The High Risk of International Trade

The High Risk of International Trade

What factors impact your company’s bottom line? The cost of supplied goods, materials and labor are top of mind for most executives. However, the financial risk associated with the complexity of global trade must also be considered.

When the current trade climate, particularly the U.S.-China trade war, is layered on top of existing complexities, various risk types emerge. Companies need to be aware of the financial risk associated with trade, and compliance with regulations surrounding supply chain due diligence.

Fines & Penalties

Improper management of trade compliance data can result in steep fines and penalties applied to individuals or companies. The majority of penalties are issued due to incorrect classification of goods, valuation or country of origin. Fines are applicable if import procedures are followed incorrectly, if false or negligent drawback claims are submitted and/or if inaccurate preferential trade agreement claims are made due to incorrect or fraudulent certificates of origin. In each of these instances, inaccurate data often arises from a lack of communication between suppliers and customers, which can lead to inconsistent or inaccurate importer customs submissions.

Loss of Market Access

A delay or loss of market access can affect a company financially, and may have cascading consequences throughout the supply chain. If a part is required in the manufacture of a product, for example, a hold at customs can delay production. These impacts can be devastating, particularly for products with short life cycles, as delays may result in lost sales or product obsolescence.

Companies that have had financial penalties imposed on them in the past may face a higher risk of border delays, as they could be subject to increased scrutiny and more frequent audits. In some circumstances, penalties can result in a total loss of import and/or export privileges, leading to significant disruption to a company’s operations.

Are you interested in learning more about trade compliance data and the impact of financial risks on your company? Download our guide, Harmonized Tariff Schedule Codes: How to Avoid Unexpected Tariffs, to learn more.

Expanded Cost of Internal Resources

As trade compliance becomes more complex, companies are investing in internal resources to maintain their trade programs. As a baseline, demands include building IT systems and engaging legal resources to respond to standard audits. If issues arise, however, companies may have to sink additional costs into correcting errors or participating in future audits. These tasks can take valuable IT professionals, executives and legal staff away from other priorities, or may require a company to hire additional resources to meet the demand.

Unexpected Duties

In the face of the U.S.-China trade war, companies are feeling the effects of fluctuating tariffs. In some cases, they may find themselves having to pay higher fees after a purchase order has already been submitted. Companies with long-term purchase agreements may be particularly impacted by the new tariffs.

These unexpected duties can apply to a variety of products that, in turn, impact downstream industries.  For example, steep tariffs on imported aluminum and steel have a direct impact on industries that rely on these materials, such as the automotive and aerospace sectors. In turn, companies in these industries will need to evaluate how to minimize additional duties that were not previously factored into purchasing decisions.

These risks permeate the supply chain. Companies with the largest global networks, and that are most reliant upon the U.S. and Chinese trade relationship, are most vulnerable.

To mitigate risk, companies should establish clear systems for harmonizing and managing trade classification and country of origin data. This includes implementing methods for collecting accurate data from the supply chain and rolling up country of origin data against bills of materials. These strategies will not only reduce the chance of unexpected financial risk — they can also potentially help a company realize substantial cost savings by maximizing tariff exemptions.

Assent’s Trade Classification & Origin Module helps companies collect, validate and centralize data and documentation from the supply chain, including country of origin information and Harmonized System (HS)/Harmonized Tariff Schedule (HTS) codes.

To learn more about how Assent’s solution can streamline your supply chain data collection and management efforts, email