Last-Mile Lag: The Trade Rules No One Talks About

• Companies that import goods face regulatory challenges in making efficient, cost-effective last-mile deliveries.
• Last-mile deliveries are often the most expensive and complicated step in importing goods, yet are the most important step in customer satisfaction and brand reputation.
• Strategic warehousing can reduce the impact of trade regulations and fees for companies that import goods.

Americans have long enjoyed access to a wide variety of goods. Strawberries in a mid-winter midwest? No problem. Brazilian coffee beans? Buy them online or at the corner store. Oftentimes without considering a product’s journey from production into their homes, Americans purchase a variety of specific foods, drinks, textiles, vehicles and more.

Businesses that import goods face unique challenges in efficient shipping, warehousing and distribution, especially given today’s customs and trade rules. Last-mile delivery, or the final step in a product’s journey to the consumer, is often the most expensive and logistically challenging part of importing goods. Customs and trade rules play a major role in the strategies importers must employ to remain competitive in today’s marketplace.

The Importance of Last-Mile Delivery

Last-mile delivery, where the product reaches the consumer, is an important part of importing goods, and is often the most expensive and complicated portion of the route. Last-mile delivery can affect:

• Customer satisfaction, as it determines product availability and speed of delivery.
• Operational efficiency in transportation and labor costs, costs for damaged or lost goods, and sales cycle times.
• Brand reputation in consistency of deliveries and delivery times.
• Market competition for faster, more reliable deliveries.

Last-mile deliveries can account for up to 53% of overall shipping costs. Unlike bulk shipping, last-mile delivery involves multiple shipping locations and complex inventory management. Costs for fuel, labor and re-deliveries often drive-up the last-mile delivery tab.

Trends like the rise in home deliveries and increased customer expectations for customized options like contactless delivery, and installation and assembly, have further complicated last-mile deliveries.

The longer last-mile deliveries take, the more they drive up an importer’s expenses. And a number of governmental customs and trade rules can slow down the process by increasing customs checks and creating bottlenecks at the border.

Trade Restrictions That Impact Last-Mile Delivery

U.S. trade restrictions are designed to shield domestic industries from foreign competition, protect U.S. security by prohibiting trade that could compromise citizens’ safety, and balance the economy by restricting imports and increasing exports. They’re also used as a political tool to protest another country’s actions or exert pressure on a country to take some action.

Like the proverbial grain of sand in a complex machinery of gears, disruptions anywhere along the supply chain can impact the timing and cost of last-mile delivery. Ever-changing trade restrictions contribute their share of disruption.

Restricted and Regulated Goods

Certain goods have highly regulated shipping requirements. Items like alcohol, pharmaceuticals and food carry strict quality and safety standards set by governmental regulatory bodies. The time required to ensure these regulations are met can cause backups at the border and create logistical challenges, especially for products that need to be kept at a certain temperature or that expire quickly. What’s more, changing restrictions and regulations can create confusion for companies, which can lead to errors and delivery delays.

Changing Tariff Policies

The ever-changing arena of tariffs on foreign goods can not only create confusion for companies, but it can force them to make difficult choices on where to source materials, potentially adding transit time to bulk shipping and last-mile deliveries. Increased tariffs may also force companies to raise prices and potentially delay deliveries to cut labor or material costs.

Tariff-Rate Quotas

In addition to changing tariffs, there are also variable tariffs resulting from tariff-rate quotas, or limits on the amount or volume of goods that can be imported during a time period. These affect last-mile delivery by imposing dramatically higher tariffs on goods that have met the quota. An importer may enjoy low fees for a while, but once the quota is met, those tariffs can increase by up to 200%

To complicate matters further, there’s a market and associated strategy for obtaining the rights to import certain goods at the low-tier tariff rate. For example, the U.S. Department of Agriculture requires dairy importers to obtain licenses annually to import at the low-tier tariff rate.

The impact of variable tariffs and the limited licenses to import at those rates create intense competition among importers and often force them to reduce or cease imports on certain goods, or find new buyers to meet the quota, as companies with licenses are often penalized for not meeting set import quotas.

Embargoes

Embargoes forbid trade with a certain country and are typically used as a political tool. One example is the U.S. embargo against Cuba, in place since the 1960s in response to the Cuban Revolution. The Office of Foreign Assets Control enforces sanctions that limit trade with certain countries or restrict trade of certain goods. Businesses that rely on certain countries for imports would need to find alternative sources in the case of an embargo, which could delay last-mile deliveries or make them less efficient.

Delivery Regulations

Even once an importer clears customs, differences in delivery regulations between locations can impede last-mile deliveries. Certain locations regulate delivery times or require recipients to sign for packages. Others require age verification for items like alcohol and medications. These differing regulations can make expansion into new geographic areas challenging for businesses.

Local Laws

As with delivery regulations, tax structures, consumer protection laws and return policies can differ from state to state. Adherence to these rules can dramatically impact the speed and efficiency of last-mile deliveries.

Data Privacy and Security Laws

Designed to protect the privacy of individuals, data privacy and security laws dictate how companies handle sensitive customer information like addresses, financial information and social security numbers. These laws, and the potential for them to change, create challenges for last-mile deliveries and can impede their efficiency if they’re not strategically managed.

Strategic Warehousing Minimizes Customs Impact

The best way for importers to minimize the impact of customs and trade regulations is to develop an effective warehousing strategy that includes:

• Thorough knowledge of customs and trade regulations, and a commitment to working within those regulations rather than attempting to circumvent them.
• Warehousing conveniently located near ports and equipped with ample storage and an efficient layout.
• A robust Warehouse Management System to control inventory and operations.
• An effective inventory management system.
• Regular staff training in best practices for warehouse management.
• Safety protocols, including regular training and system audits, to safeguard staff and inventory,
• A long-term plan for adapting to new regulations.

When choosing a logistics and warehousing partner, businesses must ensure that these elements are in place. In this way, they can protect their inventory and insulate their business from the impacts of changing customs and trade rules.