Xmas supply chain

Reindeer in quarantine? A letter from Santa Claus.

The consultant firm McChristmas helped Santa Claus optimize his supply chain processes. But now customs woes threaten fulfillment deadlines. Happy Holidays from AEB.

Santa Claus is stressed out 

From his central location in a modern open-space office at the Port of Hamburg, Santa is looking around nervously: His office elves are struggling to cope with the mountains of paper growing each day. Just a couple of weeks left until Christmas, and Santa is about to lose control. Secretly, he rues the day he engaged the consulting firm of McChristmas. It’s all their fault, after all.

“Move the logistics center from the North Pole closer to the customer,” they recommended. And “reduce the production costs of gifts by outsourcing to the most affordable manufacturers worldwide.” He initially welcomed both recommendations, because skilled labor shortages at the North Pole had led to a precarious hiring situation.

Overlooking the devil in the details

But import duties, special customs procedures, export controls, and customs inspections – none of this was mentioned in the consulting firm’s report. At least not in the executive summary – which, admittedly, is all he read before filing it away. Maybe he should have read the whole darn thing. Well, either way, the damage has been done.

In the old days, he slept until late in the morning, inspected the gift production, and paternalistically encouraged the elves to hurry up. He himself really only had to work hard for a few days at the end of December. Customs regulations never mattered to him – the North Pole is located in international waters, right? But ever since his supply chain was “optimized” in August, he’s been in the office around the clock trying to solve administrative problems.

Even Santa searches for help online 

It really can’t go on like this, Santa Claus thinks to himself, when the soft ping of an incoming e-mail stops his mind from wandering. A response from AEB. Finally! While searching online for a way out of the mess he found himself in, he came across this software company. The familiar red in AEB’s logo reminded him of his favorite coat. So he asked for detailed information on the digitization and automation of customs and logistics processes.

While he was at it, he even asked pretty much every question that came to his (frustrated) mind at the time. “Did they answer all my questions?” he wonders while glancing over the many attachments in the e-mail. Aha, here is an attachment entitled “Answers” – excellent! Santa begins to read his own letter, with neatly inserted answers from AEB to each question he had asked.

Santa’s questions and AEB's answers 

Dear Santa Claus, thank you for your interest. We don’t offer legal advice or customs consultancy. We collaborate with partners for such services. But we have the in-house expertise, of course, and in your very special case, we’re happy to make an exception to honor your important role for all the children in the world. Also, we think it’s great that you want a sound legal footing for your global operations. So please find our responses to your questions below.

Due to the outsourcing of my gift production, I procure from suppliers all over the world. But as these products are all gifts, I don’t need to pay customs duties, right?

Unfortunately, German or EU customs authorities may see this differently – as your recent experiences have proven. Your suppliers are now contractors, and based on the extent of your business operations, it’s quite likely you are also classified as a businessman. You can go to the authorities and explain that you are Santa Claus and require special treatment, of course. But there isn’t a legal provision for this, and officials don’t usually appreciate this kind of request for special treatment. This may even have negative consequences – including the withdrawal of your business license.

I receive all the deliveries from my global suppliers here in Hamburg, and my teams need to clear all goods through customs. Then, on Christmas Eve, over 70% of the goods get exported again across the world. What an epic effort! Isn’t there an easier way? 

Sure there is! Try to obtain the status of a private bonded warehouse for your facilities in Hamburg. Goods within a bonded warehouse are cleared through customs only when removed. Re-exporting to the EU, for example, won’t be subject to customs duty. But the bad news is: You won’t manage to get a bonded warehouse authorized before Christmas – it’s just too short notice!

What if I moved my warehouse to a country outside of the EU and delivered gifts to children in EU countries directly from there with my reindeer sleigh – that would be duty-free, right? 

No, sorry. We suspect the customs authorities would treat you the same way as an online merchant. And shipments to or from businesses are not duty-free gift deliveries. But goods valued at less than €22 may be imported duty-free until 2021, at least. Considering today’s Christmas lists, however, we expect your items may quite often exceed this value. Oh, and don’t forget: This exemption does not apply to alcoholic beverages, fragrances, tobacco, and tobacco products. But we assume kids don’t usually ask for such gifts. Goods with a value between €22 and €150 are also duty-free, but import sales tax applies in the respective country of destination.

These customs duties are starting to ruin me – it’s a serious financial burden for my operations. Is there no way to reduce these charges somehow? 

You can make use of free trade agreements. OK, never mind TTIP for now. But the EU has over 40 free trade agreements with over 100 states in place. For goods that originate in these countries, you can take advantage of customs preferences. This requires proofs of origin for these goods, but based on your globalization strategy, this move may be worth the effort. And for goods produced in the EU, you can also use customs preferences when you export them to countries with which the EU maintains bilateral agreements.

If I understood my Chief Customs Elf correctly, I have to submit an electronic customs declaration for every gift to children outside of the EU. With millions of gifts, this means processing millions of customs declarations within the shortest time frames ever! Can the authorities manage this? 

Yes, they can handle it. You’d be surprised what tremendous quantities they can process – especially at major ports like Hamburg. But you may want to consider making use of the exception for small shipments. Export shipments up to a value of €1,000 do not require a customs declaration. Based on export definitions, you could classify the children’s Christmas lists as export contracts. And requests for gifts valued at more than €1,000 offer the perfect opportunity to encourage modesty. So as long as the value of each shipment stays below €1,000, your elves can declare these exports in person or at the local customs office. Considering the volume of gifts, however, this may not necessarily be more efficient.

When I pass from country to country during my Christmas deliveries, are my reindeer and my sleigh actually subject to customs duties as well?

No – not if you bring it all back to your base once your deliveries are complete. You can use a Carnet ATA for moving professional equipment across participating states. That’s quite convenient. But for your reindeer in general, there are also veterinary regulations to consider: Different countries have different laws in place for the import of live animals. We’re not experts in this area, but unless you want your reindeer to be quarantined for months at a time, you may want to consider distribution with local animals. The US and Canada should not be a problem – you’ll find caribou there. In South America, maybe tapirs or llamas could pull your sleigh. And in Africa, maybe zebras and ostriches – we hear they are quite quick too.

What about export control regulations? Don’t tell me I really have to screen all the children against all these sanction lists?

As far as we know, you already screen against one sanctions list – your naughty list. Screening against official terror lists actually makes no difference. Yes, there are many lists to screen against, but this is not something that needs to slow your elves down: There are IT solutions that run in the background and screen addresses automatically as needed. On a different note, however: Do you or any of your little helpers carry any kinds of weapons – even sticks or switches? Please also take a look at the EU torture regulations and applicable devices, and double-check applicable export controls and relevant licensing requirements.

Am I allowed to deliver gifts to children in embargoed countries?

Yes. Most restrictive measures apply to weapons, dual-use goods, and financial funding. Not to humanitarian goods or those for daily needs. But export controls is an area of constant vigilance: If a child in North Korea, for example, asks for a rocket launcher, this should raise a flag. Generally, you should also check if contents of chemistry sets and computer accessories appear on the relevant lists of prohibited items. Foodstuffs from the EU to Russia, for example, are also subject to restrictions – so be sure to check your cookie ingredients and make any necessary changes.

All the very best. And give us a call if you would like to give our software solutions a try – we see major potential for relieving your logistics elves of their current administrative workload. But we understand that you need to focus on your upcoming deliveries first – and recover from your recent optimization trauma. We’re keeping our fingers crossed and look forward to hearing from you soon.

Merry Christmas and a Happy New Year from your AEB Team!

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