In response to the COVID-19 pandemic, the enforcement of physical distancing and confinement measures has pushed many activities previously undertaken offline to the online realm (WTO, 2020).1 This includes shifting from in-person shopping (Figure 1) to ordering goods and services online, leading to a remarkable increase in e-commerce orders during the first two quarters of this year.2 During the first quarter of 2020, online orders were up 70% year-on-year in Asia-Pacific, while in North America, online orders at the end of May 2020 were up 120% year-on-year; in Europe, they were up 50% on average (Figure 2a). Over a similar period, container trade in selected ports worldwide declined sharply, initially by about 10% and remaining at a level 5% lower year-on-year by April 2020 (Figure 2b). This trend is expected to continue in the face of a projected decline in global demand of 15%-18% in the second quarter of the year.3

Although the majority of goods ordered online are dispatched domestically, volumes of international postal parcel-dispatches have been growing faster, at about 7.4% per year in the period 2010-15 versus 3.5% for domestic dispatches (UPU, 2016). This has underscored the growing importance of products shipped across borders in individual consignments, or cross-border trade in parcels.4 Indeed, even prior to the COVID-19 pandemic, cross-border e-commerce was already expected to continue growing in value at nearly twice the rate of domestic e-commerce (DHL, 2017; eMarketer, 2018).

Both trends and patterns in online shopping have changed as a result of COVID-19 (Table 1). Data from the United States at the onset of confinement measures shows that, overall, purchases increased most for items related to personal protection (disposable gloves); home activities (including bread machines); groceries (pasta, pet food and toilet paper); and ICT goods (such as computer monitors).In turn, declines have been most pronounced for items associated with outdoor activities (such as luggage and suitcases, swimwear, and camping equipment).

Not all online orders involve cross-border trade in parcels and not all cross-border trade in parcels is digitally ordered – in fact, measuring the value and volume of cross-border trade in digitally ordered goods is challenging (OECD-WTO-IMF, 2020). However, recent monthly statistics for European countries give a sense of the types of goods that were crossing borders through parcels in the early stages of the COVID-19 crisis following the gradual introduction of confinement measures (Figure 3a).5

Increases in cross-border parcel trade were highest for electrical machinery, pharmaceutical products, mechanical appliances, and medical instruments.6 Electrical machinery includes devices such as computers and accessories, with growing demand for these likely arising from increased teleworking as a result of confinement measures. At the same time, home fitness equipment and other home appliances drove the increase in product categories such as mechanical appliances. The evidence also shows that, with more consumers staying at home, books, toys and games, textile items and tools witnessed considerable increases.

The type of parcel crossing borders matters since it determines the range of health and safety, security and quality checks that Customs and other border agencies need to undertake. At the same time, the value of parcels also matters because, if the value of a parcel falls below a certain threshold, known as the de minimis level, that parcel can be exempt from trade and value added taxes and also benefit from expedited procedures for documentation and clearance.7 About two-thirds of parcels crossing borders in the European Union were valued below USD 1008 (Figure 3b) (Comext, 2020).

Wider access to more products at more affordable prices can be especially important in the context of reductions in purchasing power arising from the economic fallout from the COVID-19 crisis. At the same time, e-commerce, and more broadly digitally enabled cross-border trade in parcels, can help firms – including micro, small and medium enterprises (MSMEs) – trying to survive access more customers across a wider set of markets. Indeed, digital orders represent as much as 70% of overall orders across firms of all sizes, although challenges remain for smaller firms (Figure 4). Indeed, small firms tend to receive a lower share of orders digitally relative to larger firms owing to, among other things, lower rates of technology adoption (OECD, 2019a).

Clicking the purchase button on an item sets in motion a complex network of actors and processes (Figure 5). Today, digital platforms are one of the main gateways through which parcel trade is enabled, connecting consumers with different businesses and providing the “plug-and-play” infrastructure that allows for a streamlined shopping experience, including reviews, comparisons across products and the ability to make electronic payments (OECD, 2019b). For many people, online shopping has been the predominant way of accessing the goods they need in times of confinement. There is some speculation that this might have a lasting impact on retail behaviour (Forbes, 2020).

Once the digitally ordered good is ready to be dispatched, logistics providers, including express delivery companies, postal services, and freight forwarders, take over (although increasingly digital platforms are moving into this space). These logistics services are the arteries through which parcels travel, but moving goods has also become more difficult due to physical distancing and other such restrictions implemented across many countries.

