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Navigating Customs Clearance: Hindrances to Business Growth in Supply Chain Logistics

Rapid Globalization and growing Trade Documentation requirements

Global trade has grown exponentially since 1995, when the WTO was established. As of 2022, international trade volumes had experienced an average growth of 4%, while the average value of goods traded had expanded even faster, at 6%.

During this period, international trade helped revitalize the global economy and was a critical engine for prosperity. As the benefits of globalization become evident, more and more countries are endeavoring to integrate themselves into global supply chains and increase their international trade.

Further, protectionist tendencies have been gaining ground over the past decade in response to tepid growth rates, tenuous macroeconomic conditions, and the interplay of intense geopolitical pressures, with both advanced and developing nations increasingly implementing tariff and non-tariff barriers.

In this context, a smoothly functioning and efficient supply chain is vital to the success of any business. To efficiently regulate and execute the associated logistics activities, comprehensive trade documentation requirements are necessary, encompassing the entire supply chain and, especially, customs clearance.

Thus, trade documentation has emerged as an inevitable adjunct of international trade and logistics, with statutory compliance emerging as a critical task in the customs clearance process.

It is estimated that global trade and logistics depend on 4 billion paper documents daily, illustrating not only the importance of trade documentation but also the extent of reliance on paper-based processes.

Trade Documentation Complexities and its Solutions 

While there are many challenges in the normal course of international trade, the administration of trade documentation, which is vital in customs clearance, has emerged as a major cost center. It has the potential to impede the growth trajectories and international ambitions of most companies.

This is because each government and regulatory agency stipulates its distinct documentary requirements, depending on their role, scope of activities, and purpose, wherefore exporters, importers, freight forwarders, and customs brokers are compelled to keep themselves abreast of the latest developments, failing which they run the risk of falling afoul of mandatory guidelines.

Given how deeply interconnected global supply chains are and the gamut of logistics activities involved, international trade generally spans multiple jurisdictions.

The global nature of supply chains implies greater complexity in terms of trade documentation, arising from the diverse nature of requirements, disparate sources of information, and the need to interpret and update the data received accurately.

In this blog, we will explore these complexities, examine how they hinder business growth, and explore potential solutions.

1. Documentation overload

Perhaps the most challenging aspect of Customs Clearance is navigating through the maze of documentary formalities, commencing with awareness of such requirements, across all geographical locations and for associated activities, collating information from various sources, interpreting the data, and preparing documents in the stipulated formats, to checking for accuracy, and finally ensuring timely submission to the relevant government agencies.

These documents include bills of lading, commercial invoices, shipping instructions, certificates of origin, purchase orders, packing lists, cargo insurance, delivery notes, and a host of other country or commodity-specific documentation.

It is estimated that one shipment could involve 50 sheets of paper exchanged with up to 30 stakeholders.

The sheer diversity and scale of trade documentation make this a time-consuming, labor-intensive, and error-prone process, leading to delays in customs clearance.

Solution

Implementing document processing solutions, such as IDP software, helps automate trade documentation and information processing across the supply chain, and smoothens the flow of logistics activities. Errors are minimized, human effort is reduced, and overall supply chain efficiency is enhanced.

IDP systems also automate information sharing, thus ensuring that stakeholders are informed of key milestones and critical information needed to discharge their responsibilities.

2. Document complexity

Besides the number of documents, the complexity of international trade documentation can be overwhelming. Without a standard format for most documents, compounded by the divergent requirements of various countries and agencies, businesses can find themselves floundering. Since the data is mostly unstructured and shared in different formats (such as emails, Excel spreadsheets, Word documents, and PDF files), compiling data for customs clearance can pose considerable difficulties.

Further, language barriers and varying levels of technological capabilities in countries add to the complications in handling data across the supply chain.

The implications include lower accuracy levels, resulting in a greater probability of errors in the customs clearance process.

Solution

The key to reducing complexity is to simplify the trade documentation process and standardize the output of shipment data.

Leveraging technology to process and store documents, interpret, translate, and validate the information contained therein, and finally automate documentation across the entire supply chain can yield substantial benefits. This will vastly enhance logistics efficiency, ensure compliance with relevant legislation and adherence to processes, highlight missing or inaccurate information, and keep all stakeholders informed.

3. Manual data updates

The industry still relies heavily on manual customs clearance processes, with trade documentation laboriously prepared by employees. This greatly increases the probability of accidental and inadvertent errors, introduces inefficiencies in the logistics flow, and exposes the organization to the risk of penalties and operational issues.

Manual data entry methods usually imply lower accuracy levels and consume effort and time, detracting from the organization’s core commercial activities. The consequent poor data quality undermines strategic decision-making.

Solution

Using advanced technologies such as AI and ML to automate trade documentation and customs clearance can significantly reduce errors and enhance the speed of supply chain and logistics workflows. Automated systems can validate data, ensure compliance, and flag potential issues for human review, thereby improving overall efficiency. 

Leveraging Technology to Streamline Documentation and Customs Clearance

As most industries and even government agencies incorporate technology to increase efficiency, exporters and importers, as well as trade intermediaries such as freight forwarders and customs brokers, can ill afford to rely on legacy systems and manual processes.

With globalized supply chains becoming the norm, enabled by efficient logistics operations, customs clearance complexities must be addressed.

Hindrances related to trade documentation and manual effort demand innovative, tech-enabled solutions that have the potential to streamline international trade transactions.

Companies can navigate the customs clearance maze more efficiently by fostering digitization, standardization, and automation within the organization, facilitating smoother supply chain logistics and successfully expanding in the global marketplace.

Businesses must stay abreast of technological advancements and adopt modern solutions to overcome these complexities and unlock the full potential of their international operations.

KlearNow’s Data Engine platform to automate Customs Clearance

Organizations exploring technological solutions to automate trade documentation and optimize their supply chain can find themselves in a quandary, due to the wide range of software available in the market.

Most logtech solutions focus on improving specific parts of the logistics process. A business that adopts a broader, long-term perspective would choose a solution covering the entire supply chain, including customs clearance. This comprehensive approach is ultimately the most effective.

In this scenario, KlearNow offers Data Engine, an AI and ML-powered intelligent trade documentation platform that ingests unstructured documents and data, converts it into structured data, and prepares customs clearance and other documentation in the stipulated format.

The Data Engine has the ability to process and interpret documents in various formats and extract meaningful insights, helping improve staff productivity and saving time and money — with up to a 10x increase in operational efficiency.

Customers have testified to its efficacy, reporting that KlearNow’s logtech solutions have helped reduce the average time taken per shipment from 15 to 30 minutes to just a couple of minutes.

Learn more about Data Engine by clicking here.

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