TRANSCRIPT
Peter:
Hi everyone Peter Crosby here from the digital shelf Institute, the opportunity for brands to drive revenue through cross border commerce is greater than it's ever been, but the complexity keeps rising due to all that tax man cometh, wherever you sell. Craig Reed, Senior Vice president of global trade at cross-border technology provider Avalara joined Rob and me to talk through some of the complexities and the innovations that make it possible to sell globally at the scale. That's right for you. So Craig, thank you so much for joining us on the podcast. We really appreciate it. We've been looking forward to talking cross border commerce for awhile.
Craig:
Hey guys. Nice to be here,
Peter:
Craig. You've been helping brands and retailers manage that, uh, manage the cross-border commerce challenge for more than 20 years, which seems amazing that any of us have been doing things that long, but that's how it goes, but it feels like there are massive shifts in complexity and scale that are underway right now that are different maybe than in the earlier part of your career in this. Am I reading that right?
Craig:
Sure. Um, as you mentioned, I've been doing this for, uh, 20 plus years. I was one of the original founders of the company called Borderfree, um, in Toronto back in 2000. And when we founded that, that company was really out of that selfish need to just get stuff from us cause nothing was really available. And um, you know, we had a big challenge, not coming, just getting folks to think about cross border, um, getting them to be interested in cross border business, getting them to see the opportunity relative to some of the domestic opportunities they've had. So, so you're right. There has been a massive shift and it's not, you know, it's not a backwater anymore. It's not an afterthought. It's really being thought of as a, as a huge opportunity. And um, certainly with COVID accelerating that that was true before, but with COVID accelerating, e-commerce, you know, the tide lifts all ships and uh, across border has been no exception. So, um, most Lara any, anyone is really doing any significant amount of, uh e-commerce is likely either thinking about doing cross border are already doing it. And if they're not, you know, probably their competitors are. So I think it's important thing to pay attention to from
Peter:
Businesses. They're afraid of it. Right? Yeah. Yeah, exactly.
Craig:
And that, that, you know, that sort of shifts to the second part of the question, which is, um, you know, what are the complexities? So, you know, when we first started out, um, it was, it was relatively simple actually, you know, there weren't that many changes going on. Um, the, the tariff, the tariffs were relatively stable, you know, you had NAFTA and a couple of other things, but really it was, it was pretty straight forward and it didn't change a lot, but, but now the pace of change has been, has been dramatic. I mean, everyone's aware of Brexit, but also, um, you know, many people may know, but certainly I do some in Canada, but Canada changed its diminimous other diminimous rates have changed. Um, diminimous rates between taxes and duties have, um, diffracted that you use moving to a $0 bat rate in July.
Craig:
So there's all kinds of changes happening from a regulatory standpoint. And the other thing that's happening is that, um, you know, governments seeing obviously with this huge influx and traffic of, of cross-border e-commerce shipments are, are kind of doing two things. One, they want to protect domestic businesses and level the playing field. So, you know, Hey, you can't, you can't not pay duties and taxes if you're buying it from abroad. And, um, secondly, um, you know, even if you, even, if you, even, if you do level the playing field, you've got to make sure you can collect the money that that is due. So you find a lot more enforcement happening as an example, you know, there's one report where 20% of the goods arriving at the Canadian border had an improper classification code. And that was an underpayment of about 42 million to the Canadian governments. So the Canadian government and governments globally are paying attention to that.
Rob:
Yeah. So I want to dig a little bit into the timing of all this right now. You've been doing this for a long, long time, but it appears to me, and maybe I'm just getting into this game and, and didn't notice it before, but it appears to me that over the last couple of years in particular cross border commerce has been heating up significantly like a step function difference compared to what it was five years ago. I mean, we were interviewing Carlos Kashmin, the CEO founder of [inaudible] and in the, in the interview, Carlos told us that one of their key competencies is scaling and creating process around bringing typically US-based small product companies into Europe and abroad more generally, it's just a growth area for them. And we're just hearing this over and over again. And so this is, this is all predating COVID. So what is it about like this moment in time that makes cross border such a hot topic for companies?
