E-Commerce growth drives ‘counterfeit’ supply chains

A recent report by the OECD and the European Union Intellectual Property Office, ‘Trade in Counterfeit and Pirated Goods’, estimates that counterfeit goods accounted for 2.5% of the world’s trade in 2013. For the EU it is an even bigger problem, with counterfeit and pirated goods accounting for as much as $116bn or 5% of international trade. In each of the three years which were analysed (from 2011 through 2013) there were over 100,000 customs seizures.

One of the major drivers of opportunity for counterfeiters, it seems, has been the growth of international e-commerce. The report identified that this type of trade is mainly facilitated by the international postage system which is the primary mode of choice due to the small shipment size involved. Between 2011 and 2013 just less than two thirds of all seizures worldwide were postal shipments. This category was followed by air (20%), sea (9%) and road (7%).

The supply chains involved in moving the counterfeit goods are complex. According to the report, as well as the largest logistics hubs such as Hong Kong and Singapore, other intermediary transit points include countries where there is weak governance and where criminal and terrorist networks are able to operate at will. The report’s authors suggest that such supply chains are very dynamic, with criminals able to make routing decisions based on the quick identification of vulnerable logistics nodes.

Even though counterfeit goods originate from every country and region, China is by far the biggest culprit. Around 85% of goods seized originated in either China or Hong Kong, with Turkey being the third most frequent country of origin, albeit with a much smaller proportion (c.5%). In terms of the commodities most likely to be counterfeited, footwear and clothing stood out as the most important categories, although electrical machinery and equipment and watches were also frequent targets. The report only measured the numbers of seizures in terms of volumes, not in terms of value. Hence although pharmaceuticals was one of the smaller categories, it can be assumed that in financial terms it is far more important.

Obviously counterfeit and pirated goods are major sources of risk to supply chains. They represent not only a cost to the legitimate manufacturers through lost sales, but in the case of pharmaceuticals and electrical goods, present a material threat to consumers’ health and safety. An interesting aspect of the illicit trade is that many of the supply chains are legitimate i.e. established to move legal goods. However, these supply chains can be ‘hi-jacked’ for criminal purposes either by the manufacturers themselves who set them up in the first place or by third parties substituting counterfeit goods for real ones. Either way, it seems inevitable that government attention will be intensified on this problem, not least due to the security risk which counterfeit supply chains present.

Source: Transport Intelligence, 22nd April 2016

Author: John Manners-Bell


John will be chairing and participating in a number of panels at Ti’s upcoming Future of Logistics event in London. To find out more about the event or to secure your place please follow the link provided: http://www.ti-insight.com/conferences/london-2016/