By John Manners-Bell

May 22nd 2019

A little talked about issue is the use of post and parcel networks for the movement of counterfeit goods around the world and the role of hubs such as Hong Kong, Singapore and Dubai.

Counterfeit trade rises as parcels volumes grow, a podcast by John Manners-Bell.

One of the least talked about issues in the Global Express Parcels and Mail Industries is the role which these sectors play in facilitating the movement of counterfeit goods around the world. The OCD has just published the latest edition of its report on the subject, Trends and Trade in Counterfeit and Pirated Goods, which makes for worrying reading.

Its headline finding was that in 2016, counterfeit and pirated goods amounted to 3.3% of world trade, or $509bn, not counting domestic trade in counterfeit goods or pirated digital products. This was up from 2.5% of world trade in 2013. For EU imports from third countries, it is estimated to be as high as 6.8% or $134bn. The report found that free trade zones are often used as convenient transit points. The most prominent of these are Hong Kong, Singapore and the UAE. There is a direct correlation to the number and size of free trade zones in the country and the level of counterfeit exports.

Regional transit points also exist. For example, Saudi Arabia, Yemen and UAE for the Middle East. Albania, Egypt, Morocco and Ukraine for moving goods into the EU, and Panama for the US. Criminals are avoiding detection by sending small shipments via post or parcels networks. Goods are often sent in containers to the hubs identified above, broken into smaller shipments and injected into international post and parcels networks.

The increasing number of smaller shipments caused by the popularity of cross border e-commerce places an additional cost burden on customs authorises and reduces the chance of detection. In terms of the main place for origin of fake goods, china and Hong Kong are the top of the worst offending countries. Whilst OCD members, primarily US, France, Italy, Germany, Switzerland, Japan Korea and the UK are the main victims. However, increasingly high value companies in emerging markets are being targeted.

Governance is an important factor in reducing illicit trade as it reduces the opportunity for corruption. Ironically, the authors of the report found that trade in counterfeit goods was helped by many of the same factors which make legitimate global supply chains efficient: low shipping charges, fast and predictable customs processes and good quality transport infrastructure. However, they also asserted that supply chain visibility, created by tracking and traceability tools, leads to a reduction in the share of counterfeit goods.

There are perhaps two key areas of concern for the authorities, firstly the growth of small parcels volumes caused by the importance of e-commerce, is clearly of significance. For example, 84% of seized shipments of counterfeit footwear and 2/3rds of ICT devices involved postal, parcels or express shipments. As parcel volumes climb, this problem will only become worse unless the route cause is addressed.

Some 69% of custom seizures between 2014 and 2016 were carried by postal or express services. Secondly, the proliferation of free trade zones that also drive illicit trade. The report suggested that each FTZ in a market resulted in 5.9% increase in the value of illicit trade.

Overall, it can be concluded that counterfeit prospers in markets where there is poor governance, little oversight of free trade areas and high levels of corruption. Once they have accessed the global logistics network through sea, air and then injected fake goods into post and parcels networks, there is little that the authorities in developed markets can do. Their own agencies are being overwhelmed by the sheer volume of parcels that are being generated. The only solution will be to encourage and cajole the markets responsible for counterfeiting, China is the obvious one, to address the problem, at its route.