as companies expand into new product lines and regions.

Businesses face multiple challenges when balancing external regulatory and industry complexity with operational excellence including:

• Process management

• Information management

• Effective integration

Successful importers, exporters and Logistics Service Providers (LSPs) not only know the challenges facing an industry, but are also leveraging world-class technology to counter these factors.

As a result, market leaders are better able to minimize trade barriers, decrease duty spend, reduce the time spent on item-level customs compliance activities, speed clearance, lessen port delays and meet the unique regulatory demands of industry sectors.

Leading companies are also streaming trade data such as regulations, rulings, duties and more into Enterprise Resource Planning (ERP)/ Global Trade management (GTM) systems to further boost productivity, add visibility and enable success.



Internal Factors & Industry Challenges

External Factors & Industry Challenges

Operations

Global Trade

Item compliance is often a meeting point of global and industry trends. Adding the right technology around this central juncture can be a potential competitive differentiator.

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Process Management

Compliance professionals know that demonstrating reasonable care is essential; however, there are a number of obstacles to effective item compliance processes.

Some key challenges include:

• Fragmented processes: Items are not always reviewed and classified at the same time or with unified business logic, and supporting information might not be applied in the same manner. Although decision trees may apply within a given product line, region, country or territory, a proliferation of isolated procedures may ultimately create a lack of consistent item compliance processes.

• Subjectivity: Item classification is subjective. Despite harmonization to the 6-digit level (for World Trade Organization (WTO) participating countries), country-level tariffs can vary greatly. Those companies who cannot document the process behind a determination may not be demonstrating reasonable care and could be subject to substantial fines or penalties.

• Sourcing decisions: With the rise of the Just in Time (JIT) supply chain and fast track product design processes, duty and tax considerations may not be incorporated early enough in the decision chain or may be a final step in the Research & Development (R&D) or procurement workflows. Poor sourcing or manufacturing decisions have cost companies millions.

• Communication: Item compliance is collaborative and includes multiple parties as information is aggregated from vendors, sub-contractors, consultants, customs brokers and workgroups. A lack of effective communication or a centralized system can lead to potential errors, 11th-hour classifications, shipment and port-related delays, holds or added cost.

Creating a Unified Approach to Realize Benefits

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Balancing regulatory demands with information management priorities is particularly complex as companies attempt to manage large volumes of trade data.


• Scalability: Many businesses reach a threshold where the systems used for item compliance cannot adequately scale as companies grow. As a result, multiple disconnected systems may arise in proportion to the pace of expansion.

• Government systems: Information portals may not be updated at the speed of business, and reliance on the below systems is not adequate to demonstrate reasonable care:

– U.S. Customs Rulings Online Search System (CROSS) – European Binding Tariff Information (EBTI)

• Recordkeeping: With some countries and territories potentially requiring storage of trade-related documentation for up to 10 years and government agencies requesting information on-demand; storing and quickly producing records and documentation can be challenging.

• Error management: Accuracy and correcting erroneous information is a core competency. If errors are not managed and quickly corrected, bad information can flow throughout an organization or to customs authorities/government agencies.

• The audit trail: Capturing an audit trail, including when an item classification was added or amended and by whom, is a primary challenge and of critical importance in the case of a customs audit. As companies move from manual to automated processes, there is an added potential to lose this essential information.


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Aerospace

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Medical Devices

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Conclusion




Streaming global trade content into ERP/GTM systems is essential for many businesses to increase efficiency and standardize processes.


• Accuracy: Many ERP/GTM solutions are excellent at the transaction level, but may not incorporate the most up-to-date data, such as duty, tax, Free Trade Agreement (FTA) and many other details.

• ERP/GTM systems & workflows: Some ERP/GTM solutions do not include adequate workflow processes to track what business logic was used to determine a classification. As a result, businesses may not be fully demonstrating reasonable care and/or may have added manual item compliance steps performed outside of the system.

• Going it alone: Both large multinational businesses as well as smaller operations may endeavor to aggregate trade-related information and manually ‘save’ this data to material numbers, for example. However, the task of collecting and verifying global trade regulations, Rules of Origin (ROO) data, court rulings and more can quickly escalate into a large cost outlays and inefficiencies.

• Format: Beyond the standard IT integration techniques of mapping fields, linking tables and relational databases, the added step of verifying global trade information is a prime cause of cost overages. Exceeding the initial Scope of Work (SOW), or mission creep, is a frequent occurrence when companies try to connect global trade data to ERP/GTM systems.

