Last Tangle in Paris

Aug 01, 2001 9:30 PM  By

If you’re fulfilling orders from outside the U.S., you’re in for the trip of a lifetime. Pack this guide to dealing with the snarls of red tape, exorbitant shipping costs, and postal snafus that await you

Mail-order merchants shipping directly to Canadian customers from the U.S. or Europe sometimes must split the order, especially during the Christmas season, to stay within daily dollar limits

When Lands’ End sent its first batch of catalogs to Saudi Arabia in the early 1990s, the company was dumbfounded to discover that none of the books ever arrived at their destinations. Thousands of pieces and tens of thousands of dollars had vanished into some sort of postal black hole.

What could have happened? What mailing guidelines hadn’t been followed? What customs paperwork hadn’t been completed? The frantic phone calls that ensued were revealing — literally. Lands’ End executives discovered that they had overlooked a key Saudi regulation governing women’s likenesses in the officially Muslim kingdom. Their catalog included women’s bathing suits, which meant it included women modeling the bathing suits.

“And what we found out,” says Lands’ End spokeswoman Beverly Holmes, “is that the Saudis thought the women in the photos didn’t have enough clothing on, so they stopped the catalogs.”

‘People don’t do enough research. They need to understand that customs policies are not as clear-cut in Europe or Latin America as they are in the U.S. They need to understand that documentation policies change from country to country.’
Roland Baier, Export Forwarding

Welcome to the wild, wonderful, and wacky world of global fulfillment, where shipping to customers outside the U.S., even to Europe, or shipping among countries which seem to get along in every other way, can be as frustrating as it can be lucrative. Be prepared to tangle with petty bureaucrats, red tape, extraordinary shipping and postal expenses, and customs regulations that seem to defy explanation. Some restrictions may be sensible, like those that govern many food and drug items. Some may be cultural, like the Saudis’ take on what constitutes a scantily clad woman. And some may be political, and can change whenever a government changes or if its relations with Washington run into a diplomatic shoal.

But they are all restrictions, and they are maddening, especially for an industry that may be worth more than $1 billion annually. Says Roger Sklar, a longtime fulfillment official who has done tours of duty in Bangladesh, Malaysia, and Hong Kong: “When you’re dealing with other countries, you have to leave your paradigms behind. The rest of world is not like the U.S., no matter how much you want it to be. You have to accept that, and whatever you do, don’t try to change them.”

No offense

There are almost 200 countries in the world, and each — even those that belong to trading blocs like NAFTA and the European Union, which are supposed to minimize the differences — has its own rules and regulations.

“People don’t do enough research,” says Roland Baier, president of Export Forwarding, a customs broker and freight forwarder in Dallas. “They need to get their ducks in a row. They need to understand that customs policies are not as straightforward and as clear-cut in central Europe or Mexico and Latin America as they are in the U.S. They need to understand that documentation policies change from country to country. And they need to understand that they need to have a marketplace for their goods.”

All of that can make the idea of shipping overseas quite daunting, especially for smaller, consumer-oriented firms. Drs. Foster and Smith, a leading pet supplies catalog, doesn’t ship internationally. Neither does J. Jill, an upscale women’s clothing book. King Arthur Flour, a mail-order baking supplies cataloger in Norwich, VT, has seriously considered expanding its international business, which currently consists of a few customers in Canada and the odd American expatriate in Europe. But, says Sandy Sapp, King Arthur’s vice president of operations, there are all kinds of constraints, including language differences, shipping costs (flour is bulky and expensive), and health regulations that govern food products and that prohibit shipment to some countries.

That’s a frustration that Ben Dreyer, operations director for J.P. Boden & Co. Ltd., a British mail order clothier, well understands. Overseas sales are “not something we really promote yet,” says Dreyer, whose company’s revenue totals some $50 million, but whose numbers outside the United Kingdom account for less than 2% of that amount. “Consequently, we have not looked that closely into the legal and tax implications — we tend to let the customer pick up the customs problems in their country as, and if, they arise. For a small company such as ours, getting into taxes for 168 countries is just too difficult.”

It is difficult for larger companies, as well. Witness what happened to Lands’ End. Today, the company must print a separate catalog for its Saudi customers without the half dozen or so offending pages, and mail it directly from the printing plant. Furthermore, Lands’ End doesn’t send its May catalog, which features swimsuits, to Saudi Arabia at all. The truncated catalogs, meanwhile, include an insert explaining why there aren’t any swimsuits or intimate wear (added to the line since the company started doing business in Saudi Arabia), and offers customers a couple of options if they want to see those items before they order them.

