Market Overview

Customs Brokers Face Challenges From Blockchain, E-Commerce And Higher De Minimis

Customs Brokers Face Challenges From Blockchain, E-Commerce And Higher De Minimis

The future of the customs brokerage industry was very much under discussion at the Western Cargo Conference (WESCCON) of the Pacific Coast Council, held this year in Rancho Mirage, California.

Among the issues discussed by various panels were how freight forwarders and customs brokers will be affected by blockchain, e-commerce, big data and Section 321, which allows low-value products to be imported into the U.S. free of duty and tax.

The group's president, Vincent Iacopella, urged his members to "embrace these emerging issues."

For example, while he said he might not be particularly interested in "looking under the hood" to find out exactly how blockchain works, he did want to know what its commercial applications are. "I don't think we should be freaked out by it," he said.

During a discussion about the implications of blockchain technology for the industry, Vincent Annunziato, director of the business transformation and innovation division at U.S. Customs and Border Protection, said the agency's current Automated Commercial Environment (ACE) was the "beginning stages of change" and that blockchain is giving the industry "a chance to reengineer the way we do business and some of our practices are 200 years old."

"Ultimately what we're after is better facilitation and better security," he said. 

Annunziato explained that blockchain will  give the customs brokers a way to make more money by saving money, get better data, and offer that data to their customers. It also will be able to integrate new technologies such as smart devices, artificial intelligence, and the internet of things.

Nick Vyas, executive director of the University of Southern California's Center for Global Supply Chain Management, said while blockchain technology can be used for many purposes, supply chain management is the largest potential application. He said global trade amounts to $4 trillion and is projected to grow to $7 trillion by 2030 and that blockchain has the potential to eliminate a great deal of waste and "data friction" when trade is transacted.

It also can improve sustainability, he said, pointing to a project that found 40% of food in some Southeast Asian countries is wasted and that "it is estimated we can feed about 70 million people if we just get the basic supply chain right."

Vyas cautioned that intermediaries may be eliminated from the supply chains and said the WESCCON audience should reflect on how they can adapt to digitization.

Iacopella said, "Going forward, we have to make sure that we have the opportunity to drive value to our customers on an equal and level playing field. … I think it is unhealthy for us as an industry to look at this change and ask how it can go back." 

He added, "It's a much better strategy to have a seat at the table and make the argument that our position allows us to continue to drive value to our customers, embracing new technology, new modes of filing." 

Iacopella is an executive vice president at the Los Angeles office of Alba Wheels Up International Inc. and has served as president of PCC for the past four years. He will be succeeded next year by Eduardo "Lalo" Acosta, a vice president of R.L. Jones at its San Diego/Otay Mesa office.

Iacopella recalled the roots of the PCC, how in the late 1970s and early 1980s as U.S. trade with Asian manufacturers exploded, customs brokers and forwarders felt there was a need for West Coast companies to have a stronger voice at a time when discussions about maritime and customs issues were dominated by companies based in the Northeast. Since then, PCC has become one of the most important voices when it comes to trade issues in the United States. 

PCC's membership includes the five regional groups representing customs brokers and forwarders along the West Coast. Iacopella said the members of those groups facilitate 90% to 93% of every entry filed in each of the five West Coast ports of entry.

The group, he noted, addresses both national issues and regional concerns such as the PierPass reservation system for drayage drivers in the Ports of Los Angeles and Long Beach, wait times at the Otay Mesa Port of Entry just north of Tijuana, Mexico, and the proposed baseball stadium at the Port of Oakland.

Key concerns this year, he said, have involved Section 301 tariffs on imports from China; the proposed U.S.-Mexico-Canada Agreement (USMCA); and the proposal (later rescinded) by the Trump administration to implement a 5% duty on imports from Mexico on short notice. 

Iacopella noted that PCC has been careful to focus not on policy but tactical issues when it lobbies on such issues. For example, on the proposed Mexico duties, it pointed out there was was the lack of infrastructure to start collecting tariffs at the Mexican border on short notice when duties had not been collected for 25 years.

"We thank the government that they listened," he said.

Iacopella said almost every port meeting in 2019 was dominated by discussions about the ability of brokers and forwarders to compete in the direct-to-consumer market, which has exploded with the rise of e-commerce and the decision in 2016 to raise the de minimis value of goods that can be imported under Section 321from $200 to $800.

He noted that the China 301 tariffs have changed how an importer might sell products direct to a consumer. If a product is subject to only a modest tariff it might make sense for a direct-to-consumer retailer to have an entire container of the product sent to a fulfillment center in the U.S. and then shipped onward to the consumer. Either the retailer or consumer can absorb the small additional cost.

But if the product is made in China and is now subject to an additional 25% Section 301 tariff, that 25% tariff can be avoided if the order is fulfilled and shipped from a foreign country, assuming that its value is below $800.

For example, a container of goods can be shipped to a fulfillment center in Canada or Mexico where the product can be individually packaged and then shipped to a customer in the U.S. with delivery times similar to that which would be achieved if shipped from a fulfillment center in the U.S.

And if the consumer is willing to wait, the order can even be filled overseas and hundreds or thousands of individually addressed packages can be made up and shipped by air or ocean container.  

An important caveat is that a consumer can only take advantage of de minimis if all of his or her purchases total less than $800 per day.

CBP has ruled distributors may not enter bulk goods into a Foreign Trade Zone (FTZ) in the U.S., break them down into consumer shipments and take advantage of the de minimis legislation.

Testifying in July 2018 to  the U.S. Senate Committee on Finance's Subcommittee on International Trade, Customs, and Global Competitiveness, then CBP Commissioner Kevin McAleenan said "Over the past five years, CBP has seen a nearly 50 percent increase in express consignment shipments, and an astonishing 200 percent increase in international mail shipments." 

His testimony indicated that "In FY 2013, CBP processed more than 76 million express bills; in FY 2017, CBP processed approximately 110 million bills. In FY 2013, CBP and the USPS processed approximately 150 million international mail shipments; in FY 2017, the number of international mail shipments swelled to over 500 million shipments."

McAleenan resigned as CBP commissioner last week. 

The enormity of this issue is evident when Iacopella noted that according to the Los Angeles Economic Development Corporation and California Fashion Association, 60% of apparel purchases in California in 2018 were online.

While forwarders and customs brokers face challenges, Iacopella said, "We are the most licensed, vetted party. We are going to continue to drive value and a vital role in cross-border revenue protection, trade compliance, national security and consumer product safety. We are the primary drivers of this data.

"If you ask me what we are going to be doing in five years, I don't think it is going to look like this. Just look at what your day is like today and what your day was like one year ago. We are now duty-collection experts, strategic advisers on 301, strategic advisers on USMCA, we are financial advisers, country of origin specialists," he said.

Image Sourced from Pixabay


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