Craig:
Well, I think there's, there's a few things at play. One is, um, you know, there's, there's a lot of, um, know we started doing this 20 years ago trying to help companies go global. So there's been obviously a lot of other, a lot of other companies and, um, services that have followed suit, um, including supply chain services and shipping services that have, have really improved dramatically from, from back in the day. So, you know, it, wasn't where you would take two weeks or something. You got a shipment, you can get a shipment, you know, five days at arrives on time, you can track it. Uh, you can get over the border, you can calculate duties and taxes. So I think the underlying services to make it possible have, uh, have come, uh, a very long way. And the other, the other element of it is as that's happened and as folks have had a better experience shipping cross border, and as they've been exposed to marketplaces like eBay, Amazon, and others, where they're, they're getting exposed to global sellers, your mind opens a little bit more to, Hey, you know, I don't have to just look at my own market.
Craig:
I know I could have a good customer experience, even if I'm, if I'm buying something from abroad. And then thirdly, I think, you know, there's just a lot of really interesting products, frankly, that have been developed and marketed. And if you can't get, you know, if there's a new widget that you can only get from us while, Hey, now I'm not afraid of getting it. I just, I, I don't think, Hey, I'll just, I just can't get it. Cause in the U us, I can get it. I can get it in a reasonable amount of time. It's something I want. So I'm just going to buy it. So I think it's been that confluence of, of, uh, factors.
Rob:
Yeah. The first one in particular, I think is one that hit me by surprise almost on how much friction has been reduced logistically over the last five years, even in, in terms of services, support operations. I remember learning more about the Amazon dragon boat program when it first launched and being blown away by it and how they were effectively just purchasing product direct from Chinese factories, putting it on an Amazon on boat. And they're just, Amazon's taking the whole process in, and that, that led to a crazy boom of Chinese sellers operating in north American markets. And then, and then at other markets, uh, w what are other innovations on the logistics front that removed friction and, and really made it more possible, easier, et cetera, for, for companies to execute in this way?
Craig:
Well, I think a lot of it's been around compliance and certainly, um, you know, without doing too much, flag-waving, that's, that's what we concentrate on because that's really what the challenges are, are more about. And what Amazon did is because they brought it in house, they could manage some of those, those compliance complexities themselves. But, um, you know, so, so that sort of opened up the possibility. And then, you know, there's other capabilities that followed suit back to our earlier discussion. So a Chinese seller, um, can, can now get goods into the U S without using Amazon's dragon boat program. They, you know, shipping into other DCS, even if it's a Amazon FPA type of program, they, they can do it themselves. And, you know, we like to think that we've had a part of that and just helping understand, Hey, what are your classification codes?
Craig:
What are your restrictions? What are your duty and tax obligations that you need to pay attention to? Um, so, you know, the dragon boat program is just part of creating a way of creating, you know, like our earlier discussion around creating this mindset, this changing in awareness of, you know, it is possible. I can ship into the EU for both eBay and Amazon I can, or, or, or my own website I can ship into, into the U S I can shift Australia. I can solve these problems. So, um, you know, just opening, uh, we're using the example of a Chinese manufacturer, but just open their mind to the possibility that they can do it and do it at scale.
Rob:
How much of this is a threat in some way to the market share of the traditional global manufacturing leaders. I mean, I, I'm thinking of, you know, the fortune 1000 name brand manufacturers that you can find in a store in America, or any of the big markets in Europe, or any of the big develop markets in Asia, Latin America. They traditionally, the big manufacturers were the ones that can execute on a global brand and global product distribution strategy. And the small ones couldn't the small ones were just regionally down. And these days you remove the friction, you add the, the ability to scale compliance and all the legal stuff that you've got to get done to ship abroad. Does this, does this create effectively like mini global manufacturing empires overnight? Or like, how did, how does, how does this change the competitive landscape in European?
Craig:
Yeah, I think it, I think it does in some ways, and maybe in others, it doesn't. And I think there, I think there's still a lot of, um, brand recognition out there. There's a lot of value in, in certain brands. It depends on the area, you know, in, in fashion and luxury goods, certainly brand is everything and, and is highly valued globally. And that probably won't change a lot, but where you get, you know, products that are, um, you know, widgets or electronics goods, or, you know, I'm thinking of like, um, drones or whatever. Um, if you're right, there's, you know, there's, if you're a global 1000 company, you can, you know, you have awareness, have the ability to bring out products with the awareness of your brand and everything else, but with, uh, social media, um, and, and the distribution capabilities. Now you could have someone come up with a new product that, that could be a world beater and create a brand out of, you know, effectively nothing, uh, which would create, you would expect those to come from the, you know, as you mentioned, the fortune 1000 companies, but I don't think that's necessarily going to be the case.