As if that isn’t costly and time-consuming enough, a Saudi resident who requests a catalog by phone or from the Lands’ End Web site gets one sent from the company’s headquarters in Dodgeville, WI — with offending pages removed by hand, by a Lands’ End employee. Says Holmes: “That’s why we don’t do the May catalog, which has bathing suits on the front and back cover. There wouldn’t be anything left to send.”

Or consider something as simple as addresses. In France, Germany, and Italy, the postal code should precede the town on a single line; in Britain, it usually follows the county name, unless that is omitted, in which case it follows the town or city. In France and Britain, the house number precedes the street name, but in Germany, Italy, and some other European countries, the opposite is correct.

Also take a look at the hundreds of lines of restrictions, special conditions, and caveats that international customers must plow through on the Victoria’s Secret Web site if they want to place an order (and which, given the vagaries of global fulfillment, places Mexico in the same kind of shipping limbo as North Korea and Iran).

Long way around

On the other hand, large companies have deeper pockets and so are better equipped to send a shirt to Europe or software from Brazil to Colombia. That’s because they realize something that smaller companies don’t, says Baier.

“What gives people the most trouble when they try to ship internationally is taking shortcuts,” says Baier. “When they take a shortcut, they end up paying extra in the long run and they certainly pay in extended transit time.”

Just one example: Customs officials must review videotapes entering Malaysia before they’re allowed in. It’s a cumbersome and expensive (importers must pay a $2 fee for each tape to be watched) process that can add three to five weeks to shipping times. Any exporter who tried to circumvent the process, or who didn’t understand it completely, would face almost insurmountable obstacles in getting products into the country.

Few people understand this mindset better than Juan Felipe Sandoval, fulfillment manager for Cargraphics S.A., which publishes books, manuals, and point-of-purchase material (including courseware for Microsoft) in Mexico and Colombia and then ships it to customers throughout Latin America. Sandoval knows that shortcuts are not an option.

“Exporting and importing in Latin American countries is a difficult task, and it is a process where we have to travel to all the customs agencies in the region and explain in detail about the product itself, valuation of the goods, and origin of the goods,” he says. “I would say that the major problem with customs in Latin America is a perception problem from customs officials in the region.”

One reason is that new and high-tech products, even manuals, are different, and different is confusing for many customs officials. Another key reason that many Latin American countries, without much of a middle class to pay income taxes, receive a significant portion of their government’s revenue from import duties. Contrast that with the U.S., where customs procedures are relatively lax and where there is a middle class to pay income taxes. Sandoval points out that in Peru, almost one-third of the budget is financed by customs collections. So when Peruvian officials retain a shipment for several days or require pre-inspection at the point of origin, Sandoval says, they’re not just being difficult or looking for what the Mexicans call a mordita (the gratuity that anyone north of the Rio Grande would call a bribe). They’re just trying to make sure the government has enough money to pay their salaries.

“This problem with paying customs inspectors is not happening to us, or at least we don’t fall into this game,” says Sandoval. “I would think that exporters fall into this problem when paperwork is not right, valuation procedures are not followed correctly, and the like.” Yet another reason not to take a shortcut.

Put it on the table

The entire issue of payoffs, says fulfillment expert Sklar, presents difficulties almost too numerous to mention. Is paying what dockworkers on the Indian sub-continent call “tea money” — giving a crane operator the equivalent of 25 cents to lift a container off a ship — a bribe to be shunned? Or is it the cost of doing business in a culture that is not American?

Such ethical dilemmas are often the least of an exporter’s problems. “What you have to do,” says Sklar, “is find out what kind of table it is, and then find out how to make sure it’s level. That way, you can build it into your practices. What kills you are the variables.”

These can take the form of political upheavals, like the recent change of government in the Philippines or what have turned out to be regular military coups in Pakistan. Or dealing with India, a country that is officially committed to opening up imports and making the banking and financial systems more transparent, but never seems to be able to take the necessary steps to do so. And then there is Singapore, where the system is more or less transparent because it’s a benevolent dictatorship — but remains that way only as long as strongman Lee Kuan Yew remains benevolent.

Even more frustrating are the more ordinary sorts of disputes between countries that are supposed to be friends. If the U.S. and the European Union are feuding over tariffs on bananas, as they did in 2000, it’s not bananas that suffer. It’s high-end luxury goods like wine and perfume that get slapped with punitive duties, as each side plays chicken to force a settlement of the banana issue.

Consider the outbreak of foot-and-mouth disease that ravaged Britain and crept on to the continent earlier this year. Companies that had standing orders for livestock-related items, be they baby back ribs from Denmark or finished leather for clothing, shoes, and purses, suddenly found themselves scrambling for replacements. One publicly held restaurant chain even had to issue a quarterly sales warning when it saw its rib supply vanish almost overnight.

