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Meet Our 2019 Supply Chain Pro to Know: Eric Dalby

We are extremely proud to celebrate Eric Dalby’s recent recognition as a 2019 Provider to Know by Supply & Demand Chain Executive magazine. Because of this recognition, we wanted to put Eric in the spotlight and give our customers the opportunity to get to know him.

With nearly 20 years of experience in the global trade arena, with special emphasis on technology and compliance, it is obvious that Eric understands the challenges importers, exporters, brokers and forwarders face daily in navigating the regulatory environment. With previous experience as a licensed Customs broker and certified Customs specialist working for major apparel firms, Eric acquired an in-depth understanding of both Customs’ requirements and the internal processes needed to satisfy them. Leveraging his knowledge, Eric helped lead efforts to automate global trade and transition to the Automated Commercial Environment (ACE).

Here at QuestaWeb, Eric applies his considerable knowledge to our Foreign Trade Zone practice as our Director of Foreign Trade Zone and Global Trade Management Implementations. He assists major corporations in leveraging the economic benefits FTZs confer by designing automated compliance solutions with our advanced, web-native technology. Additionally, Eric is an Accredited Zone Specialist, a designation that is based on meeting the criteria of employment in the FTZ field, involvement at NAFTZ seminars and conferences, and active participation both in the NAFTZ community and FTZ field.

In addition to his extensive knowledge of FTZ and GTM, Eric is a gifted speaker and writer, having served as a panel moderator, webinar leader, panelist, presenter and blog contributor on numerous occasions. He holds a B.S. in financial management and an M.B.A. from Clemson University.

What do you believe are the key challenges Questaweb’s customers and their supply chains will face in 2019?

Eric – In 2019, the key challenge our customers and their supply chains will face is uncertainty. Supply chains have many inflection points where any unplanned event can have cascading effects: natural disasters, labor disputes, regulatory surprises and variability in resource prices (e.g. an increase in the cost of aluminum imports) can change the price of a landed good overnight. When the price of materials used in the production of other goods goes up, like steel and aluminum because of recent tariffs, it affects the landed cost of goods in a major way. Not only that, but every product that uses those materials sees an associated price increase. When clients don’t predict and compensate for cost spikes, they have two choices: absorb the difference, or pass those price increases onto their consumers – neither of which is very appealing.

How is Questaweb working with its customers to meet these challenges?

Eric – Import and compliance teams are now being asked by executives to help with decisions based on sourcing, cost and risk analysis. However, these teams don’t have the necessary tools to provide these answers. For instance, the U.S. subsidiary of a $6 billion multinational electronics and electrical equipment company imported products from its Japanese headquarters using manual processes. Beyond the inefficiencies of using paper documentation and having brokers manually key data, the post-import reconciliation of broker documents for correctness and compliance was labor intensive. QuestaWeb’s Global Trade Management tool has allowed this client to project logistics costs, duties, fees and taxes, while ensuring adherence to compliance regulations and reducing exposure to fines and penalties.

How can a supply chain better align with a company’s broader strategy?

Eric – All companies are in business to make money. When a company experiences a 25 percent increase in its cost, it has entirely lost its margins. For this reason, it is important for a company to make decisions early on in the supply chain. Early and effective supply chain management enables companies to track the movement of the raw materials needed to create products, optimize inventory levels to reduce costs and synchronize supply with customer demand. Furthermore, supply chain management enables companies to maintain visibility over their logistics to ensure availability of materials and delivery of products to customers.

We hope you enjoyed getting to know our Pro to Know. If you would like to request more information, you may do so here: https://questaweb.com/contact-us/

Meet Our Supply Chain Pro to Know: Chris Springer

We’re extremely proud to celebrate Chris Springer’s recent recognition as a 2018 Pro to Know by Supply & Demand Chain Executive magazine. We thought it was only fitting to put Chris in the spotlight and let our customers truly get to know him.

With over 20 years of supply chain experience, primarily focusing on global trade compliance, it is safe to say Chris understands how to address complex issues such as how best to automate business processes and how to make existing supply chain processes more efficient. Chris daily applies his triad of experience – regulatory knowledge, programming ability and integration expertise – to elevate the advice he gives to QuestaWeb customers. He takes pride in not only delivering the best solutions possible but also in assuring that the ultimate users can extract maximum value from them.

Chris also is very involved in the compliance community, offering his insights, most recently on the ACE implementation effort. He works with ABI reps, U.S. Customs and Border Protection (CBP) officials, attorneys and individuals at the various ports, as well as clients, to assure that QuestaWeb software is as efficient and as transparent as possible.

So, Chris, what is the best part about working for QuestaWeb?

The best part about working for QuestaWeb is the flexibility that it offers in allowing me to try different things. I’ve done a lot of traveling and talked to people in all different walks of life. I have the unique ability to work with and understand challenges of Fortune 500 companies all the way to individuals who are starting a customs brokerage.

If there is one thing I have learned, it is that at the end of the day, all of these companies are a culmination of people and ideas. I am inspired by the different approaches each company takes to overcome challenges with technology and am truly humbled to help support their initiatives.

In late 2017/early 2018, some of the final transactions transitioned to ACE (those related to foreign trade zones and revenue collection), leaving just revenue collection and a few others to complete the implementation effort. How do you see this affecting the trade community and their supply chains?

In 2018, the trade community will have to accept the normalization of the new electronic environment. In addition, there will be related programmatic and operational changes affecting both the import and export worlds. There will be a period of tweaking the system to extract even more capabilities out of the ACE system.