Craig:
It could come from anywhere, could come from somebody's garage and they could, um, you know, get some, some scale of manufacturing in China. They can distribute from China, they can get awareness in social media and they're off and on their way. So, um, yeah, it's definitely possible.
Peter:
So Craig, let's, let's dig into some of the, sort of the use cases here, and there's really a couple of scenarios that a brand has to solve for. And there's sort of the, I guess the B2B version of it, which is I want to ship 500 widgets into the U S or Germany. And I looked it up actually in widget, goes back to 1931. So the word
Craig:
I use it all the time. So whoever, whoever came up with that,
Peter:
I remember it from like my econ one oh one class in college. And then it's kind of the 90th anniversary of the widget. That's something that should be celebrated somewhere. Yeah. There should be a flag and a cake for sure. But in the meantime, let's say there's that B2B scenario. You want to ship 500 of these widgets to, into the U S or Germany. And then there's the B2C, like I want to ship a consumer goods eaches essentially to online shippers around the world. Can you kinda talk about the differences are and any similarities between those two scenarios and what brands should be thinking
Craig:
About? Yeah, sure. There there's, there's one major similarity. And as you mentioned, there are some differences. So let's start with B2B. B2B is really all about compliance. So, you know, um, with B2B shipments, governments are, are not surprisingly a lot more, um, interested in making sure that everything is accurate because of the, the volume and the value of the goods coming in. So you have to make sure you have the correct classification code for the country. You're going into commonly known as an HS code. It's the, it's the code that a country wants to assign to any level of products. So any product that ever crosses the border has what are commonly called HS codes, bit of a misnomer, but they're called HS codes, um, which just tells the country what that thing is, um, from their perspective and each country, you know, they're common up to six digits.
Craig:
It's like a six digit nomenclature is common for almost every country in the world. But the interesting thing is Mo almost all countries at pen, uh, between three and six digits commonly for, for a 10 digit code. So you have, have the correct code also on B2B. You need to know, um, you know, there's other things that you need to be aware of if there's, anti-dumping, there's PGA oh GA restrictions, which means, you know, other government agencies such as, um, FDA or health, Canada, or something like that, where if your products fall into those categories, you have to be aware of it. You have to be aware of any type of restrictions. And then thirdly, you know, you should be able to take advantage of any terrorists, any preferential tariffs that, that are in place between those countries. So the U S MCA is an example, there's, there's many others.
Craig:
So from a B2B standpoint, it's very much about compliance about making sure that your goods aren't getting stopped at the border, that you're not getting assessed penalties cause you're declaring correctly. So that's, um, you know, from a B2B standpoint and that, that that's also applies to B to C. So those compliance questions of, Hey, what is this thing you're shipping into the country? Um, well, on B to C you're, you don't have to be quite as worried about antidumping and some of the other, um, some of the other, um, types of, uh, of restrictions from B2B B to C standpoint, you still have to declare what the good is. I mean, the country, you have to declare it accurately. And you also have to know, you know, whether or not it's restricted. There are certain things that, that can't be imported in certain countries, leather goods, and Italy is a, a famous one chewing gum in Singapore, camouflage clothing to Saudi Arabia.
Craig:
So those are all good examples where, you know, so you've got this common compliance thread that you have to be able to solve the differences really in, in, um, in a BBC situation, you have a buyer on the other end of the transaction, obviously, and they want to know how much it's going to cost them, not surprisingly. So, you know, um, going back the way back machine again, 20 years ago, we were just happy to get something, let alone, let alone know how much it's gonna cost us. So, um, that's really, what's, what's important from a B2C standpoint is you have to make sure that your customer has a good experience. They expect a good experience, even if it's cross border. And that means you need to, you need to tell them how much it's going to cost them. So you need to calculate the duties and import taxes, let them know what those those are going to be.
Craig:
And you know, you go back to the HS codes we talked about while the HS codes are kind of the Rosetta stone that allows you to calculate duties and taxes accurately. So if you have the correct HS codes, now you can figure out exactly how much your duties are going to be in. And, um, and your, your import taxes, if they apply. And you can do that in a couple of different ways. You know, it doesn't mean you have to collect it at checkout. That's sort of best practice, but you can also just say, Hey, you may have to pay this amount when the good is delivered. So you set an expectation. And if you don't do that, which see, I don't in my career, I've seen happen a lot. You just run into all kinds of problems because you ship to a customer, they get charged.
