Global trade is the foundation upon which we get to experience an abundance of choice in every facet of our lives today. While there was a decline of 3% in the overall global trade value last year, the numbers are looking better this year as per the United Nations’s Trade and Development (UNCTAD) Global Trade Update of March 2024.
However, this sector continues to face several challenges, ranging from geopolitical concerns to growing customs processing requirements. While businesses have no control over the former, technological advancements are helping to speed up the customs process.
In this blog, we explore the complexities global trade is facing today and how the latest technology is helping overcome some of them, especially customs compliance.
The Current Challenges Plaguing Global Trade
A slew of events, past and present, have been plaguing global trade. The following are the most significant of them:
1. Geo-Political Tensions and Ongoing Conflicts
The chaos across the globe has wreaked havoc on global trade, 90% of which is traded via sea, as per the World Economic Forum. The attacks by Houthi militants on shipping vessels (over 40 since 2019) in the Red Sea is one such instance (nearly 12% of global trade passes through here).
To avoid putting their ships in harm’s way, companies are opting to ship their goods via the Cape of Good Hope. A move, that according to the IMF, is increasing the delivery time of goods by about 10 days on average.
The ongoing conflict with Ukraine has led to Russia ending the Black Sea Grain Initiative, which, as of July 2023, allowed over 33 million tonnes of food grains to be exported from Ukraine—65% of which reached developing countries.
The ongoing trade war between the two economic giants — the US and China has further exacerbated the uncertainty around global trade.
2. A Decline in Trade Agreements and Protectionist Policies
The World Bank has noticed a steady decline in regional trade agreements over the years. The numbers have nearly halved from the 2000s to the 2020s.
According to the 2024 National Trade Estimate Report released by the Office of the United States Trade Representative, US businesses face several trade barriers in agriculture, motor vehicle exports (due to non-recognition of U.S. vehicle standards), and due to individual policies and procedures across member states of the European Union.
Protectionist policies resulting from the aforementioned geopolitical tensions have also impacted global trade. According to the IMF, nearly 3,000 trade restrictions were imposed worldwide in 2023.
3. Inflation and Currency Fluctuation
Geopolitical developments have a direct impact on currency values. Unpredictable exchange rates may wreak havoc on a company’s profit margins and affect a whole region’s export competitiveness.
Furthermore, they have a direct impact on inflation and force businesses to hedge against currency risks using financial instruments such as forward contracts or options. On the plus side, according to the IMF, global inflation is slow but steady, declining from 6.8% in 2023 to a predicted 4.5% in 2025.
4. Increased Compliance Requirements
A complex web of regulations and standards of individual countries also poses a significant hurdle when it comes to ease of global trade.
Moreover, the fact that these regulations are always in a state of flux adds to the complexity of clearing customs. Today, Environmental, Social, and Corporate Governance (ESG) changes are the primary drivers.
How Technology is Helping Navigate the Complexities of Modern-day Customs Compliance?
Modern-day customs compliance is by no means a walk in the park. Data from the World Economic Forum shows that global trade volumes are expected to double in 2024 compared to the slump caused by the COVID-19 pandemic.
Thankfully, digitization of the customs process has positively impacted the entire customs clearance process. In the United States, the Automated Broker Interface of the Automated Commercial Environment (ABI/ACE) and the Prior Notice System Interface (PNSI) have transformed what was once a manual and time-consuming customs clearance process into one that is fast and efficient.
Section 321: Entry Type 86, for example, has fast-tracked the customs clearance process for all incoming shipments with a de minimus value of less than $800 into the United States. With global e-commerce sales skyrocketing (expected to hit $8 trillion by 2027), the ability to get shipments to end customers without delays is a win for all parties involved.
Similarly, the FDA Prior Notice can be issued electronically through the aforementioned portals to expedite the customs clearance process for items under the FDA’s jurisdiction. It also keeps supportive regulatory bodies informed, such as the United States Customs and Border Protection (CBP), and highlights any shipments that require additional investigation.
A prime example of how technology can help with the customs process is the Indian Ports Association’s adoption of a Port Community System (PCS). This move has reduced approval times from 48 hours to one to two hours or, in some cases, instantly.
The Increasing Role of AI in Customs Compliance
The adoption of AI is the norm in every technological niche today, and the same holds true for customs compliance. In essence, cross-border compliance involves vast amounts of data, and this technology excels at crunching numbers.
For starters, AI management tools can automate custom clearance tasks like data entry and document verification with exceptionally high levels of accuracy. Businesses leverage AI to analyze historical data, identify potential compliance issues, and predict delays to streamline their entire supply chain.
Compliance regulators can also leverage AI to analyze trade data to flag anomalies or potential high-risk shipments. The same can be used to verify and ensure Environmental, Social, and Corporate Governance compliance, such as carbon emissions, to comply with EU CBAM.
Customs Compliance Expectations for the Near Future
While it’s difficult to ascertain the course customs compliance in the future, based on current trends, you can expect the following.
1. Emphasis on ESG (Environmental, Social, Governance) Factors
With the effects of climate change now apparent, new regulations on sustainability are bound to come in. Responsible practices across the supply chain will be a requirement for customs compliance and a key customer expectation.
2. Data Privacy will Continue to Be a Top Priority
With digitization comes the need for improved data privacy. That said, while customs regulators would need access to data it has to be done so without compromising sensitive information.
At the same time, Privacy laws and agreements such as the General Data Protection Regulation (GDPR) and Cross-Border Payments and Reporting (CBPR) will continue to evolve.
3. Technology will Take Center Stage
We have already covered AI’s role in customs clearance. We can also expect an increased adoption of blockchain technology to ensure transparency, traceability, and authenticity throughout the supply chain.
Keeping track and adapting to the changes will ensure you are on top of things in the years to come.
What Can You Do As a Business to Ensure Customs Compliance in Today's Turbulent Economic Landscape?
As a business, you can do a lot to ensure you are custom-compliant, no matter the economic landscape. Here are a few practical tips to consider.
#Tip 1: Treat Customs Compliance Like a Business Strategy
Clearing customs is almost always looked upon as a hurdle to getting your product to your customers. However, if you treat customs as a business strategy, you can ensure compliance and potentially improve your revenue along the way by:
- Leveraging free trade agreements where you can import goods with a minimal or no import duty.
- Recovering duties paid (if legislation allows it) or delaying duty payments to improve your cash flow for the short term.
Awareness of regulatory requirements is key here.
#Tip 2: Invest in Compliance Training
Customs violations come with hefty penalties. Repetitive violations will put you on the radar of regulatory agencies and land you in legal trouble. If you live in the United States, consult the Customs Administrative Enforcement Process: Fines, Penalties, Forfeitures, and Liquidated Damages document, which contains a comprehensive list of them.
Investing in a compliance training program and adapting best practices in your business will mitigate the possibility of any violations. You can avoid shelling out money for penalties and seamless customs clearance will also ensure that your products reach your customers without any delays.
#Tip 3: Invest in Technology
Investing in a robust customs compliance solution will take human error out of the equation, help you keep track of regulation changes, automate compliance processes, and more. You can also lean on technology to help conduct regular audits to identify and address potential compliance issues and nip them in the bud.
Wrapping It Up
To put it simply, the world has been and will always be in turmoil. That said, global trade will continue as it always has, and ensuring customs compliance is one way to ensure the smooth movement of goods worldwide.
Reliance on technology is the way forward and can be a game changer in the face of economic turbulence or constant customs regulatory requirements. CustomsCity offers bespoke custom compliance solutions that can help you future-proof your business.
Book a demo with us to see firsthand what we can do for you.