In particular, one focus will be identifying ways to share data, especially among the numerous federal agencies involved. Another will be the issue of being more transparent across the supply chain as a whole, offering as much information in as simple a package as possible. Then, of course, there will be the task of overhauling the regulatory environment.

A likely outcome may well involve the development of key regulatory changes responsive to the needs of larger companies. Relative to revenue collection, for example, larger importers that are already concerned about their cash flow may well look for ways to hold onto their money longer through regulatory relief. There may be a move to more simplified reporting and filing summaries on a monthly basis, rather than a weekly one, which could have a ripple effect across the supply chain.

Effective March 23, 2018, President Trump issued Proclamations 9704 and 9705 on Adjusting Imports of Steel and Aluminum into the United States, providing for additional import duties for steel mill and aluminum articles. What does this mean and how do you see this affecting U.S. consumers?

Steel made in another country and shipped to the United States will be subject to a 25 percent tax. And imported aluminum will be hit with a 10 percent tax at the U.S. border. This decision has been made to incentivize U.S. companies to buy steel and aluminum from U.S. producers so the domestic metal industry gets stronger. However, many U.S. industry leaders agree that consumers will most likely face higher costs for cars and trucks, beer and soft drinks, canned goods and more steel/aluminum products because of these tariffs.

On top that, the United States Trade Representative (USTR) published a proposed list of Chinese goods targeted for assessment of an additional 25 percent duty upon importation into the United States. The USTR Notice explains that the proposed list was designed to minimize impact on U.S. consumers and largely excludes several types of consumer goods such as apparel, footwear and cell phones. Further, many of the items identified for the tariff are also exported to the U.S. from other countries, providing alternative sourcing options to importers.

How can a supply chain better align with a company’s broader strategy?

Being able to communicate accurate data across the supply chain is uppermost. From an importer’s perspective, it’s about assuring brokers and freight forwarders have correct information about their commodities so they can provide optimal information to governments, whether the United States or foreign governments. For exporters, it’s about getting denied party screening, licensing and other matters right the first time. Finally, it is about limiting overhead expenses as much as possible.

Automation, especially for QuestaWeb customers, gives companies the ability to manage their global trade with minimal resources. Our solutions make it possible to intervene only when exceptions arise, allowing staff to focus on those broader corporate strategies.

Let’s get to know you a little bit more. What do you like to do outside of work?

I have recently gotten myself involved in the sport of Curling. Participating in team and individual sports has taught me so much about working with others to accomplish goals. How to win or lose gracefully, build up my teammates and how to work others.

It may look like four adults yelling at each other but in reality we are communicating information about the stone or instructing what to do. From when the stone begins moving to when it comes to a rest, the movement and communication of a good team is constant.

It is like international trade in a way, though the point of moving goods is not to run into other goods and knock them out, getting to the destination as planned is a job well done. Every day that passes, technology we create brings us closer to the day that information about the current status of all goods are conveyed just as quickly as it is on the ice.

 

We hope you enjoyed getting to know our Pro to Know. If you would like to request more information, you may do so here: https://questaweb.com/contact-us/

News Flash: Your ERP System and Excel Spreadsheets Are NOT Global Trade Management Solutions

by Dean Gionis

With so many moving parts, global trade management (GTM) is a daunting task for compliance professionals in companies large and small. GTM software offers significant benefits. It can

  • Increase profits.
  • Reduce risk and the potential for fines.
  • Expedite product delivery.
  • Reduce costs.
  • Improve visibility.
  • Reduce delays.
  • Free up company resources.
  • Automatically alert users in different departments (sales, warehouse, purchasing, compliance, legal) of problems.
  • Assist in making strategic supply chain decisions.

Despite its tremendous value, GTM software is still overlooked by many companies. Why?

  • A false sense of security or being forced to do things manually – It is a misnomer to believe that an ERP system plus multiple spreadsheets is adequate for GTM. While some companies operate this way, they are missing out on tremendous value. Under their spreadsheet scenario, they are merely collecting data manually. With a single integrated GTM platform, companies can not only store data in a centralized database but also benefit from the automated reporting of serious exceptions and/or potential opportunities such as sourcing changes, free trade agreements, bill of material changes, special duty programs, denied party hits or discrepancies of reported values via comparisons of the purchase order, commercial invoice, 7501, vendor check and more.
  • Fear and/or cost – The fear that the GTM software implementation will fail or the budget will be grossly exceeded.
  • Lack of resources – The belief that the firm lacks the staff resources to devote to overseeing a GTM implementation or developing a justification that the C-suite will approve to designate the required funds.

So what is the secret to getting GTM in a cost-effective manner while ensuring a successful implementation? Here’s a low-risk/high-reward option to move to GTM software.

  • Select a software provider whose core competency is GTM. Some corporate leaders aspire to the corporate ideal of “one-stop shopping” and either look to their existing vendors or (make sure you are sitting down for this one) try to develop a homegrown GTM solution. However, providers of general business software – or internal IT professionals – are not specialists in GTM. As a result, such pseudo-solutions do not work “out of the box.” They will need infinite customizations since there are no defined instructions to follow for development and implementation. The effort is essentially a science project.

Either approach commonly leads to millions of dollars wasted on efforts that are completed late – or not at all – and never truly perform all the required functions.

In contrast, true GTM vendors, like QuestaWeb, have one core competency 24 x 7 x 365: GTM software solutions. They can supply complete GTM software solutions with all the functionality and compliance content needed to quickly reap the benefits of automation. Choosing an established specialist will deliver a cost-effective solution, backed by a proven implementation process, and it will perform all the required functions out of the box.