Enterprise Resource Planning (ERP)/Global Trade Management (GTM) Systems & ``Better Trade Content

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Aerospace

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Conclusion



The pharmaceutical industry ranks among the most heavily-regulated business sectors. Added complexity arises given the global nature of the pharmaceutical niche as shipments cross borders and interact with complex Other Government Agency (OGA) concerns.When factoring in emerging biotechnologies, clinical trials, placebos, samples and vitamins, there are also significant obstacles to compliance at the item level.


• Perception of duty rates: Not all pharmaceuticals are duty-free. For example, a total of approximately 59% of sampled countries levy a tariff for Active Pharmaceutical Ingredients (APIs), as per an historical World Health Organization (WHO) study.

• Complexity of biotechnology: Many frequently-used samples and items, including laboratory-cultured cells and others, are subject to unanticipated agency regulation (such as the U.S. Fish and Wildlife Agency) or require extensive permitting.

• Intellectual property concerns: According to CBP, pharmaceuticals continue to rank with handbags, electronics and others among the top Intellectual Property Rights (IPR) violations for counterfeit goods. As a result, pharmaceutical shipments can be the focus of any number of customs exams, holds or refused entry.

• Managing specialist classifications: When opting for a Not Elsewhere Specified or Included (NESOI), is not a good option, chemists are called to assist with classification. Just as practices can vary in a company’s own operations, chemists and consultants face the same potential for inconsistencies or errors.

Pharmaceuticals & BiotechnologyA Highly Regulated Industry with Magnified Challenges

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Aerospace

eCommerce

Medical Devices

Industry Focus



Conclusion



The aerospace sector is often at the crossroads of multiple global, national and inter- and intra-agency policies. The industry is also frequently used as a benchmark of a country’s economic status and manufacturing base.


• New products: End-use always matters, and feature-based classification is of particular significance in an industry with highly nuanced products that may not have existed previously.

• ‘Own’ goods: The aerospace industry regularly imports its own parts and components or even catering supplies in the case of airlines. As a result, aerospace companies may be able to take advantage of potential item-level duty or Value Added Tax (VAT) relief options in some countries. However, complying with the obligations to use these cost saving procedures can be challenging and add complexity to classification and shipment processes.

• Rare earth elements: These substances and alloys thereof are critical to many modern aerospace systems and may be associated with multiple rulings and/or explanatory notes, environmental policies or quotas. With quickly changing valuations, rare earth elements are at the intersection of complex geopolitical policies and shipment scrutiny, adding further urgency to the need to demonstrate reasonable care.

• Specialized customs departments: Some countries are enabling new sub-departments for industries such as aerospace, which could increase scrutiny. In the U.S., for example, entire HTS headings are now managed by CBP Centers of Excellence (CEEs) which are increasing in scope.

• Licensing: Most countries require one or more licenses on aerospace-related items that must be managed and stored. In addition, the time it takes to obtain a license can add unanticipated procurement delays.

Aerospace Highlighting a Changing Industry

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Aerospace

eCommerce

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Conclusion



Although world eCommerce sales are expected to reach $1.5 trillion in 2018, achieving a share of the eCommerce revenue stream can be challenging. With a diverse range of online businesses crowding the marketplace, it is essential to not only gain new business but to also earn repeated transactions through a premiere online experience.


• Market expansion: Countries vary greatly in the number and type of duties and taxes on a given product, adding complexity and creating localized barriers to entry for small and large eCommerce companies as they expand.

• Estimated duty cost: In eCommerce, the customer experience and the online review is paramount. eCommerce businesses without effective technology in place to provide more accurate duties and taxes prior to checkout are likely to experience:

- Unanticipated duties, taxes or fees owed by the customer

- Delayed or denied shipments

• Restricted goods, parties and locations: While restrictions and prohibitions on some items are intuitive, other seemingly innocuous goods may be barred or require a permit/license. Online businesses who do not effectively weigh such considerations are at a potential disadvantage and could face substantial administrative, civil or criminal penalties or even statutory debarment.

• De minimis levels: The threshold where duties and taxes are assessed, or de minimis level, can vary greatly depending on the HS and/or destination, posing a challenge for companies who ship internationally.

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Aerospace

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Conclusion


Processes ManagementWhat constitutes a medical device can vary and add complexity to item compliance. A medical device can be a simple surgical mask or electric toothbrush, or a highly-regulated Medical Device Directive (MDD) [EU 93/42/EEC & Amendments] heart valve implant, adding further barriers to item compliance.


• Recalls: Governments may request that an item is removed from the marketplace. Businesses must know which HS code or FDA 510K is associated with a medical device to ensure compliance with a recall.

