Insight

It’s time to re-balance cost vs risk in your customs strategy

Richard Nutt
By:
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The pandemic, the global shipping crisis and the shock of Russia’s invasion of Ukraine drove hard-pressed customs and trade professionals to focus almost entirely on reducing risk and ensuring continuity of supply. But recent evidence of improving supply conditions means that pressures on customs teams are finally beginning to normalise.

It is an opportune time to bring cost diligence back into the customs planning equation.  

 

Organisations have been over-focused on supply security 

Companies reacted to the pandemic and associated shipping crisis by putting a much greater (and more expensive) focus on supply security to ensure customer satisfaction in the immediate term. 

A 2022 survey of 400 supply management leaders found that 97 per cent of interviewees said ensuring supply continuity was an important or crucial priority, while 64 per cent of leaders said continuity of supply increased in importance during COVID (Ivalua/Forrester). 

Predictably, organisations weathered the storm by taking a reactive, short-term approach to disruption with 68 per cent of supply chain executives reporting they had been constantly responding to high-impact disruptions and most of them “did not have time to recover before the next disruptive event hit them” (Gartner). 

The good news is the dust is beginning to settle. Shipping times are still well above pre-pandemic levels and improving rapidly as of February 2023, with major shipping routes (China-US & China-Europe) matching the fastest times since December 2020/January 2021. Indications are that the worst of the late 2021 congestion may be over, and Asian ports are de-bottlenecking (Flexport). Meanwhile, falling freight rates are helping balance the impact of global inflation (Morningstar). 

The improvement in supply conditions serves to take the pressure off your customs and trade team, enabling them to engage in proactive planning, rethink global supply chains and bring cost diligence back into focus. 

 

Bringing cost diligence back into the equation

Improve supplier management

While suppliers may have received a free pass during the pandemic and shipping crisis, supply managers can reintroduce effective negotiation strategies to win better prices and contract terms. At the same time, monitoring supplier performance to reduce lead times and order errors will help reduce costs while maintaining customer satisfaction. 

Stay informed

Keeping abreast of the changing international trade landscape to identify and profit from emerging trends including evolving economic landscapes in overseas trading partners, game-changing digital transformation, and a shift towards localisation and trading closer to home. Monitor Government initiatives that will impact the cost of trade – for example, tariffs on emissions-intensive imports are expected to be introduced soon. 

Reduce waste

Take a lean approach to identify waste and eliminate unnecessary steps in the supply chain through better processes and automation. A good starting point is to look for manual processes that cost time and money, and survey your team to understand where pain points and bottlenecks exist.

Consolidate suppliers

Do not let the pendulum swing too far towards consolidation. Companies can consolidate suppliers to gain cost leverage through bulk discounts but should continue to mitigate risk with some level of supplier diversification. 

Optimise inventory levels

Reduce warehousing costs and improve cash flow by reducing inventory holding costs. This involves the effective use of data analytics to forecast demand and adjust inventory levels in response, moving away from just-in-case and closer to just-in-time inventory management. 

Reduce inbound and outbound costs

Reduce costs by optimising shipping routes and schedules, consolidating shipments, and being flexible enough to change transportation modes (air, sea, road, rail) as costs fluctuate. Always compare shipping services to take advantage of lower rates while being careful to avoid forgoing reliability for short-term savings. Find a currency exchange service with competitive rates and low administrative fees and consider hedging currency trades to reduce risk. 

Modernise warehousing

Implement warehouse management systems and warehouse automation to improve inventory accuracy, reduce handling costs and increase customer satisfaction through better visibility and improved delivery times. 

Invest in technology

Any investment in supply chain technology serves the double purpose of reducing cost and decreasing risk. Technology ranges from supply management software to sophisticated AI-enhanced data analytics, automation of export processes such as order entry and customs clearance and leveraging IoT and blockchain to increase efficiency and visibility.  

Optimise trade tariffs and compliance obligations

Review customs and duties along your supply chain to find efficiencies and opportunities to decrease the cost of sending or sourcing your products offshore – while minimising the risk of penalties or detainment of goods. The global trade team at Grant Thornton can run due diligence on your global network, supply chain and transactions to get more visibility into transfer pricing and other tariff implications so you can make better-informed decisions.

 

We can help you rebalance cost and risk

Our global trade team helps clients establish the right strategies to streamline the movement of their goods, ensuring time and cost efficiencies, with all compliance obligations fulfilled and a focus on your future international plans. 

We can help by:

  • optimising trade tariffs and compliance obligations
  • reviewing customs and duties along your supply chain
  • assisting with accreditation into the Australian Trusted Trader program 
  • taking a country-by-country approach to your global trade profile including impact of transfer pricing, royalties, service and license fees and other indirect taxes.  
Learn more about how our Global trade and customs services can help you
Learn more about how our Global trade and customs services can help you
Visit our Global trade and customs page