  • Identify the greatest area of need and phase in the needed functionality without a full-scale GTM implementation. Some providers offer GTM solutions in modules, which can be very advantageous. As an example, consider the importer that sources in several countries and uses several HTS chapters. That importer would need to quickly compare free trade agreements (FTAs) to determine the most cost-effective source of components or raw materials. Implementing a modular FTA solution is neither complex nor time consuming. And, the importer could implement the FTA solution now and add a full import compliance solution later.

Modular solutions provide the framework whereby it is possible to simply plug in an additional module that shares the same single database. Thus, the subsequent implementation – and associated learning curve – would be minimal. Other modular add-ons could easily address export compliance, denied party screening, global visibility, license determinations, self-filing and more.

Compliance professionals, for some reason, always face a hurdle that other departments don’t: Convincing C-level decision-makers that they need software just as much as finance, purchasing, manufacturing, sales, distribution and human resources. Our earlier blog “Getting the Green Light for a GTM System Acquisition” provides some strategies to use to garner executive approval. Once you get the green light, avoid the science project, go with a GTM specialist and employ the low-risk/high-reward option, especially if your company is not ready to embrace a full GTM solution today.

ACE IS THE ONLY PLACE FOR DUTY DEFERRAL AND ENTRY SUMMARY FILINGS COME SEPTEMBER 16

It’s official: U.S Customs and Border Protection (CBP) announced on Wednesday, August 16, 2017 that effective September 16, the Automated Commercial Environment – better known as ACE – will become the sole CBP-authorized electronic data interchange (EDI) system for duty deferral entry and entry summary filings. On that date, the Automated Commercial System (ACS) will no longer be authorized by CBP for these types of electronic filings.

According to the CBP website, ACE Deployment G (Statements) will take effect December 16, 2017, while ACE Deployment G (Reconciliation, ACE Core Drawback and Trade Facilitation and Trade Enforcement Act Drawback, Liquidation and Automated Surety Interface) will go into effect February 24, 2018. However, the referenced Federal Register notice indicates that “The transition for processing electronic drawback filings will be announced in the Federal Register at a later date.”

The route to what appears to now be the final date has been full of stops and starts. Here’s the chronology as captured in the Federal Register notice:

  • August 30, 2016: CBP establishes that ACE will be the sole EDI system for drawback and duty deferral entry and entry summary filings effective October 1, 2016.
  • October 3, 2016: CBP cancels the effective date until further notice.
  • December 12, 2016: CBP establishes January 14, 2017 as the new effective date.
  • January 17, 2017: CBP delays the change until further notice.
  • June 8, 2017: CBP announces July 8, 2017 as the new effective date.
  • June 30, 2017: CBP announced another delay until further notice.

The changing implementation timelines reflect just how enormous a task it is to transition the government and the trade community to a single automated system for tracking, controlling and processing information related to the import and export of goods. However, it is hoped that our nation will benefit through more efficient collection of duties, taxes and fees and stronger border security because all the latest information will be more accessible in electronic form. In addition, automation will reduce the administrative burden and virtually eliminate paper-based activities. Beyond these lofty goals, ACE will connect the activities of PGAs and CBP in a more meaningful way and, hopefully, simplify the process for submitting data and interacting with CBP and PGAs.

From the beginning QuestaWeb has chosen to be a part of the movement to ACE in an active, participatory way. Our expert staff are not only regularly attending ACE-related meetings and keeping abreast of technology-related announcements, but also developing solutions that have facilitated customers’ transition to ACE each step along the way.

QuestaWeb’s is a technology leader when it comes to ACE. If you haven’t already read our earlier blog titled “Look to an Expert for Your ACE and ABI Needs,” do so now. We’ve established a credible reputation when it comes to EDI. Our technology innovations simplify the ACE process for our customers, increase their productivity and ensure compliance. What’s more, we’ve been ahead of the curve in terms of technology availability for all earlier deployments, and we will be ahead of the curve for the December 2017 and February 2018 implementation dates, too.

 

Broker/Forwarders: Stop Burning Money

by Dean Gionis

Every hour of every day broker/forwarders burn money unnecessarily. How? By using multiple, non-integrated software applications to perform services on behalf of their customers.

It is not uncommon for a broker/forwarder firm to have three, four or even five different systems in use. For example, there might be one software application for customs brokerage, one for freight forwarding, one for accounting and perhaps others for exporting, filing AMS and tracking shipments.

While broker/forwarders may attempt to make these systems interoperable – get them to “talk” to each other – integration is often easier contemplated than accomplished. Integration in this environment is a custom project and expensive to undertake and maintain over time. Furthermore, both the quality and extent of the custom integration often become money-draining issues. Often, only a partial integration is possible, meaning that only bits of information can be carried over from one system to another – and only in a one-way manner. That is, one system may push data out to the next, but the reverse is typically not feasible.

Beyond the inability to perform day-to-day functions well, multiple applications strung together by a loose integration pose other unnecessary costs if an automation problem arises. What happens if a regulatory or version change occurs in one solution? Will it affect the others? Then there’s customer service. To whom do you look for customer service? How do you identify the specific application creating the issue? How many software companies will you need to pay before the problem is identified and corrected?

These are the more obvious sources of lost revenues and additional costs. Another clear loss is the staff time wasted when multiple systems are in use. Consider the expense of entering and updating duplicative information in each system, as well as the cost of inconsistent information or outright errors.

Here’s just one example. Every broker/forwarder application possesses a customer profile. And, every profile will request similar details such as name, address, tax ID, key staff, transaction parties (i.e., manufacturers, ship to, bill to, etc.) and commodity details or products. If you have five applications, staff must enter this data five separate times. And, what if employee A enters “Smith & Co.” but employee B inputs “Smith and Company, Inc.,” is it the same company? Or, if employee C elects to use the headquarters address while employee D enters the local branch office, how long will it take employees to research whether it is the same firm?