• Industry-specific documentation: Since some medical devices pose a potential risk to the end-user, manufacturers may be required to maintain agency-related documentation which could include clinical trial records, sterilization methods and more.

• Standards: Medical device import/export regulations fluctuate between countries and regions. Complex country-specific class structures and sweeping regulatory changes in the medical device sector, such as those in the EU, add complexity.

• Duties/taxes: Medical devices may be subject to fluctuating duties or industry-specific excise taxes such as specified in US 26 CFR 48.4191-2. The medical device sector faces enormous pressure to reduce costs to counter revenue reductions as a result of these taxes.

• Industry sub-sectors: Segments of the medical device manufacturing and shipping base, especially in regard to electro-medical and irradiation apparatuses, face a multitude of court rulings and subsequent appeals that could impact a classification or licensing.

Managing Other Government Agencies (OGAs), Recalls & Changing Regulations

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Conclusion


Processes ManagementHow confident are you that the duties and taxes applied to your products are accurate?

How quickly can you retrieve documentation and justification-related information in case of an audit or request for information?

Are you leveraging previous classifications when shipping to new countries?

How are you storing the additional data that is often required in highly regulated industries?

How long does it take you to perform a complex classification?

What are your processes when you cannot locate an HS code?

How do you know if your inbound/outbound shipments are missing documentation or required data?

What types of checks and balances are you using when performing classification and valuation work?

Self-Assessment Worksheet:Compliance professionals are accustomed to regulatory changes. Given the intricacies of trade, however, numerous factors must be balanced when assigning, justifying and documenting a classification or determining duty rates.

Effectively integrating business systems with accurate trade data can be the difference between a successful compliance program and one that is simply reactive to the market.

The challenges of process management, information management and effective integration require more than available government resources, multiple spreadsheets and static systems can offer. This is especially the case as businesses explore additional product lines or expand into new regions.

When industry-related considerations come into play, these factors reach a critical threshold where a searchable database of data relating to regulations, rulings, duties and more is required. Some companies will also need a role-based, data-driven system to further centralize processes, while others may need accurate trade content delivered into ERP/GTM systems.

With leading technology in place, businesses are better able to automate operations, create a unified approach to item-level compliance, reduce duty spend, derive more rapid benefits from ERP/GTM systems, reduce costs and rise above industry challenges.

Enabling Success through Technology

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About Descartes Global Trade ContentO

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Customs InfoDescartes Customs Info™ helps maximize the value of trade data by helping organizations work smarter. With a vast database of data relating to regulations, rulings, duties and more, Descartes Customs Info helps clients minimize trade barriers. Multi-national shippers, customs brokers, third-party logistics providers (3PLs), freight forwarders, multimodal carriers, compliance professionals and others use Descartes Customs Info to help build and maintain complex classification databases for their global operations.

Click here for a 14-day free trial of Descartes Customs Info Reference™.

Denied Party ScreeningThe Descartes MK Denied Party Screening™ (Descartes MK DPS™) solution provides organizations of all sizes with easy-to-use options that quickly and efficiently screen customers, suppliers and/or trading partners against a comprehensive database of international restricted and denied party lists. Customers can tailor screening processes to fit their unique risk parameters and flag potential compliance issues for a prompt resolution. The offering also readily integrates to other systems for global trade, customer relationship and operational management.

+ MK Data







http://syslp.customsinfo.com/Forms/Signup.aspx










Aerospace

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Medical Devices

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Conclusion



AppendixAbout Descartes Systems Group - Descartes (TSX:DSG) (Nasdaq:DSGX) is the global leader in providing on-demand, software-as-a-service solutions fo-cused on improving the productivity, performance and security of logistics-in-tensive businesses. Descartes has over 220,000 connected parties using its cloud based services.

Customers use our modular, software-as-a-service solutions to route, sched-ule, track and measure delivery resources; plan, allocate and execute ship-ments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world’s largest, col-laborative multimodal logistics community.

Our extensive customs and logistics domain expertise is embodied in a com-prehensive technology platform designed to help brokers and forwarders more efficiently run complex international operations. On-demand solutions enable large and small organizations to take advantage of robust capabilities for bookings, security filings and customs entries, shipment and financial man-agement.

Descartes’ market-proven solutions automate the collection of shared data and multi-party shipment processes. Our advanced solutions can help brokers and forwarders extend the command of operations with their logistics part-ners to help meet their delivery performance objectives.

The Descartes Systems Group Inc.

120 Randall Drive, Waterloo, Ontario, N2V 1C6, Canada

Toll Free 800.419.8495 | Int‘l 519.746.8110

www.descartes.com | [email protected]

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