"Yes" to Cost Savings and "More" Compliance - Absolutely. |
 By Jeff Chiu, Vice-President, Global4PL Supply Chain Services
An emphatic "Yes!" should be the reply when an importer is asked if it is
committed to reducing costs and increase compliance. Likewise, an
emphatic "Yes!" should be the reply when an importer is asked if it practices
reasonable care in its customs transactions.
Numerous entities comprise the importer's supply chain, from
manufacturers, vendors, and exporters, to freight forwarders, carriers and
express couriers; at destination there reside their counterparts, along with
customs brokers, distributors, and delivery companies.
Most companies negotiate and manage all their contracts, purchase orders,
freight rates, shipping terms, with almost all of the parties involved in the
supply chain, but few look into the customs clearance area beyond
negotiating the entry fee.
Large freight forwarders have brokerage departments that contribute to their abilities in offering doorto-
door service. Compliance suffers at the cost of savings, when brokerage departments are given a
fraction of the freight revenue that is “packaged” with transportation charges, and when the brokerage
teams are expected to process as many entries in the shortest amount of time possible. This is not to
say that brokerage departments of the large freight forwarders don't do a good job; there are certainly
very talented people who provide excellent customer service. However, customer service does not
always include Customs compliance during the data entry buried within the day-to-day task of clearing
shipments.
The timely filing of an import entry aims to eliminate delays in the supply chain. The information
gathered by the customs broker is vital to the calculation of duties and fees. Companies that rely too
much on their broker lose the control of the process and compliance suffers.
There is a solution to the proverbial “having your cake and eating it too.”
Title 19 of the Code of Federal Regulations, specifically 19 CFR § 111.2(a)(2), US Customs & Border
Protection (“CBP”) provides the scenarios in which a Customs Broker's license is not required to
transact Customs business. One instance is: “An importer or exporter transacting Customs business
solely on his own account and in no sense on behalf of another is not required to be licensed, nor are
his authorized regular employees or officers who act only for him in the transaction of such business.”
A freight forwarder or a traditional Customs brokerage is required to have a license in order to file
Customs entries on behalf of an importer. An importer is not required to have such a license if it were to
clear its own imports. A traditional brokerage model requires that at least one officer possess a
Customs Broker's license. An importer is not required to have such an individual in an officer's position.
An importer with 1,000 entries per year who pays on average $100 per entry (entry fee plus accessorial
fees) will pay $100,000 in brokerage fees to a freight forwarder or a traditional brokerage. An importer
can easily increase headcount by two full-time employees for this amount. Most importers will stop with
its analysis at this point because it appears to be a wash.
In terms of numbers, the two employees represent “flat fee” pricing, where if the number of entries
increases slightly, the employee headcount and expense do not. The other benefit that most importers
do not fully appreciate is the improvement in import compliance. An importer's staff works on one
account; the employee at a traditional brokerage works on numerous accounts. An importer's
employees are bound to exercise greater care in their work as opposed to the data center environment
of a freight forwarder or a traditional brokerage.
An importer with 1,000 entries per year who uses a webbased
Customs entry software package will pay on average
$20 to $25 for each entry, or a total of $20,000 to $25,000 per
year. If an importer has staff available or can shift some staff
responsibilities around, this represents a savings of $75,000
to $80,000 per year. Similar to the first example, the importer
will also benefit from improvement in import compliance.
In both examples, it is important to note that the knowledge of
an importer's business, its import supply chain, and its
Customs transactions are retained with the importer's
employees. This is in contrast to the approach used by freight
forwarders and Customs brokerages where staff can be
rotated or worse, not replaced when they depart. The
importer has to “train” a new associate with each new
rotation. Again, this is not to say that there are not valuable
people at the freight forwarders and the traditional
brokerages, but that it is difficult to retain the knowledge.
Written standard operating procedures only go so far.
The numbers are easy to show and justify the in-housing of filing Customs entries; the savings are
tangible. The rule of thumb for self-filing should be 500 entries for those who pay duties and 1000 for
those who do not pay duties on their entries.
The next question is: “What does it take to implement this initiative?” An importer may want to engage
in self-filing, but does it have the staff, time, and most importantly, the commitment?
An importer with personnel experienced in imports and with excellent internal controls would have the
shortest implementation period. It would involve training the appropriate personnel to use the entry
filing software and on the workings of the particular port in which the importer is located.
Although an importer without such experienced staff may be required to seek out such human
resources, it does not mean self-filing is out of reach. It may designate a person to oversee Customs
transactions for the entire company, but outsource the daily operations to a third party supply chain
management firm. This solution provides a faster ramp-up time on implementation and instant
expertise and assistance on Customs related issues.
The import compliance may appear to be an intangible benefit at first, but it will manifest itself in a
decrease in the number of examinations at the border, thus decreasing delays and the associated
costs of getting the goods to market. CBP would recognize and appreciate that the importer is
exercising greater reasonable care (as defined in the Customs Modernization Act) and in its
transactions. The importer may at one point, consider membership in the Importer Self-Assessment
(“ISA”) program where in exchange for the application of the strictest internal controls as they relate to
Customs transactions, CBP would remove the importer from the general audit pool, amongst other
benefits.
After an importer has crunched the numbers and identified the personnel for the self-filing, it has to
surmise whether it has the commitment to take on such an initiative. Certainly, an importer understands
the need for strong internal controls, computer hardware, software, record keeping requirements, and
training. Underlying all of these needs is the commitment.
It is an initial commitment voiced and upheld by top management and its mission for the company to
comply with import regulations. It is a commitment to monitor all electronic transmissions and messages
from the Automated Broker Interface (ABI) and payments via the automated clearing house (ACH) on a daily basis. It is a commitment to actually execute what has been written down as policy. It is a
commitment to train and cross-train staff so that the compliance standard does not wane.
Some argue that a self-filer looks and acts much like a traditional broker, aside from the obvious
differences (non-requirement of a license holder and the inability to transact Customs business for
other parties) and it is not worth the effort to internalize the filing of Customs entries. On the surface, it
has the added burden of import compliance, but CBP has already placed that burden on the importer
with the Customs Modernization Act. Taking on self-filing is merely an extension of the operations -
sourcing, purchasing, freight negotiations, distribution – of an importer, and will allow for greater control
over a critical link of the supply chain.
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| About the Author: |
| Jeff Chiu is Vice President at
Global4PL, a supply chain management consulting company
that assists clients to reduce costs and achieve their full operational
potential. Mr. Chiu, a licensed US Customs Broker, is the corporate
license holder for Global4PL. He possesses over 14 years of
experience in import operations and compliance, with emphasis on
internal Customs audits, commodity classification, tariff engineering,
trade programs, and training. |
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| October 2010 |
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