Then, ponder how often customers move, experience employee turnover or change transaction parties. Every time any one of these data elements changes, the broker/forwarder must update the profile in the customs clearance system (ABI), the freight forwarding system, the accounting system and potentially other systems depending on its suite of services.

Not convinced yet? Follow this illustrative example of the typical workflow of a broker/forwarder relying on multiple systems. To book a shipment, staff must first find the customer profile within the forwarding system. Once located, they must create the shipment documentation, typing in all of the required information. Next, the broker/forwarder must either print or transmit the information. Then, staff must transfer to the customs systems to create the customs entry. After finding the customer profile, all the data related to the shipment must be reentered and forms printed or transmitted. And so on.

Consolidated billing is cumbersome, too, due to the need for manual steps that use valuable staff time and effort. Billing profiles, like customer profiles, are unique to each system. So, for billing purposes, accounting would need to extract client service fees from each system, calculate them and manually consolidate them in a single statement.

The inefficiency of multiple systems is shocking when actually held up to analysis. In contrast, a single system delivers many cost-saving benefits. It simplifies the broker/forwarder’s IT environment because there is one set of hardware and software and one service provider. Integration costs are lower because there is no need to pay a third party to develop custom interfaces between solutions. Component functionality is integrated by design. Support is less complicated, too, as there is one vendor to contact if an issue arises. And, of course, implementing one solution is less costly, easier and faster than the multiple implementations associated with a variety of systems.

One system means there is a single client profile, one billing record and so forth. And, any information entered into the system to create a shipment, for example, is preserved within the system and flows through to its other functionality. Following from the previous example, the solution will automatically populate the customs entry, minimizing errors. And, beyond maintaining a complete audit trail of every action taken, the solution preserves documents, generates reports, transmits documentation electronically and automatically creates a consolidated bill for all the services performed within a specified time period.

A single system delivers complete automation, which maximizes productivity and operational efficiency. Instead of losing time and money every hour of every day, broker/forwarders operate at peak efficiency and can use the time and savings to exploit new business opportunities, expand service offerings and more.

Broker/forwarders, it’s time to transform your operational environment with a single solution that maximizes savings and productivity. If you’re tired of burning money, talk to QuestaWeb today.

Trade Agreements and Purchasing Decisions

by Damon Baca

Individuals who are outsourcing material and sourcing goods don’t always consider existing trade agreements in their decision making. For instance, I always hear that China is 14% cheaper than Vietnam based on labor rates. However, the United States has a Free Trade Agreement (FTA) with Vietnam through the Generalized System of Preferences (GSP)  that can make goods duty free. So, is China really the cheaper option?

The point is: Purchasers and sourcing professionals are leaving money on the table every time they fail to consider the benefits trade agreements confer in their decisioning. Absent consideration of the possible economic benefits available, actual true costs are not known or factored into the equation.

The key question is, Why? Quite frankly, there are two explanations. First, these professionals are not trained to contemplate harmonized codes and duty rates in their determinations, much less the impact of trade agreements. Second, qualifying goods under trade agreements can be a complicated and time-consuming process. Thus, many companies simply choose to ignore their existence, unaware of just how much money it is costing them.

It is time to shake things up and take the money off the table and put it into importers’ and exporters’ pockets.

Background

The United States has 14 free trade agreements (FTAs) in effect with 20 countries ranging from Australia to Singapore. These U.S. FTAs not only facilitate cross-border trade but also contribute to greater economic growth, productivity and jobs for the involved countries. They also level the playing field for U.S. exporters who face any number of barriers to selling their goods in overseas markets, not the least of which is paying higher tariffs than other countries do. Conversely, more importation of foreign goods translates to more competitive pricing on items that American citizens desire.

Part of the reason why the United States faces barriers to exporting is that other countries have negotiated trade agreements as well. The World Trade Organization estimates there are 420 trade agreements in effect. Although not all provide for free trade, they do eliminate barriers and make conditions more conducive to trade. For ease of discussion, FTA will be used in the rest of this blog to refer to all trade agreements.

Changing Mindsets

To achieve greater savings, we must first teach our purchasing and sourcing professionals to look at harmonized codes and tariffs. They impact the bottom-line cost of goods greatly and need to be considered. We must change the mindset whereby purchasing acquires items based solely on materials costs and labor rates and then passes the buck onto to the import/export department to manage these other costs.

We also need to train our purchasing department to look to FTAs as sources of cost savings. That will require purchasing to identify the FTAs that might bear on the situation. To see whether the goods in question might qualify under a specific FTA, three factors must be considered:

  1. Where does the product ship from? For example, if you have an American product made in China and going to Canada, it does not qualify under NAFTA because the product did not originate in the United States.
  2. Is there a tariff shift? Beyond having products originating in and shipped from a country covered by the FTA, to take advantage of an FTA there must be a significant tariff shift. Say, for example, you have raw materials, such as parts of a computer, coming into the United States from countries all over the world. If you bring them in normally, you pay duties and taxes on them. If you then assemble these parts into a computer, a tariff shift occurred. That is, they came into the United States under the harmonized codes for a hard drive, keyboard, RAM, processor, etc., but when exported the harmonized code was for a computer. Without a tariff shift, it is merely a pass-through and you cannot qualify under the FTA.
  3. What is the regional content value? This last qualifier is the most difficult one. This value varies depending on the FTA and the country. Usually, 51 percent of the value needs to be created within the country that you are exporting from, that is, the nation where the tariff shift happens. Let’s say you bring in a cellphone from China and then all you do is add a cord and ship it out. It will not qualify under the FTA because there is not enough regional content value.

