Cargo Insights: How to regulate the ‘Wild West’ of e-commerce?

Anyone who watched the television show “Gunsmoke” knows that the American “Wild West” could be a dangerous place where notorious outlaws preyed on small towns to enrich themselves at the expense of others. Law enforcement was present but, in many cases, spread thin so the local sheriff would usually form a group of willing and able citizens to help capture criminals. While methods today may differ, a lawsuit recently filed by one of the world’s leading delivery operators contends that the government still deputizes – although in this case, the public is not as willing to help.

The controversy involves a suit filed by package delivery giant FedEx, against the United States Department of Commerce to stop the agency from enforcing regulations that would require the company to screen and stop any shipment coming into the U.S. that may pose a threat to national security. The Commerce Department administers Export Administration Regulations (EAR) through its Bureau of Industry and Security. The rules govern whether a person may export an item from the U.S., reexport the item to a foreign country or transfer the article from one person to another in a foreign country.

Due to rising trade tensions between the U.S. and China, several companies were added to the restricted entities list in June. As a result, FedEx is now required to stop and block packages coming into or shipped from those firms. The company’s complaint contends that the requirement is an unfair and “impossible burden” of liability, while also arguing that FedEx is a transportation company and not a law enforcement agency. Unfortunately, the situation serves as a glaring example of regulations, developed for the old world, failing to adapt to the changing realities of commerce today.

As e-commerce proliferates throughout the world economy, the forwarding industry knows that the nature of logistics is changing. The traditional business-to-business movement of freight has previously focused on the transportation of raw materials and components for manufacturing. These commodities primarily comprised finished goods that reached distribution centers and retailers. While that traditional model still exists, the abundance of entrepreneurial “gig” manufacturers has added another dimension wherein many small suppliers routinely provide products directly to consumers, without intermediate steps. These entities offer a vast opportunity for transportation providers, but also create a real challenge for regulators.

The merits of the trade controversy between the U.S. and China are debatable and perhaps well-founded. However, clearly understanding the actual origins of the shipper, product, or its components is a supportable exercise for export compliance and security. Transportation providers should assist where reasonably able to help governments pinpoint any risk that a shipment may pose from a commercial and safety perspective. However, forcing carriers to know and understand the origin and technological contents of all the shipments transported for EAR compliance is akin to the “Old West” sheriff pressing reluctant townsfolk to serve in a posse. Trade enforcement is an inherently governmental task that unwilling or unable citizens and businesses should not be required to assist in fulfilling.

Because of the U.S. requirement, FedEx finds itself at odds not only with the U.S. government but with China and the customer as well. Since a FedEx employee blocked a shipment for a restricted entity recently, the Chinese government initiated an investigation against the firm, and the customer has discontinued its relationship with the carrier. The EAR offers no protection for common carriers that would except them from liability for the contents of packages, so these companies could be held as aiders and abettors in export violations committed by the shippers.

Forwarders may be faced with the same concern as FedEx since these restricted EAR entities could use, or already are using, their logistical services for product transportation. Unwittingly transporting a controlled commodity could happen relatively easily, since quickly and accurately identifying a restricted article or newly forbidden entity requires expensive technological expertise that many forwarders do not currently have. The regulations concerning EAR enforcement need to be clarified to reflect the current realities and challenges e-commerce poses to trade. Deputizing carriers and forwarders to perform the enforcement task is expensive, unreasonable and as ridiculous as settling disputes in shootouts at the OK Corral.

There is a role for transportation providers in solving the issue of how to balance regulatory enforcement with financial limitations. Perhaps a joint task force comprised of appropriate regulators and industry stakeholders can work together in finding flexible solutions that reflect the realities of the new trade environment.

Brandon Fried is the Executive Director of the Airforwarders Association. He writes the Cargo Insights column for Air Cargo World.