Importer-Customs Broker Interactions Can Be A Slippery Slope With The New Import Regulations
A new regulation from the US Customs has changed importer workflows to traverse customs. The ecosystem is still getting to terms with it.
A hearty welcome to the 70th edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
This week, we dive into the recent landmark change brought about in the US customs. It’s a regulatory change from the US Customs and Border Protection (CBP), which will impact the usual workflows of all stakeholders in the customs environment, primarily affecting importers and brokers. To the largely trucking-based audience on TLR, the gravity of this regulation can evoke memories of the time the ELD mandate was instituted in Dec ‘17.
To be fair, for all its proclaimed complexities, red-tape, and the negative press that the customs ecosystem seems to garner, the stakeholders — importers, forwarders, and brokers — have enjoyed a fairly stable regulatory environment. While of great consequence to the import industry, the recent change is the first major update to regulations in nearly three decades.
While of great consequence to the import industry, the recent change is the first major update to regulations in nearly three decades.
The Modernized Broker Regulation (MBR) went into effect on 19 December 2022, stipulating that importers must now directly engage with customs brokers to sign a power of attorney (POA) — allowing brokers to represent importers to move freight into the US.
The new status quo is a major deviation from the norms that preceded it, where importers could relegate the burden of customs processes to a third-party company — like a freight forwarder or a carrier — by signing a POA. The third-party company would select the customs broker of choice based on their assessment of what would work well for the importer based on the type of freight.
This led to several customs blind spots, considering a chunk of logistics service providers do not clearly understand the freight they help import on behalf of the shipper. As importers lacked an understanding of customs regulations and did not directly interact with their customs brokers, they ran the risk of regulatory infractions. The law has always stayed clear here — the importer is ultimately responsible for what is brought into the country.
The recent change has meant a quick transition for importers to start working with customs brokers directly. However, building a relationship is not as easy as it sounds. In the past, the CBP required customs brokers to gather and submit information from the importer — like tariff classification, duty rate, country of origin, and goods value. Brokers were the lynchpin to import trade, balancing their role between the CBP and importers.
While the prerogative of the MBR is to ensure better customs compliance by pushing shippers to take cognizance of their imports, the fineprint might be harder to reconcile for stakeholders. One such change is the inherent requirement for brokers to police their existing clients — even businesses reaching out and potentially looking for a broker partner.
While the prerogative of the MBR is to ensure better customs compliance by pushing shippers to take cognizance of their imports, the fineprint might be harder to reconcile for stakeholders.
“As a broker, it puts us in an unusual situation,” said Steve Fodor, founder and head of Customs Services & Solutions, a customs brokerage company in the business for over two decades. “If a client comes to us with a request we believe is outside of the law or regulations, the CBP now requires us to document and report that to the customs office.”
This is unprecedented, considering importers do not have confidentiality over their interactions with brokers. Fodor contended that while he had seen importers come and make requests that would go against the law, these demands were rarely wilful. “In most cases, the importers aren’t trying to commit fraud. They are just looking to pay the lowest duty possible for their products. My concern is that the new regulations want us to document and report such questions, even if they are innocuous,” said Fodor.
This new environment could potentially push brokers to be more cautious of their communication channels. Fodor pointed out that he would rather not talk to existing or prospective clients on the phone to avoid a he-said-she-said situation in the case of CBP opening an investigation. E-mail exchanges might slowly become the norm for brokers to address queries.
With the level of fragmentation in the import market today, there is a real possibility that a significant portion of small and mid-sized importers are yet to fully appreciate the new changes. This is especially true of importers who lack a dedicated team within the organization to keep track of customs regulations.
With the level of fragmentation in the import market today, there is a real possibility that a significant portion of small and mid-sized importers are yet to fully appreciate the new changes.
In this regard, it becomes essential for brokers to get their importer clients to feel comfortable signing direct POAs with them, aside from talking through the ‘type of questions’ that would be entertained. “In the past, bad requests have come to us from some good customers. We’ve always confronted them on such requests and explained why it couldn’t be done,” said Fodor. “But with the new regulations, we have to communicate to the importers that this is an area of focus by the CBP, and they need to be very cautious in what they ask, as they could risk being accused of fraud.”
Sometimes, the circumstances surrounding a freight import might be contentious. In such cases, working with a customs attorney would be wise, especially if the legality surrounding its import lies in a gray area. That said, small importers will find it challenging to work with attorneys, considering their hourly rates run at roughly $1,000 an hour, with a minimum expected commitment of five hours per client.
Importers will do well to avoid such situations by preemptively working with customs brokers to understand the environment, mitigating risks of fraud and saving money spent on legal advice. Fodor insisted that communication is key between brokers and importers to ensure operations run unhindered.
In the end, due diligence will help importers stay on the right side of the regulatory line. “If an importer uses a service provider, it’s crucial to focus on the information and ensure it makes sense. In case of large import volumes, spot audits on a few of them will help make sure things are in order,” said Fodor.
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…said who?
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