Determining the regional content value can be a challenge, especially if the product is complex. You need a full bill of materials. If it is an engineered product, you must know where each individual component originated and its value versus the value of the final product. Calculations such as these – and the complexity involved – are major reasons why companies step away from FTAs.

Luckily, QuestaWeb’s technology automates the FTA qualification process, making it both simple and fast. Our FTA decision engine is available both as a standalone technology via our TradeGearQW product line and as functionality within our integrated global trade management solutions. It allows you to input the bill of materials and determine whether it qualifies under any of more than 300 FTAs. And, our technology takes into consideration all the rules, regulations and origins in place and automatically calculates regional content value.

Best of all, our technology, by including far more than just the 14 U.S. FTAs, broadens your savings perspective and opens your eyes to worldwide opportunities that can be leveraged. The same decision engine will determine if goods qualify under any FTA, even if the transaction does not involve importing or exporting from the United States at all, moving your firm to a true global supply chain and allowing savings on every single international transaction for which you qualify.

Free trade agreement decisioning is just one more way QuestaWeb is making a difference in our customers’ supply chains.

 

 

FOREIGN TRADE ZONES 101: PART 3

by Trey Boring

In the last installment of this three-part series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., responds to questions related to operating a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones.

Q: If you’re looking to just defer duty, what is the difference between an FTZ and a class 2 or 3 Customs-bonded warehouse?

A: I think the biggest difference is the restrictions that come along with class 2 and class 3 bonded warehouses. One must ask: Do those restrictions interfere with your commercial operation? Would it be difficult for you to live with those restrictions as a commercial operation? Straight up duty deferral can be accomplished with other programs, but it’s all based on what works easily with your internal commercial operations. And, with class 2 and class 3 you certainly don’t have the weekly entry option, which can certainly save some paperwork and processing.

Q: Is there a timeframe for recording the quantity of imported goods received in your FTZ?

A: There are a couple of answers to that question. The pertinent regulations discuss being able to report what goods you have upon receipt, but they don’t define a set timeframe. Many ports work under a 48-hour rule if you’re doing direct delivery. So, if a container arrives, is dropped at your door and you unload it, they’ll want a 214 within 48 hours.

The only true time limit applies to a general order (GO). So, if a shipment is shown as arrived at an FTZ facility, it closes the 7512, and the system shows that my firm is in possession of the merchandise. If I don’t cut a 214 within 15 days I run the risk of a GO request. So, that’s a hard-and-fast deadline. I generally tell my clients to prepare the report within 24-48 hours as a rule of thumb, as you want to be as fast as possible.

Q: Is there a time limit for how long you can keep items in an FTZ? Theoretically, could you leave them in the zone forever?

A: The answer is yes items can remain there forever. I worked with a zone that had a shipment that had been in its inventory for some 18 years. It was one of the first shipments to come into the zone.

Q: How accurate must the inventory be at any given point in time? With inventory moving all day long, an audit would not match 100 percent.

A: That problem would only come into play for you if Customs walked in and asked you to pull a 214. You pull the 214, and they might say, “You have item A on your 214. Tell me how many you have in the warehouse?” You might open up your warehouse management system, for example, and say, “I have a thousand, but I have a hundred of them in an active pick location. So, we should have a hundred there. If not, I can go into my system, show you what was picked and explain the difference.”

Again, it goes back to being knowledgeable regarding your inventory system and being able to prep Customs and explain it to them. At the end of the day, you will be able to prove with a report that the 214 minus what was shipped that day will yield the total of what’s in that zone.

Q: What is typically covered in the system review letter?

A: In the system review, what you’re looking for is: What did I do this year? What did I bring through my FTZ? Did I make any major changes? Many companies will just say, “We did our system review, we didn’t change anything and things are working well.” What you want to review is the software used in the zone, the operational procedures used in the zone and how they impact the functionality of FTZ operations. If you make a change to the software or procedures, identify those changes in the system review letter.

Q: How do you account for scrap when making positive and negative adjustments?

A: Scrap is something that you need to identify and work through as part of the processes performed in your FTZ. If scrap is generated through a manufacturing process, then you need to have that accounting defined within your operational procedures for that process. If scrap is warehouse damage or things of that nature, then there are myriad ways to handle it. Basically, it comes down to: How much money is it really worth to the company? If it’s a low-duty-rate item, some companies may just put it on their entry, pay duty and throw it away. Or, if companies deem it in their best interest and are willing to go through the process, they can put it on a 216.

Q: Do other agencies, such as the Food and Drug Administration, U.S. Fish and Wildlife Service, Environmental Protection Agency and Department of Transportation, allow non-conforming products to be imported into an FTZ for later distribution or export to other countries?

A: Yes, it can be done, but my response is not a blanket yes. There are some products that they would restrict you from bringing into the United States. However, you may be allowed to do so under certain circumstances. So, there are FDA non-conforming products that are allowed to be in an FTZ to be held for export. But, depending on the nature of that product, it’s not a blanket approval, if that makes sense.

Q: Can you talk about documentation being scanned and sorted electronically versus physical files?

A: If you’re going to get approval for electronic filing – and you have to get approval from Customs to not have filing cabinets of documents – most CBP officers, in my experience, want it to appear just like a filing cabinet. They want you to go to a file folder that you can open up that has every scanned document, just as if you had gone to a cabinet and opened up a drawer. They want to have that ability and that level of traceability with the electronic files. They want to be able to review them, and clearly see that you’re keeping track of records in the same manner you would with a physical file.

