Five Ways to Turn Chaos Into Opportunity: What Customs Experts Want Supply Chain Managers to Know

Editor’s Note: Tom Gould, is VP of Global Customs at Flexport, and Marcus Eeman, is Global Customs Lead at Flexport

Global trade hasn't been this eventful since the Boston revolutionaries threw British tea overboard in the 1700s. While the phase one signing ceremony between the U.S. and China is behind us, there's still a tremendous amount of uncertainty, especially for U.S. shippers.

At Flexport, we saw many clients shift parts of their supply chains out of China, introducing a new level of complexity in their customs filings.

But in the world of customs, we know that chaos breeds opportunity.

We've worked with hundreds of clients over the years. The savvy ones work with a trade consulting firm when things go awry or have a customs broker on staff, but the really savvy ones all have a few things in common. Below are what some of the most sophisticated customs organizations do to turn chaos into opportunity, and customs know-how into a strategic supply chain advantage.

1.) Assess data to project impact of tariffs

Savvy organizations have evolved beyond spreadsheets—they know they'll never find new opportunities for savings there.

Spreadsheets provide you with a very narrow scope to manage the impact of tariffs on your products. Let's say you have all of your HTS codes for each of your products listed in a spreadsheet. That would allow you to do a VLOOKUP, or to identify a list of all of the exclusions or to determine which products will be affected by tariffs.

That doesn't allow you to project the impact of tariffs, which is critical. With a sophisticated system, such as a global trade technology platform combined with powerful analysis software, experts are empowered to see clearly through the chaos. Instead of simply matching your products to HTS codes, a system like this could allow you to look at projected tariffs over time per country to identify the issues and costs of each tariff.

2.) Read the fine print

While there was a “signing ceremony” to celebrate the phase one trade deal, there's still many missing details. New lists and exclusions are posted every few weeks, and should always be closely reviewed.

Read the fine print and pay careful attention to any corrections to previous exclusions. Modifications are not reprinted as new exclusions.

For example, in the last few weeks of 2019, there was a modification to the exclusions on certain types of compressors, changing the exclusion value from $500-$900 to $200-$1,500. This type of correction dramatically changes who is impacted.

3.) Prepare for additional scrutiny

The U.S.-China trade dispute put a microscope on US importers. Between 2017 and 2018 alone, there was a 49% increase in penalties issued by United States Customs and Border Protection (CBP). We anticipate this number will be higher when the 2019 and 2020 statistics are released.

Smart importers know they need to be more rigorous in their customs filings to avoid investigations, audits or penalties. The ones finding opportunities for savings amid the chaos and increased scrutiny, however, are doing two things exceptionally well. First, they're analyzing their data under the same light that CBP would and focusing heavily on transactional data. Second, they're putting in the necessary procedures to be ready when customs comes knocking.

Responsive, well prepared companies receive less scrutiny. Less scrutiny means less time spent managing a CBP inquiry. And we all know: time is money.

4.) Don't move your whole supply chain, just enough.

You don't need to move your entire supply chain to save on duties, just enough of your supply chain.

Country of origin refers to where a good is manufactured or produced. Due to the US-China trade dispute, “moving your supply chain to Vietnam” became a catchall solution. This is an expensive, time consuming and usually unnecessary endeavor.

We advise clients to focus on country of origin: manufacture just enough of your product in a different country to (lawfully) avoid the additional duties on products of Chinese origin. A cosmetics company making lipstick in China recently took advantage of these rules by moving raw lipstick bulk production to France. Once completed in France, they shipped it to China to be shaped and put into tubes before exporting it. Because of rules of origin, the lipstick qualified as a French product and avoided excess tariffs.This saved them thousands in the end.

5.) Compliance will always pay off in the end.

“This is how we've always done it, so we won't have the same issue in the future.” We hear this all the time, and is usually how an importer will break regulations that could lead to a massive fine from CBP.

All parties need to act within the right applications of the law and understand that while being compliant may make things more expensive or process-oriented, it will pay off in the end.

The takeaways

The smartest, most customs-savvy companies have found opportunities for savings amid the chaos. Taking the time to analyze data and project future costs can be the difference between a profitable company, and one paying a massive, unforeseen (but preventable) penalty or duty payment. Customs savviness—or the willingness to invest in customs experts—will become table stakes in a world where supply chain leaders can no longer count on geopolitical stability.

As the dust settles on our own modern day Boston Tea Party, the savviest of companies won't be immune to the costs of trade instability, but they'll certainly be paying less.

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