Craig:
I mean, somebody somewhere is going to pay the duties and taxes. So if the, if the customer gets charged at the door, obviously they're not going to be very happy. So that's a bad customer experience. They may refuse to take the good, which means that, you know, you've got a good stuck in country that you now have to get back at your costs. And the carrier is still going to be expecting you to pay the duties and taxes. So it's, it's a good experience for no one. So you really have to know, you know, um, those compliance, uh, those common compliance threads of, you know, really HS codes are the key, the key to the whole thing, the diminimous threshold. So at what point do you have to charge duty and tax, um, and you know, what, what can you, and what can't ship.
Peter:
I imagine that that's part of the reason why, uh, uh, a tech platform had to come along. Like if you're going to do this at scale and, you know, reminds me of sort of, of what, you know, tr trying to track the retailer requirements, it's, uh, you know, of, of product content attributes. I'm imagining keeping up with all of the things that you're describing that Singapore doesn't want gum, uh, you know, they love a clean street there. Um, and it just, uh, I imagine that that's part of the complexity, but w I, you know, I'm going to just ask sort of, how do you know a lot of firms that I imagine, you know, we're halfway through the year, they're starting to think about 20, 22, they're looking for where additional revenue opportunities can come from and where they connect, connect with more consumers. What, what do you see best practices of firms doing, uh, to approach this kind of complexity at scale? What are the elements of that strategy?
Craig:
Yeah, we like to think of it's, you know, people process and technology. So, um, we have, from our perspective, you do have, you can use automation. So for, for, for us, for example, there's been huge advances advances, again, kind of referencing my, my history, but huge advances in the technology available to, to do things, um, automatically at scale. So we're certainly big proponents of that. We invest a lot in technology and artificial intelligence. So, um, you know, figuring out, let's go back to the HS code. It's figuring out an HS code, well from, um, an incoming, uh, payload of an item, an item description, you know, value where it's going. We can figure out a lot automatically. Um, and, and that, you know, allows us to create, uh, Connie's of scale and, and do things at a very efficient level from a cost standpoint, but still, you know, you have to have, um, the, even with an HS code, if there's not enough information in the payload, for example, Hey, do you have a fallback of people who can use, um, automation and AI assisted technology to come up with the right answer in a very time, time sensitive and cost-effective way.
Craig:
And that's how we think about it. So it's this combination of, of people, uh, and technology that creates a really interesting approach to dealing with the complexity and doing it at scale, um, that, that we don't think is, you know, um, is very prevalent in the market. But, but I, I think that it's something that, um, can be used to great effect.
Peter:
Is there a, uh, a standard kind of customer profile of someone that comes to you and what state they're usually in, in terms of how, uh, what they're confronting do? A lot of people already have their B2B kind of figured out, but it's getting more complex plus, oh, we'd like to try this DTC stuff. Or w what are you seeing in, is there a pattern
Craig:
That's really, you know, um, I can't say there is a pattern, I would say it, you know, there are patterns depending on the, um, on the segment or the type of customer. So you'll, you'll see with, um, you know, you mentioned B2B, so you'd be shocked at still how manual and how, um, um, poor the information is coming from B2B transactions, where, you know, a customs broker may get a description from a, from a manufacturer of t-shirt on the customs invoice. Well, you know, Hey, what is it made of? What's, there's a lot of other things that can go into it. So, um, again, you know, what they would typically do is just, okay, if it's a t-shirt, here's what the maximum duty is for any type of t-shirts. So we're just going to charge you that, and, you know, from a PNL standpoint, that's not great.
Craig:
So it's really creating good information right. At the outset. And then, you know, when you think about, uh, about, uh, you know, back to the compliance thing that we were talking about, and from a B to C standpoint, to see sort of the, the midsize, um, lower, you know, smaller retailers are just, you know, help us, help us deal with all of the complexity, help us, you know, sort it out. It just, I needed, I need you to just help me figure it out. I just need some tools to figure this out. Excellent. Yeah. And yeah, exactly. And then you see with enterprise companies and platforms like, uh, we're working with Shopify, um, for example, so, um, you know, that's really where they're much more sophisticated and they have very clear idea of what they want to do. We have a large customer in the UK, for example, who want to want it to take control of the supply chain.