 

FOREIGN TRADE ZONES 101: PART 2

by Trey Boring

In the second installment of this three-part series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., continues the overview of major issues companies must address to operate a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field, and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones. Part 2 discusses zone activities and the documentation that captures these activities.

Zone Activities

Types of merchandise manipulations include repackaging, picking, packing, inspecting and, in some cases, repairs. Your inventory control system must possess traceability for all of these manipulations. So, if you create work orders to do repackaging, or if you have a pack/pick list that’s transmitted to the floor for picking, you must possess documentation that can serve as justification should Customs conduct an audit or focused assessment.

Managing manipulations is important, but then, too, is tracking manufacturing or production. Here, it is critical that your manufacturing systems properly communicate with your zone software. So, for example, if your end-product is a widget that uses five item As and five item Bs from your FTZ inventory, combined with items C, D, E and F, you have to be able to track all that material from inventory and be able to justify to CBP exactly where all the merchandise went. That is, you must be able to track the building material backward and be able to tell CBP that when I enter a widget it contains five of A and five of B. You’ll also want to apply the value for five As and five Bs with the duty rate of the finished good, if that’s the way your process works.

So, traceability is critical within your inventory control process for manipulations and manufacturing.

Zone Withdrawals

As items leave the FTZ, the key inventory control questions are:

  • What are you doing with the merchandise when it’s leaving the zone?
  • Is it being exported? If it’s being exported, how is it being exported? To where? Do I have documentation?
  • Am I shipping to domestic customers? If so, am I correctly accounting for it in my process?
  • Or, are you temporarily removing inventory?

Let’s say you have to send something out of the zone, but will bring it back into the FTZ. Maybe it’s going to be painted or tested. You need to understand the nature of what is being done to the product when it is released to properly account for these temporary removals. In some instances, a 216 document will suffice. It allows qualified inventory to leave, have something done to it and be brought back into the zone without a duty payment. In some companies, products are received back under a different part number. They must be sent domestic status. You need to know what you’ll do with the merchandise when it leaves the zone because it dictates what closing documentation you’ll need to have.

The next key question is: What is the nature of the merchandise when ultimately leaving the FTZ? The distribution environment is much simpler when it comes to merchandise leaving the zone, especially where there are boxes in and boxes out. Here, you are bringing in product A and product A is always going to be product A, even when sent out of the FTZ to a customer. For production, as talked about earlier, components or raw materials are coming in and finished goods are going out. Understanding the nature of the goods informs the import and export documents created, and also increases one’s ability to trace the imported components within a shipment.

The other big question is: How do you withdraw merchandise? Are you in a port city and immediately exporting something, or are you first transporting it to a port from elsewhere in the United States and then exporting it? Use the 7512 IE when doing a straight export. However, if you’re based in the Midwest and shipping product from there to the Port of Houston for export, use the T&E.

The 06 is the consumption entry whereby the actual payment of duty is made on goods shipped into the United States. How you withdraw the merchandise is the way you close the loop of accountability. The audit trail begins upon admission or receipt and extends until merchandise withdrawal. The entry can be an export entry or a consumption entry, but an entry must be made to show CBP what happened to that merchandise at the end of the process.

Customs Documentation

On the inbound side, when we talked about our zone admission, I mentioned that you need to record the MID code, commercial invoice value and so forth. If you operate an inland zone, you potentially have a 7512 IT in-bond transport document. Returning to the Port of Houston example, if I did not operate an FTZ I would pay duty based on the commercial invoice. I would close out the ocean bill or the air bill at the time of acceptance, depending on how the shipment came into the country. I would potentially have a packing list and other information telling me what’s in the shipment. But I would be using those two elements, especially the commercial invoice and the bill of lading, to make entry in Houston if I didn’t have a Foreign Trade Zone.

Since I have an FTZ – and didn’t close those documents out with an entry – those critical data elements have to come forward now and be addressed. I close the bill of lading with a 7512 IT that says the shipment is going to my zone. Because the CBPF 214 alerts Customs that the merchandise is going to the FTZ, it closes the loop on the information provided by the freight forwarder/broker/shipping line. This document package is what you need to set up as your in-bond or 214 file, and the data elements in all these documents are critical to laying the groundwork for your inventory control process.

The next key question is: How do I get that all that information into my automated system? In most cases, you’re looking at two options: electronically fed or manually inputted. I wish I had a magic way to make either option work great, but they are very specific to your business operation and your functionality. I deal with companies every day that are large enough to have somebody feed all this data via EDI and others that pay people to key data. It’s just one of those things. The information that comes from these documents has to get into your system and it can only happen in one of two ways.

While goods are in the zone, a couple of other customs documents come into play. A little earlier I talked about temporary removal via the 216 document. FTZs use this same document on an annual basis to get a blanket approval for the simple product manipulations they’re approved to do. More commonly, the 216 is used to account for merchandise destroyed within the FTZ. So, the 216 is how you define what has been removed temporarily and how you report an approved destruction process to Customs, as you will not be paying duty on those items.

Another key document is the 214, the same document used for zone admission. Say, for example, your cycle counting process identifies five extra items. Since they are not reflected in the inventory system, they must be added. So to make a positive adjustment to the system, you use a 214. For negative adjustments, you use the 06. Withdrawals from the zone can be done individually or weekly, depending on how you set up the process.