Issues also arise when parcels cross borders, where it is the role of Customs authorities and other border agencies to manage traffic. This means enforcing trade rules such as tariff collection, but also undertaking health and safety, security and quality checks for the different types of consignments. However, as a direct result of growing demand, Customs authorities and other border agencies are becoming overburdened. As more parcels cross borders, risk needs to be managed over a more numerous and diverse set of consignments (including in the context of infringement of copyrights, trademarks, design rights and patents). With lower availability of personnel due to confinement and physical distancing measures, border agencies across most regions have been increasingly aiming at capitalising on existing risk management systems and computer systems for exchanging relevant data electronically (OECD, 2020a).

Delivery and distribution channels related to cross-border trade in digitally ordered goods come in different business models. Direct selling, where the item is sent directly from business to consumer, is most prevalent for goods that have a higher value or intermittent demand and relatively lower sale volumes.9 By contrast, for products with more predictable and regular volumes of sales, large digital retailers often favour the use of fulfilment centres (Kanthuria et al., 2020).10 When individual orders are placed online, they are fulfilled by delivery to the final consumer from warehouses located closer to the consumer, most often via parcels. Clearly, the type of business model followed by the supplier of the product ordered will matter in the context of COVID-19. Those products that were already in fulfilment centres would have suffered fewer disruptions in the short term relative to those that required direct cross-border delivery to consumers.

The measures taken to control the spread of COVID-19, including limiting the movement of people, reinforcing border controls or introducing new protocols at borders (or measures to protect the people in charge of handling and inspecting goods), while necessary, have impacted the various modes of transportation used in parcel trade, albeit to different degrees (OECD, 2020a). Volatility in air, sea and road freight rates has risen, adding uncertainty and making it more difficult to assess the level of disruption in the short to medium-term (Miroudot, 2020).

The speed of activities throughout the logistics chain has also been affected by necessary distancing protocols which come in addition to constraints stemming from lockdowns and curfews affecting the ability of firms to produce. With many logistics operators operating multi-hub routes when shipping parcels internationally, restrictions accumulate, making it much more difficult to schedule operations.11

Due to the complex network of actors involved in parcel trade, delays experienced along the supply chain during COVID-19 can have multiple roots. Information reported by the private sector – more particularly logistics operators – between February and May 2020 highlights four key challenges in shipping parcels internationally (Figure 6) (LetMeShip, 2020). These can be further broken down into whether the issues arise in transit (which relates to getting goods to and beyond the border), at the border, or those affecting last mile delivery:

  • Transit: network capacity limitations12 and restrictions on type of shipments (e.g. weight, size, product type)

  • At the border: delays associated with specific controls / new protocols / volume increase

  • Last mile: geographic restrictions with closures of specific routes / delays

Challenges in cross-border trade in parcels during COVID-19 vary across regions (Figure 6). Network capacity limitations and last mile delivery restrictions appear to be an issue across most regions. However, in some regions, restrictions apply to specific types of products, in most cases relating to new requirements on medical supplies or personal protective equipment. Delays associated with specific controls or new protocols at borders appear to be particularly significant in Europe and Central Asia, Asia-Pacific and especially North America.In Latin America and the Caribbean, the Middle East and North Africa and Sub-Saharan Africa, restrictions relating to network capacity and last mile delivery are also important and can imply that volumes of parcels reaching borders might be lower than in other regions (LetMeShip, 2020). Across various regions, several postal operators report that specific routes (inbound and/or outbound) had to be completely suspended due to lack of transport capacity.13

At the border, growing workloads, as a result of rapid increases in trade in parcels, can be difficult to manage in the context of distancing measures. This can cause delays with wider repercussions across the different actors involved in the parcel trade ecosystem. Higher de minimis thresholds have the potential to enable Customs authorities to clear parcels faster – although higher de minimis thresholds can raise issues of equity with respect to domestic parcels which might not be VAT exempt. However, de minimis thresholds vary substantially both within and between regions (Figure 7) which can also make it more difficult for suppliers to send parcels across different destinations.

