6. Case Examples

Express Delivery Services Co.: Overcoming Border Barriers to Deliver on the Promise of Express Delivery

Express delivery services exist to serve industry’s need for speed. However, companies like Express Delivery Services Co. often struggle to operate in some markets due to customs clearance delays, a lack of standardized procedures, and, to a lesser degree, due to poor infrastructure in less-developed regions. These barriers affect regional competitiveness and raise logistics costs, which may or may not be within Express Delivery Services Co.’s power to control. How countries choose to address these factors will ultimately influence their competitiveness. 

The availability of reliable express delivery services has become a vital tool for supply chain management by companies that need to function smoothly in today’s integrated global marketplace. The ability of global express delivery firms, like Express Delivery Services Co., to satisfy their clients’ need to move goods speedily anywhere in the world is a basic underpinning of their competitive advantage. Because express delivery is expensive, shipment delays at any point in the delivery network can negate the value of the service. Significant, persistent delays related to hold-ups at customs clearance and other border crossing nodes raise costs, degrade service levels and frustrate efforts to improve supply chain efficiency and reliability.

Delays arising from customs clearance bottlenecks and border administration inefficiencies are the major barriers express delivery companies encounter, particularly in less-developed countries where a lack of investment and weaker institutions handicap efficiency. Some common sources of delay are easily addressable. For example, a more widespread use of risk-analysis tools to guide which shipments are subject to border inspection could significantly speed up clearances. In the US, where customs officials target only potentially high-risk parcels for inspection, 92% of Express Delivery Services Co. shipments are cleared prior to shipment arrival at the border, and not all of the remaining shipments are physically inspected. In the Netherlands, officials rely on an analysis of electronic information to determine which shipments will be subjected to physical inspection, reducing the need for examination to just 2% to 3% of parcels. In Mexico by contrast, authorities physically inspect 10% of all shipments and sometimes carry out a secondary inspection by independent contractors to guard against customs errors or wrongdoing. The 10% inspection rate in Mexico is an improvement over the previous regime, where, like in other countries, customs officials inspect 100% of shipments. According to the Customs Capability Reports published by the Global Express Association, 37 out of 114 countries surveyed have a risk-based selective approach to shipment inspections, 18 countries physically inspect all shipments, and the remaining countries inspect shipments randomly or at an official’s discretion.⁷⁶

The limited number of hours that various countries’ customs offices are open is another major impediment to the speedy clearance of express deliveries. At major hubs in advanced markets like the US and Europe, customs is open round the clock, enabling express services companies to count on minimal downtime. This is not the case in China, India and across much of Latin America, where Express Delivery Services Co. must sequence arrival of packages to coincide with customs opening hours. Further handicapping expedited clearance in some markets are staffing and resource allocation decisions that appear to be made to satisfy political goals rather than on grounds of operational efficiency. In Brazil and China, for example, customs staffing at airports does not necessarily reflect the volume of traffic passing through them. 

A more systemic source of express shipment delay is a lack of standardization and coordination in clearance process across (and sometimes even within) countries – even within the integrated market of the European Union. Each EU member state maintains its own computer systems, making clearance procedures correspondingly complex. In Germany, for example, customs is not set up to allow centralized customs clearance, requiring the registration and customs clearance process to be executed with customs in each location/port where shipments physically arrive. This decentralization leads to non-harmonized procedures within the country. In neighbouring Netherlands, by contrast, customs clearance is managed centrally with common paperwork and practices for shipments arriving at any of its ports. 

The World Customs Organization (WCO) partially addressed the standardization issue by identifying a set of best practices. Under the WCO’s Kyoto Convention guidelines, countries should aim to create simplified custom procedures that can be carried out in a predictable, consistent and transparent environment. Customs should make maximum use of information technology and risk analysis to speed up the clearance process and maintain its integrity through the application of objective tests and procedures. WCO recommends that customs agencies use “single window” electronic procedures, whereby documents are submitted once and are easily transferred across agencies and borders. Just 81 of WCO’s 178 member states have signed on to these common sense procedures, although many others adhere to its recommendations.⁷⁷ In 2011, for example, Mexican authorities mandated the electronic filing of customer information to reduce clearance time and improve risk analysis based on advance information. 

Compounding the customs barriers, insufficient infrastructure that renders remote inland regions inaccessible also impedes express delivery services. In Brazil, for example, the density of airports is just one-third that of the US and road connections are sparse.⁷⁸ Among Latin American countries overall, road density is only about one-fourth of what it is in the US.⁷⁹ Express Delivery Services Co. is able to work around infrastructure limitations by investing, for example, in aircraft technicians and maintenance facilities to compensate for substandard airports. But higher infrastructure-related costs will affect a country’s competitiveness, since Express Delivery Services Co. must ultimately pass the added logistics costs on to its customers. 

Limited freedom to manoeuvre around customs barriers

Express delivery firms like Express Delivery Services Co. try to exercise what control they have to minimize delays. The company keeps additional staff on hand in customs zones that are notably inefficient and complicated to navigate, accepting the higher payroll cost to expedite package clearance. However, higher handling costs resulting from customs and administrative barriers require the express delivery companies to pass on higher handling costs to their customers, rendering some countries like Venezuela and Kenya less competitive. Express Delivery Services Co. charges lower handling costs in Mexico and Qatar than would otherwise be expected by their customs barriers, improving their competitive position (see figure). 

Figure 35: Handling costs for express services are highly correlated with customs barriers

In cases where customs barriers are beyond Express Delivery Services Co.’s ability to take measures to compensate for delay, the advantages of express shipping services start to disappear (especially for time-sensitive product shipments). Barriers will reflect on the dwell time shipments encounter (time a shipment is held at customs) and the associated brokerage, warehousing and higher personnel costs that shippers must bear. Dwell time effects represent nearly one-quarter of the shipping costs companies pay per package, on average. Among markets evaluated,⁸⁰ Singapore is the top performer and Saudi Arabia, Venezuela and Peru show room for improvement. How individual countries choose to address these through increased investment and standardization will ultimately determine whether they remain competitive.