The other key document is the 7512. You must have a 7512 for every export sent out of the FTZ. So, for example, if I have a trailer load going to Canada, the 7512 exportation document I prepare will show the goods leaving my facility and heading to Canada; that document will close everything out from an inventory perspective at the border when that trailer crosses into Canada. And, of course, we talked earlier about the two types of exportation, that is, an immediate export and the transportation and exportation. In either case, we have to maintain copies of the documentation because it closes the inventory loop.

The Audit Trail

The audit trail serves as documentation of the movement of the merchandise from admission to withdrawal and everything in between. Documents such as the 214, 7512, 7501 and 7512 need to be in the right place and in the correct file because they serve as evidence CBP wants to review. Here, again, the importance of physically matching the inventory is paramount.

With your 214, you need to have your billing commercial invoice, any in-bond documentation, the packing list if you’ve got it and your consumption entry. You need to have the cargo release from ACE, the 7501 and the withdrawal documentation from your automated system, spreadsheet or other tracking method. For exports, you need the 7512 document and the withdrawal.

Every year you’re required to do an annual reconciliation, system review and an annual report for the FTZ board report and grantee. Always keep these three things in a file, because Customs may come in and ask for them. Regarding the reconciliation and system review, you’re required to send a certification letter to Customs 10 days after completion to advise them that the items have been done and are ready for review. Customs has assessed thousand-dollar-plus fines in certain ports if they’ve not seen the certification letter.

Last, there is the blanket 216 that we talked about earlier for standard manipulation and manufacturing.

Conclusion

Operating a foreign trade zone requires a level of inventory compliance and recordkeeping that can seem like a daunting task. However, the Foreign Trade Zone program is the most flexible bonded facility program. With bonded warehouses, for example, special permissions are often needed, and there are restrictions on what can be done. FTZs are designed to work with your operation. Inventory control is the cornerstone of FTZ compliance. If you do not manage inventory correctly, you will not be able to manage compliance correctly.

CBP documentation continues to move forward with the implementation of the Automated Commercial Environment (ACE), and more and more of these documents are moving toward electronic filing. For example, the 214 is slotted to move to ACE this year. ACE makes it easier to deal with these processes.

Last, FTZ compliance is all about the data relative to merchandise in the FTZ. CBP trusts you to hold these goods, and you need to be able to prove that you can identify every item and its disposition from admission to withdrawal.

FOREIGN TRADE ZONES 101: PART 1

by Trey Boring

In this three-part blog series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., presents an overview of the major issues companies must address to operate a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field, and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones. In Part 1, Trey discusses key requirements, especially inventory control.

 

Let’s start with a fairly standard definition for a Foreign Trade Zone. If you’ve been around the program at all, you know that it’s an area within the geographic boundary of United States that has been approved by the U.S. Customs and Border Protection (CBP) as being outside its territory. That means that an FTZ is outside of the entry process for purposes of duty collection. Items can be brought into a foreign trade zone and manipulated via various approved activities. Customs duty is determined when that merchandise leaves this zone. Basically, in simplest terms, an FTZ resembles a preapproved business island within the United States.

With that definition in mind, let’s go over the basics of how a Foreign Trade Zone functions relative to inventory control, customs documentation and customs compliance.

Key Requirements

To operate a compliant FTZ, you must have an inventory control system that can tell you what merchandise is in your zone and the quantity. Customs is interested in knowing what’s there because you haven’t paid taxes on it – yet. In a sense, you’re holding CBP’s tax money, so they want to make sure you have a good accounting system.

The system also must track what is done to the merchandise. Obviously, you received it and shipped it, but how did you manipulate it? Did you simply retag the merchandise? Or, did you perform an activity that constitutes manufacturing or production within the Foreign Trade Zone definition? Did you manipulate the merchandise enough that it changed its status and/or changed its tariff classification? The inventory control system must track what you do with the merchandise no matter what activities you undertake in a Foreign Trade Zone.

Thus, the basic requirements of customs compliance are contained in the answers to some simple questions:

  • Can I explain to CBP what happened to my merchandise?
  • Can I track the sequence of merchandise coming into my facility, the activities performed and their exit from the facility?
  • And, can I show them that sequence in a format that they understand?

Another key item is customs documentation. We’ll talk later about the inbound and outbound documentation that is required for you to process.

Zone Activities

Many people ask: What activities are allowed in a Foreign Trade Zone? The answer is: Anything you do in your regular business facility can be done in a Foreign Trade Zone with the right approvals. Typical activities include distribution, storage, testing, repackaging, manufacturing, repair and assembly. The FTZ program is designed to be as free as possible to allow you to perform the operations that fit with the normal processes accomplished in your facility.

The question arises: If these are the normal processes you are already performing in your facility, why establish a Foreign Trade Zone? The answer takes us back to the definition of the FTZ program: It allows you to import merchandise without paying duty. Sure, all of these activities can be done in someone’s facility today but to do so you first pay duty at the port, the airport or the border crossing where the merchandise entered the United States. In a Foreign Trade Zone, you do not make that payment at the border, and what you do to the item while it is in your facility determines the actual duty amount paid. So, you get the benefit of duty deferral. You get the manipulation/manufacturing benefits (if you qualify to change the nature of a product). And, you can choose to apply the lowest duty rate for the imported item. So, the ability to manage duty and the entry process is the key reason why companies establish FTZs, not to mention the freedom the program accords companies to limit interference.

Inventory Control

So let’s talk about inventory control in a little more detail. Basically, we look for a stair-step method when talking about inventory control. So, starting at the beginning, zone admission refers to merchandise being admitted to the zone or the act of receiving goods into your zone facility.