Craig:
They were using kind of a black box provider and said, Hey, we need you to do that. We want you to do the HS, the duty and tax calculation. We want you to solve the compliance piece, but we want to control the customer experience. We want to be the ones who are dealing with the carriers. And because that really is the customer experience. Similarly, with the platforms they want to make, make their platform a place where selling is easy and not just domestically, but globally. And that means putting the tools natively inside the platform, so that, so that their sellers have an easy go of it. And I think, you know, Shopify and others have been leading the way and making it simple to do, not just domestic transactions, but cross border transactions, but it all goes back to, you know, somebody somewhere has to solve the compliance puzzle. And that's, uh, that's really the challenge.
Rob:
Yeah. And there's, it's a challenge that I think can go pretty deep. Um, uh, my dad's Cuban. And so we knew a lot of Cubans and getting Cuban cigars in the United States is illegal and challenging. And I have known folks that would order cigars from, uh, I would say creative sellers internationally, where they would package the cigars and rugby shirts. And they'd on the, you know, they'd put rugby shirts on the label, on the package to import them and, you know, rugby shirts, but in the middle of a ton of Cuban cigars. So
Craig:
You just have to come to Canada around it. There you go. Yeah. I
Rob:
Know, I know Canadians and all your freedoms.
Peter:
There's so many reasons to go to Canada right now. We're still in lockdown, but come on, come on in with the vaccines. The water's fine. There you go. Exactly. So, um, to close out, Craig, I'd love to just kind of ask, you know, I was talking earlier about, Hey, we're halfway through people are planning for 20, 22. Um, what, what do you think, what what's, what's coming up? What sort of, how should we be thinking about, um, what's coming up in cross border commerce?
Craig:
Well, you know, it, um, I think it's just more of the same of the themes that we, uh, that we're, we're talking about at the, at the outset, you know, we, we like to think about it as the good, bad and the ugly. Um, you know, the good is that, uh, e-commerce, um, has, has boomed it's doesn't show any signs of slowing down. Um, cross-border demand is increasing. So there's a huge opportunity out there for the folks that can, the configure it out the bad and the ugly are more about figuring it out part. So, you know, the bad, or maybe it's not bad, but it's, you know, something you have to consider is that consumers want, they want a good experience. So they want that cost transparency. They want delivery in a reasonable timeframe. So that puts more pressure on, on the seller to, to provide a good experience, calculate the duties and taxes, um, create a, a clear shipping path, um, visible tracking, et cetera.
Craig:
And, you know, really the ugly is around, um, having to deal with all the regulatory change. So we mentioned the EU in July, but I think that, um, it, that's only going to accelerate, you know, there's a lot of eyes on what's happening in the EU. Um, there's going to be a lot more interest from governments. I mean, you just think about how much money governments globally have spent on, on COVID from a social safety net standpoint, and, you know, the money is going to have to come from somewhere. So, uh, this is going to be, unfortunately, one of the areas of that comes from we're all gonna, we're all gonna have to pay. So it's, it's, um, you know, it's important to make sure that you understand what those, what those regulatory changes are. They keep pace with them and that, uh, you're collecting the right amount of money and remitting the right amount of money to the, to the governments or else. Um, you know, they're gonna, they're gonna come looking for you.
Peter:
Well, I can't think of a more positive way to end, then we're all gonna have to pay death and taxes. Right. That's right, Craig, I, I'm glad you're adjusting the taxes business, not in the, in the debt, uh,
Rob:
Expansion. There's always, always future expansion. There's always new and news opportunities out
Peter:
There of what you could fit in the coffins, Cuban cigars. Yes, exactly. Craig, we really appreciate you coming on and talking about this topic. I know that I'm thinking about how to expand business and build new revenue streams and connect with more consumers is on a lot of people's agenda, and we're appreciative that you come and talk about kind of the nuts and bolts, and what's possible really appreciate
Craig:
Sure. I'm happy to do it. And, um, you know, just my, uh, marketing folks will get, get angry with me if I don't quickly say if you know, there's a lot of information out there for our part, um, avalara.com/go global is where we store information if you're interested.
Peter:
Great. Great tip. And thanks again. All right. Thanks guys. Take care. Thanks again to Craig for sharing his expertise. And for making me wonder about the origin of the word widget, please share this episode with your tax nerd colleagues and share a review wherever you get your podcasts. Thanks for being part of our community.