In addition, in relation to delivery, regulations related to courier services can affect both the cost and the availability of providers. Indeed, countries where access for courier services are most restrictive, as captured by the OECD Services Trade Restrictiveness Index (STRI), are also those with a lower postal reliability, as captured by the Universal Postal Union’s (UPU) Postal Reliability Index (Figure 8). In other words, the more competitive courier services are, the better the infrastructure for postal delivery.

Finally, even prior to the COVID-19 pandemic, some of the most significant concerns in getting parcels to the border and beyond related to security of payments, resolution of disputes and complaints between suppliers and customers, as well as the protection of data underpinning transactions (Suominen, 2017; Kanthuria et al., 2020). These issues remain in the current context and appear to have intensified as a result of the current crisis, with increasing reports of unfair, misleading and fraudulent commercial practices online, including the promotion of unsafe or counterfeit products (OECD, 2020b). Moreover, the current crisis also impacts the “post-purchase” phase by complicating eventual returns and associated refunds for consumers. From a supplier’s perspective, low levels of cross-border trust can impact export opportunities, where unclear and heterogeneous legal frameworks on consumer protection can cause uncertainty and increase compliance costs (WEF, 2019).

Households’ access to the Internet within and between countries varies considerably, leading to a digital divide that affects the ability of many people to purchase goods online and connect with co-workers and loved ones (OECD, 2018 and 2019c). 14 Indeed, in a number of low and lower-middle income countries, less than 20% of households are able to access the Internet from home (Figure 9). Even in upper-middle and higher income countries, Internet access can be an issue for disadvantaged population groups or those living in rural areas. This adds to other existing challenges that concern some consumers’ access to credit or debit cards enabling cashless transactions15.

Cost of access to the Internet can also be an issue. Here, regulatory frameworks can play a role ensuring that the environment is conducive to greater competition to help lower costs. There is considerable scope to lower trade barriers to foster competition in telecommunication services sectors with a view to helping firms and consumers enjoy greater access to higher quality services at lower prices (Figure 10)

In the context of challenges arising from physical distancing measures aimed at containing the spread of COVID-19, a range of factors have helped maintain cross-border transactions. These include, for instance, the use of e-payments, and digital certificates and signatures that can help maintain economic activities by reducing the need for personal contact when undertaking trade transactions. However, there is significant heterogeneity across countries in the adoption and functioning of these solutions. Even if all regions have at least one of the elements in place to help businesses and consumers connect during the crisis, including the more widespread adoption of e-transaction legislation (UNCTAD, 2020),16 more work is needed to fully enable the benefits of digitalisation for parcel trade (Figure 11). As the situation evolves, the adoption of digital tools and the development of rules around their use will help countries deal with prolonged physical distancing measures (World Bank, 2020). This will also require countries to increase their investments in their physical infrastructure, architecture for ICT services architecture and the regulatory environment in which these digital tools operate.

Given the complex network of actors involved from the click of the purchase button to the arrival of a good at the consumers’ doorstep, challenges can arise at various points along the parcel supply chain, especially in the context of disruptions stemming from COVID-19. Governments can play a key role in helping businesses – including MSMEs – and consumers harness the power of parcel trade to promote wellbeing and economic activity during the crisis and help with the subsequent recovery. Containment measures have slowed the spread of infections and, in many places, lockdown measures are being gradually lifted. However, limiting in-person interaction to prevent new infections and keeping businesses of all sizes operational to speed up economic recovery will remain key priorities for policymakers for some time. Cross-border parcels trade has the potential to support these important objectives.

  • Service capacity restrictions, delays associated with specific controls and new protocols, and last mile routing restrictions appear to be the most prevalent challenges in parcel supply chains. Against this background, making use of available digital tools (e.g. e-payments, digital certificates and signatures) is essential for connecting the different actors along the cross-border supply chain and mitigating the negative impacts of such bottlenecks, while helping with implementing physical distancing and all necessary health protocols.

  • Challenges can also arise at the border with increasing number and diversity of parcels having to be cleared by Customs authorities and other border agencies. In managing this traffic, agencies need to enforce trade rules, such as tariffs, but also undertake health and safety, security and quality checks. Capitalising on existing risk management systems and computer systems to share relevant data electronically has played a vital role in keeping parcels flowing, while ensuring the fulfilment of technical regulations and standards. In this context, higher de minimis thresholds – even temporary – are also likely to enable border authorities to clear parcels faster -- although higher de minimis thresholds might raise issues of equity with respect to domestic parcels that might not be VAT exempt.