But foremost among the variables is shipping. Talk to anyone in the operations and fulfillment process, from start to finish, and almost everyone focuses on the cost in time and money of physically moving goods from place to place. Technology and multinational companies may have ushered in the global marketplace, says Export Forwarding’s Baier, but they haven’t seemed to help much when it comes to arranging for a letter of credit to cover the float between payment to the shipper and payment from the foreign customer. That’s when it seems like nothing has changed at all in the last 100 years, he says with a sigh.

Some shipping regulations aren’t nearly that easy to cope with. Mexico, despite NAFTA, has stringent Spanish labeling requirements for many mail-order products and catalogs. Canada, despite NAFTA, has daily dollar limits on how much its residents can receive from outside the country. This means that mail-order merchants shipping directly to Canadian customers from the U.S. or Europe sometimes must split the order, especially during the Christmas season, to stay within the limits. Germany also has similar restrictions.

Taxing times

Then there are the tax impediments. Exporting among Latin American countries, says Sandoval, is less burdensome than exporting to those nations from the U.S. because of specific trade agreements like the Andean Pact, G3, and Mercosur. For a product that originates in Colombia and goes to Peru, duties and taxes could be significantly lower than a similar product going from the U.S. to Peru.

Even that kind of calculating pales in comparison to one of the most discussed shipping woes. What happens when a firm manufactures an item in one country, takes an order for it in a third country, and has to ship it back to its country of origin (or nearby) to fill the order?

“What happens is that you have a $20 or $30 item that turns into a $60 item with the shipping,” says Sklar, pointing out that the situation is all too common given how much work American companies send to China and southeast Asia, which then returns to the U.S. to be shipped back to Asia. “It’s amazing how many of them understand that it’s backward, but haven’t thought much about how to fix it.”

Companies have several options. One is to set up a foreign warehouse, which can store merchandise for a specific region. Lands’ End, for example, has a warehouse in Japan to handle that country and a facility in Great Britain to serve the U.K. and Germany. This can be, however, an expensive option, unless there’s a way to work out economies of scale or revenue justifies it — which is why Lands’ End ships to 185 other countries from Wisconsin.

Another option, says Sklar, is to hire a third party to capture the completed merchandise before it’s shipped to the home country, and keep it in the region of manufacture. Several firms do this, including V-Logic Ltd., where Sklar is currently vice president of international business development. What companies like V-Logic do by shortstopping product is to shorten the shipping route and cut costs. Currently, Sklar says, the firm’s clients include Little Tykes and Warner Music. Little Tykes has hired V-Logic to forward material made in China to Australia, while Warner Music uses the company to send music and compact discs manufactured in Asia to much of the continent outside China.

Which doesn’t mean there still aren’t problems, aggravations, and delays. But, say those who successfully fill global orders, there’s plenty of money to be made despite the hardships. It’s all a matter of adjustment.

“Over the years, diplomatic spats come and go,” says Sklar. “Those are just the blips. What needs to be considered is whether they’re just spot events or long-term policy issues. That’s what needs to be discussed.”

Jeff Siegel’s articles have appeared in Forbes, American Way, Emerging Business, and a variety of other consumer and trade magazines. He lives in Dallas.

Past Imperfect

The protestors who flock to World Trade Organization summits, furious at the latest round of globalization, are 60 years too late. If they think the WTO, NAFTA, and the Common Market are oppressive, they should have been around to see how Nazi Germany turned occupied Europe into its personal trading bloc, a scheme the historian John Keegan has described as “serving Greater Germany’s interests exclusively; but the system of coercion used to make it work was calculated and methodic.” These economic arrangements included:

  • Setting absurdly low exchange rates that favored the mark over occupied currencies — and especially the franc, which was undervalued by as much as two-thirds.
  • Paying for industrial products from the occupied countries largely through credits levied by the so-called occupation costs, an arbitrary annual demand on the conquered countries.
  • Rigged markets for industrial goods, in which prices were set by the large German conglomerates like Krupp and IG Farben under the pretense that industrialists in occupied France, Belgium, and the Netherlands could sell what they wanted to whom they wanted.
  • Forced labor. In October 1942, the Germans had conscripted 2.6 million Western Europeans to work in farms and factories; to this day, since so many died, no one is quite sure how many Russians, Poles, and other Eastern Europeans were forced to work in much worse conditions that amounted to slavery. Keegan guesses the number might have been close to five million.
  • German bureaucrats setting production quotas and purchasing for French and Belgian iron, steel, and coal companies. In one of those ironies that history seems to enjoy, this arrangement planted the seed that turned into the Common Market 40 years later.
    JS