April 4, 2020
Cross-Border Selling

Cross-Border Selling

Cross-Border selling is one of the
fastest growth areas in e-commerce. By 2022, it’s estimated to be over 1
trillion dollars in sales also known as GMV or gross merchandise value. The
interesting thing is that it’s significantly outpacing the growth of
regular e-commerce, Growing at twice the rate. To support this growth, half of all
retailers are now actively investing in or researching automated solutions to
calculate customs duties and import taxes. Unfortunately there are pitfalls
associated with trying to reach international customers and a lot of
these problems are wrapped up in the supply chain.
Things like shipments getting delayed in customs, added or unexpected supply chain
costs, inability to accurately calculate duties and taxes, a poor user experience
for cross-border shoppers as they experience these issues, and finally
customers rejecting shipments due to unexpected delivery charges. While these
may all seem like different issues They are all related. The common issue here is
poor or limited item classification information which is commonly known as
an HS code. HS code stands for harmonized system code. 200 countries around the
world have agreed on the HS classification code up to 6 digits but
interestingly in order to actually calculate duties or taxes or to enter
the country with a customs form you need a full classification which can range
between 8 and 12 digits depending on the country. To make it more
complicated each country has a different version of the classification codes
passed the first six digits. Getting an effective HS code for each country you
are shipping to and for each product you’re shipping is incredibly complex
difficult and ever-changing and that’s what drives all of the supply chain
issues we’ve just discussed. So the question is how do you get quality HS
codes? Fortunately, with Avalara’s item
classification technology you can efficiently and accurately determine HS
codes. Let’s look at an example. Shown here is a leather tote bag from a
commercial website. What we first do is ingest the item details which are
available via API, FTP, or directly from the website through a scrape and parse
mechanism. For the purposes of demonstration, we are showing the scrape
and parse version but the other integration methods are equally
effective. The URL is entered, the information is parsed, and we extract all
of the relevant information for the product that we need in order to do a
full eight to twelve digit item classification. Once we parse the item
details our artificial intelligence engine can determine the classification
taxonomy with a very high level of confidence. We then extract the item
attributes to continue the artificial intelligence driven classification to an
eight to twelve digit level for the intended destination country. Here for example, is Australia’s
classification code: 42029190 which is the code required
by Australia for this tote bag. Either to use for a customs form or to calculate
duties and taxes. When we change the country – let’s say we change it to the
United Kingdom – we come up with a different tariff code. You’ll notice the
code from the United Kingdom has the first six digits in common with
Australia’s code but the trailing digits are different and that’s the case with
every other country in the world. So now that we’ve used Avalara’s item
classification engine to determine the tariff codes the next step is to
determine applicable duty and taxes. Now that we have our detailed item
classification information available, we can use Avalara’s AvaTax cross-border
engine to calculate duties and taxes. Here’s an example of a website where we
can go shopping and find out what our duties and tax costs are going to be.
Let’s select the same flamenco knot tote bag and add it to our cart and proceed
to checkout. First, we’ll select a different country.
In this case, we’re going to select Canada. I’m going to select the province
of British Columbia and enter the correct postal code. Once we know where
it’s being shipped we can calculate the customs duty and import taxes. You’ll see
here the customs duty is actually $40 and the taxes associated with the
transaction are $22 so now the customer knows exactly how much duty and tax
they’re going to pay. When businesses have the ability to effectively assess
item classification information and calculate duties and taxes, it unlocks
their ability to expand internationally, grow revenue, protect margin, and create
transparency. This potentially results in higher gross merchandise value,
preservation of profit margins, and increased customer satisfaction. With Avalara’s cross-border solutions, we’ve solved one of the key underlying issues
driving international selling challenges and that’s just good business. Thanks for
watching! watching!

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