  • Transparency and availability of information is essential. With new protocols and controls introduced or reinforced in light of COVID-19, both individual consumers and firms need to know what is expected from them in fulfilling formalities, what documents are needed, what taxes need to be paid, as well as what facilitating tools they have at their disposal. Border authorities, digital platforms and business associations can all play a role in the dissemination and accessibility of such information.

Efforts will need to continue or be renewed to scale up the physical and regulatory infrastructure that underpins digital networks and the parcel ecosystem, including through continued discussions on e-commerce at the WTO. Given a high degree of heterogeneity across countries, this could involve:

  • Working on increasing access to the goods and services that underpin digital networks. Access to the Internet – and its cost – varies considerably worldwide, leading to a digital divide within and between countries that affects the ability of many households to purchase goods online. Regulatory frameworks can play a role by ensuring that the environment is conducive to greater competition and lower costs.

  • Reducing barriers that affect the movement of parcels from producers to the border and from the border to consumers -- for instance, by continuing reducing restrictions on courier services.

  • Streamlining processes at the border through the wider adoption of digital technologies. The growing number and diversity of parcels crossing borders means that border agencies need to manage risks over a more numerous set of consignments while aiming to facilitate trade of all safety- and quality-approved products. Adopting digital technologies and exchanging experiences through public-private consultation structures (e.g. National Trade Facilitation Committees) or specific task forces can help prepare for potential future disruptions.

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Contacts

Javier LOPEZ-GONZALEZ (✉ javier.lopezgonzalez@oecd.org)

Silvia SORESCU (✉ mailto:silvia.sorescu@oecd.org)

Notes

← 1. This note uses the term physical distancing instead of the more widely used social distancing. This is to reflect that digital technologies enable people to socialise while maintaining physical distancing.

← 2. E-commerce includes here both domestic and cross-border parcels trade. More broadly, e-commerce can also include sales of digital products and services.

← 3. https://www.ti-insight.com/maersk-updates-volume-and-ebitda-expectations-for-q2-2020/.

← 4. Parcels can be defined through different parameters, which generally include the weight and size of a consignment (an upper bound of 31.5 kg is most commonly applied for weight), the time sensitivity of its delivery, or the mode through which it is delivered (whether postal, express carrier, truck transport, air cargo, cargo ships, etc.).

← 5. The available data cover goods specifically identified as postal and express consignments, but that cannot be attributed to a specific mode of transport (i.e. air, sea, road, rail freight). The data is nevertheless likely to capture a significant share of cross-border parcel consignments, enabling the identification of patterns of products traded, as postal or express consignments for which the transport mode can be identified would rather capture ‘bulk’ trade destined to fulfilment centres.

← 6. The reported increases arise from a lower base than ‘traditional’ trade, which remains much more dominant overall.

← 7. De minimis thresholds refer to “a valuation ceiling for goods, including documents and trade samples, below which no duty or tax is charged and clearance procedures, including data requirements, are minimal” (UNECE, 2012).

← 8. The de minimis level threshold for customs duties in the European Union is currently EUR 150 (USD 169, July 2020).

← 9. The markets for such products are typically less predictable, and businesses usually do not hold stocks close to consumers. This means that products are directly purchased from international sellers, often via digital platforms, and sent to the consumer as parcels using international express (courier) or postal channels of distribution (Kanthuria et al., 2020). They can therefore take longer to arrive to consumers.

← 10. These increasingly rely on artificial intelligence (AI) to predict demand with a view to saving on trade costs and enabling faster delivery (including same day delivery). This generally involves shipping containers with products using more traditional ocean or air freight and storing goods in warehouses after border clearance in regional or country hubs.

← 11. This can set additional burden for parcel returns for both business-to-consumers (B2B) and business-to-business (B2B) trade.

← 12. These mainly relate to disruptions experienced in specific segments of carriers or postal operators’ networks due to limitations in personnel availability or transportation bottlenecks.

← 15. See Bloomberg CityLab, https://www.bloomberg.com/news/articles/2020-07-14/the-costs-of-an-increasingly-cashless-economy.

← 16. E-transaction laws recognise the legal equivalence between paper-based and electronic forms of exchanges.

Disclaimer

This paper is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD member countries.

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