Rise of E-Commerce Leads to Increased Trade Challenges in Physical and Digital Markets

One effect of the coronavirus pandemic has been a massive growth in e-commerce– as more people were confined inside their domiciles due to lockdowns and other restrictions, they increasingly began to turn to the internet for their shopping needs.

The impact of the pandemic on e-commerce is well documented– online retail sales’ share of total retail sales in the United States increased from 16% to 19% in the span of one year (2020), while South Korea saw a jump from 20.8% in 2019 to 25.9% in 2020– a 25% increase. Business-to-business (B2B) sales were particularly noteworthy– accounting for 82% of all e-commerce in 2019, their fortunes soared during the pandemic. The sales of business-to-consumer (B2Cs) also grew but had greater variation depending on industry type, and were particularly dismal among companies offering ride-hailing and travel services.

One noteworthy development was the impact of e-commerce growth on digital trade. Digital trade, as defined by the World Trade Organization (WTO), refers to all trade that is digitally ordered and/or digitally delivered. Despite widespread supply chain disruptions caused by the pandemic, digitally delivered services accounted for 64% of global services exports in 2020, a jump of nearly 15% from 2019. Furthermore, among the countries that the Organization for Economic Cooperation and Development (OECD) has data for, the share of people shopping online increased by 5.2% from 2019 to 2020– the largest single-year increase since 2005, when this data first started being reported.

The pandemic boom accentuates an upward trend for e-commerce that has been steadily growing for over two decades, and this volume poses challenges for customs agents. On August 27 2021, the Customs Border Patrol announced a two-year extension for their Section 321 pilot program, wherein the CBP tests the feasibility of accepting advance data from e-commerce supply chain partners, such as online marketplaces, in order to determine the risk involved with electronic data submissions. The hope is that these electronic entries will help the CBP better identify high-risk shipments for inspection, as well as expedite the clearance of low-risk shipments; the pilot program will now conclude in August 2023.

Relief cannot come soon enough for customs brokers trying to cope with the massive increase in cross-border e-commerce, which is estimated to be growing at twice the rate of domestic shipments. The challenges extend beyond volume, however– the internet has acted as a great equalizer, enabling even the smallest businesses to generate overseas sales. This has created difficulties for customs officials who may be unfamiliar with both buyer and seller, which inadvertently also makes it more challenging to differentiate legitimate businesses from criminal enterprises. These small entities, generally new to the world of international trade, may also not be aware of the requirements needed to process their imports/exports, which can lead to incomplete documentation and subsequent delays. Additionally, the spike in this type of commerce has led to a deluge in shipments valued under $800, which has generated a de minimus dilemma– only minimal information is needed for these shipments, thereby hampering customs authorities’ ability to adequately collect trade data for analytics purposes as well as identify transactions that might violate international law.

The accelerated growth of e-commerce comes with an additional pitfall– the increase in online marketplaces also increases counterfeiters’ access to unwitting consumers. The quantity and diversity of online platforms where counterfeiters can market and sell their goods has grown in line with the rise of e-commerce, and the inability to examine these products through means other than an electronic screen leaves consumers vulnerable to scammers. This trend has become particularly precarious for shoppers since current anti-counterfeiting laws, written primarily for brick and mortar facilities, mostly fail when applied to online marketplaces.

Since e-commerce shows no signs of abating, changes are in the works to help customs agents address its inherent challenges. Proposed remedies include establishing an e-commerce framework that would enable the exchange of advanced electronic customs data, streamlining CBP operations to cope with evolving supply chain dynamics, and augmenting the scope of legal and regulatory authorities to better respond to emerging threats.

How Allyn Can Help

At Allyn we have the experience, systems, and best practices in place to help guide clients navigate rapid developments in both the physical and digital markets. If you have been affected by the recent impact of e-commerce on digital trade, Allyn International is able to provide effective guidance to assist your business’ competitiveness in the digital economy. If interested, please contact us at trade@allynintl.com.

Contributor: Jennifer Nowicki

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About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com