The Uneasy Relationship between an Importer and Its Customhouse Broker—Part 3

John Goodrich | July 9, 2006 | Import Basics
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The Uneasy Relationship between an Importer and Its Customshouse Broker - Part 3 | Shipping SolutionsIn the first article in this series, we heard from a Customhouse Broker who had the temerity to demand a little respect from his customers. The broker went so far as to craft a broker’s bill of rights.

The second article of this series gave voice to a frustrated import manager who was not successful at managing the brokerage relationship.

Admittedly both of these characters were somewhat exaggerated, but both spoke the truth.

In this third and final article of the series, we will explore alternative strategies for effectively managing the importer-broker relationship.

10 Keys to a Healthy Import-Broker Relationship

The thrust of this article can be summed up in three words: communication, communication and communication. The misunderstanding, distrust and frustration expressed by both of our characters in these articles find their root cause in poor communication, undocumented expectations, and unreasonable assumptions about each other’s business.

Here are suggestions for bridging the communication gap:

1. Over-Communicate

If both parties feel they are repeating themselves then communication is probably just beginning to take place. Remember, brokers, your customer has a business to manage. You are just one of a myriad of details they have to deal with. Likewise, importers, your broker has other clients. You cannot expect them to know your business as well as you do.

2. Document Service Expectations

What roles will the broker be performing? What roles will the importer perform? Put it in writing in the form of a standard operating procedure. Make the following very clear:

  • Contact names, addresses, email, phone numbers.
  • Billing and remittance addresses.
  • Method of delivering commercial documents to the broker.
  • Number of days the broker has to process documents and make entry.
  • Reasonable time frame for expediting un-cleared entries with Customs.
  • Content of broker invoices entry document records.
  • Who will perform the primary classification?
  • Method of maintaining and communicating an item HTS classifications database.
  • Agree upon verifiable metrics and reasonable standards for these metrics: (1) total numer of entries, (2) number of entries cleared prior to arrival, (3) average number of hours or days cleared after arrival, (4) number of rejected entries, (5) reasons for rejected entries, (6) billing accuracy, and (7) payment timeliness.

Some Customs brokers maintain automated systems that maintain all of the above information as part of their customer templates. Their entry systems will track a variety of critical events and often can generate performance reports.

Similarly, importers, customs has extended an open invitation for you to participate in the Automated Commercial Environment (ACE) program, which gives you access to your company’s entry information and compliance standing.

3. Document Fees and Payment Terms

As in a marriage, the number one dispute between brokers and their customers is money. Not documenting a fee schedule is a recipe for disaster.

  • What is the fee schedule for all services to be performed?
  • Will the importer participate in ACH or depend on the broker fronting duty payments?
  • How quickly will the broker generate invoices?
  • How quickly will the importer process and pay invoices?
  • How will late payments be managed? Will finance charges be accrued?
  • How long is the fee schedule valid?

4. Agree on Problem and Dispute Resolution

It may seem negative to discuss problems at the beginning of a business relationship, but doing so will ensure equitable resolution of potential problems.

  • What is considered bad news? A rejected entry that upon resubmission clears before arrival? A seizure? A changed classification that doesn’t alter the duty rate?
  • How and when should bad news be shared? Immediately? By email? By phone?
  • What is reasonable time for resolving an issue?
  • What are the remedies if a resolution cannot be reached?
  • What sorts of monetary consequences of a problem should be borne by the importer’s?
  • What situations, if any, might require the broker to pay fees on behalf of the client?
  • How can the relationship be terminated?

Some of the above sounds like it should be written into a contract. While that is an option, it need not be that formal.

5. Keep it Professional

Check the anger, attitude and assumptions at the door. Neither of you will truly know each other’s business and be able to make a judgment regarding motives or intent. Try also to keep the problems in context of the greater import program.

Most of your discussions will revolve around problem solving. Don’t lose sight of the fact that the majority of your transactions are problem free.

6. Stick to the Facts

Much of what you are dealing with is quantifiable. Was the entry made on time? Was the invoice prepared properly? Were harmonized codes communicated accurately? Were vendor commercial documents delivered on time? The facts generally will indicate the cause of a problem and who the responsible parties are.

7. Meet at a Regular Time

No one has enough time to do his or her job. Everyone is pressed to do more with less. Multiple unscheduled phone calls are disruptive. Respect each other’s time by meeting via telephone on a regular schedule. These meetings should be a priority and rarely canceled.

Frequent discussions may seem to be a waste of time, but they are effective at preventing issues and managing expectations. Agreeing in advance as to the format and an agenda for the meeting will also limit the length of the meeting and allow each party to be prepared.

In addition to regular operations meetings, there should be monthly or quarterly reviews of the metrics discussed above. These meetings are an opportunity to collectively agree upon standards and goals for the upcoming period. It is also an effective method of drawing management into the compliance discussion.

8. Honor Business Obligations

If service expectations have been documented in a standard operating procedure and fee schedule, there is no excuse for either party changing the rules of engagement. Say what you are going to do and then do it. If one of the partners is unable to meet its obligation, then they should clearly say so.

9. Visit the Broker or Importer’s Office

Taking time out of your schedule to visit the client or visit the broker’s office may seem like a luxury. A periodic visit can help each party walk 10 minutes in the shoes of the other and strengthen the collaborative business relationship required for a successful import compliance program. Some importers use this opportunity to reward their brokers for superior service.

10. Trust Yet Verify

While it is the job of the broker to be the import compliance expert advising clients, no broker can know it all. As the broker’s bill of rights stated, “brokers are not mind readers.” A broker can certainly anticipate how customs will respond in given situations. The broker cannot, however, be absolutely certain as to the actions customs will take. An importer needs to understand they cannot hand over their entire import program to a broker, walk away and expect the program to run flawlessly.

Similarly brokers should not expect their customers to be infallible. The business discipline that built the customer’s commercial brand may not extend, in practice, to the import operation.

An example of this trust-yet-verify tenet is the HTS classification process. The regulations hold the importer responsible to uphold a reasonable care standard when submitting information to customs.

While current interpretation of the regulations holds the importer to the higher standard, the regulations also require brokers to exercise due diligence in reporting accurate and truthful information to the government. A broker who knows or is reasonably certain that the importer is not exercising reasonable care in assigning classifications has a responsibility to inform the importer of the issue and to help them work toward accurate classifications.

While it is reasonable for an importer to expect that a broker is an expert when it comes to working with the customs regulations, it is not reasonable to assume that they are experts in classifying your individual commodities. Only the importer has the detailed product specifications needed to make an accurate classification.

It is reasonable to expect the broker to be disciplined in applying the classification protocol known as the General Rules of Interpretation and to collaborate with you in developing that same discipline within your company. Together you and the broker should be able to develop a process that leaves you both confident in the accuracy of the HTS classifications.

Working Together for Success

Why have I spent three articles discussing this issue at such length?

After a career of observing import supply chains, I have observed that many of the compliance challenges facing importers can be traced back to the broker/importer relationship. A strong, collaborative relationship can enable an importer to fully meet its import regulatory obligations.

Like any relationship, the importer and broker must both invest time and resources into making the collaboration a success. It can take longer than a year for the broker and importer to realize the benefits of this investment and, as a result, the relationship should be treated with respect.

If your current broker/importer relationship is experiencing some pain, consider implementing some of the suggestions within this article.

OK, brokers and importers, take a step closer to one another. That’s good! Now give each other a hug!

This article was first published in July 2006 and has been updated to include current information, links and formatting.

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