Your inventory control process must capture the import documentation. Since you’re paying duty later in the process and not at the border, in order to close out the customs documentation you must have the import documentation provided on the admission document – the 214 – when filing to receive the goods. Further, you need a way to tell Customs “I checked the merchandise and the count is right” or “This is what I brought into the Zone and this is the variance.” You must have a physical accounting of that merchandise when it comes into your FTZ facility.

Also, you must perform a compliance review of the merchandise and the documentation. It goes to the point: Did I get everything I expected? Did the vendor send the wrong invoice? Are the products in the container listed on the invoice? Deviations happen, and you must identify them and offer a compliance solution.

Another important aspect is physical movement of merchandise. When dealing with inventory control, two things are important. First you must establish amount, value, tariff classification, Manufacturer Identification (MID) code, etc. – all of these data elements will be required later when you make entry, and your system must be able to generate them. Also, your system must be able to track where the merchandise goes because Customs wants to know what you have done with the merchandise since receipt.

The next focus is selecting your inventory methodology – cycle count or an annual inventory. Most companies select cycle counts. Basically, you must provide Customs a guarantee that you are counting that merchandise in your FTZ at least once a year. That’s the regulatory requirement. You can do that by shutting down your facility to perform an annual inventory where you can invite Customs to watch or you can perform continuous cycle counts and report variances as they occur. Either way, it is a critical element because you have to prove again to Customs that you can fully account for the merchandise that they have placed in your care without duty payment.

Common inventory control issues revolve around the data. Sometimes companies don’t have a good way to input their import documentation. Other problems involve value discrepancies. Then there are common warehouse issues such as someone on the dock didn’t count everything correctly and during the cycle count six weeks later you find you did not receive all of the expected 1,000 pieces. The other case is concealed shortages.

It is crucial, too, to analyze how your inventory control systems (e.g., warehouse management or manufacturing system) communicate with your FTZ software. Make sure these systems capture every transaction. Most compliance problems arise from systems that are not tracking everything. Then, you either reflect more inventory than you really have or less inventory than you’re supposed to have. So, the larger your zone – and more complicated the systems – the greater care you must exercise to assure the systems are interacting correctly.

 

Exporting Codes: Have You Got the Right Number?

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by Damon Baca

To facilitate global trade, the World Customs Organization administers the Harmonized System (HS), which provides common nomenclature to describe traded products using names and numbers. The number of digits in a fully qualified HS code varies, but the first six are harmonized, meaning they should be the same in every country. The next digits are unique to the country to which the goods are being exported.

The United States uses the 10-digit Harmonized Tariff Schedule (HTS-US) for goods imported and the 10-digit Schedule B codes for exported goods. U.S. companies, seeking to comply with a U.S. Census Bureau mandate, often just use the Schedule B codes when exporting rather than the code of the country to which the goods are being shipped. Most feel that as long as the first six digits are correct, what’s the difference?

The dilemma

Not using a country’s fully qualified HS code makes a big difference.

First, it could set your firm up for compliance violations. Even if the product enters the country successfully once or twice with just the Schedule B code, continued use of an improper code could result in a fine or a ban from future exporting to that country. Moreover, a quota might apply to the commodity in question. You could be creating serious future problems by not properly classifying products covered by a quota.

Consider, too, a second possibility: failure to use the correct code could result in the shipment being stopped completely or delayed until properly classified. The repercussions don’t stop there and can extend to your customer. Delays can transform a happy customer into a dissatisfied one, especially if there is an urgent requirement for the product now being held up by customs. Worse, the customer could be handed an unexpected duty/tax bill for payment because you improperly classified the shipment (more on that below).

Last, but certainly not least, when you fail to use the appropriate fully qualified HS code, customs will likely classify the product in its “Other” category for purposes of computing duties and tariffs. The “Other” category typically imposes the highest possible rates. So, you – or your customer – will be paying unexpected and excessive duties and taxes.

Using a fully qualified HS code avoids all of these issues and gives you the power to predict precise costs in advance.

Some companies mistakenly believe that the broker on the other end will take care of the coding. But unless specifically contracted to do so, brokers will not modify codes because there is liability attached to doing so. Others rely on their foreign partners or importers to address the issue. Yet, unless you have worked out a specific system, the code you assign will prevail.

So what is an exporter to do?

It is challenging to properly assign fully qualified HS codes. First, access to all the codes in every country is not as easy as going on export.gov and conducting a search. Codes can be very difficult to obtain. Then, there are the language issues. Some appear only in the native language, and many are formatted differently than U.S. codes. Variations in language use can create problems as well. But perhaps the biggest hurdle of all is that tariffs, taxes and duties are subject to change. So, even if you could obtain and understand the country’s schema for classification, there is no guarantee that the information you have is current.

QuestaWeb can help!

As detailed earlier, not knowing the correct tariff code and associated duties can hurt your company – and your customers – in a variety of ways. QuestaWeb offers its customers the ultimate in content. Our database goes beyond the HTS-US and Schedule B codes to include the fully qualified HS codes for over 175 customs areas worldwide, all the latest duty and tax data, and information on more than 300 Free Trade Agreements. Our content is verified and updated regularly to assure your company always operates with the latest information possible.

Further, QuestaWeb now offers TradeGearQW , a product line with software solutions powered by this expansive database. With TradeGearQW , companies can acquire the precise solutions and content they require, rather than being forced to purchase functionality or content they do not need. Firms can opt to purchase the HS codes for a single country, a standalone decision engine for landed cost calculations, a decision engine to identify and qualify products under Free Trade Agreements and much, much more. Via product unbundling, QuestaWeb allows you to acquire just the products and content you need to trade compliantly at an affordable price.

We’re breaking new territory every day to bring our customers the very best in global trade management solutions.

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