[Webinar] What Are Customs Brokers & Freight Forwarders?
In the latest webinar presented by the Trade Risk Guaranty team, we define Customs Brokers and Freight Forwarders and their role in the process of importing.
For many U.S. Importers, Customs Brokers and Freight Forwarders are a necessary part of the process of importing in the United States. However, despite how necessary they are in a business’ importing practices, many business owners do not fully understand the role of a Customs Broker and/or a Freight Forwarder.
In TRG’s latest webinar, we define what Customs Brokers and Freight Forwarders are and their specific roles in the importing process. During the presentation, the following topics are covered:
- What Are Customs Brokers & 3 Great Questions To Ask Them
- What Are Freight Forwarders & 3 Great Questions to Ask Them
- Where Can You Find Customs Brokers & Freight Forwarders
- The Differences Between Customs Brokers & Freight Forwarders
Watch the Full Webinar to Learn More About Customs Brokers & Freight Forwarders
Read the Full Transcript from the Webinar
Customs Brokers and Freight Forwarders Webinar Introduction
00:26 – This webinar is being presented by Trade Risk Guaranty Brokerage Services, LLC or as we’re commonly referred to as TRG. We’re located in the heart of downtown Bozeman, Montana which as of late can’t decide if it wants to be winter, spring, or summer. On Monday it went from 66 and sunny to 32 and snowing within a few hours. As we like to say around these parts; if you don’t like the weather, just wait a few minutes. If you’re in town, don’t be shy stop on by the second floor of the historic Rocking ‘R’ Bar building.
00:58 – Our direct-to-importer business model is unique to the Customs Bond and Cargo Insurance markets. We’ve grown our business over the last 26 years to encompass over 10,000 clients from all avenues of international trade.
01:11 – As an important disclaimer, the information presented in this webinar is for information purposes only and is not intended and does not constitute legal advice. We will be recording this webinar and it’ll be available on YouTube for future reference. To be notified the moment it releases and to keep a pulse on TRG’s educational videos, I highly recommend you subscribe to our YouTube channel. You can also search for it by typing Trade Risk Guaranty space YouTube into Google and clicking the first result.
01:42 – If you’ve any additional questions outside the webinar or if you’d like to be part of a community of trade professionals, join our Facebook group ‘International Trade Professionals – TRG’. We regularly check the group for questions and encourage our members to start conversations amongst themselves if they have a common problem.
01:57 – Today’s webinar topics will cover ‘what are Customs Brokers and three great questions to ask them’, ‘what are freight forwarders as well as three great questions to ask them’, ‘where can you find Customs Brokers and Freight Forwarders’, and ‘the differences between Customs Brokers and Freight Forwarders’.
What are Customs Brokers?
02:54 – Brokers must have an expertise in the entry procedures, admissibility requirements, classification, valuation, and the rates of duty and applicable taxes and fees for imported merchandise.
03:07 – Customs states that there’s approximately eleven thousand active licensed Customs Brokers. So here’s a fun fact, if we approximate the active number of U.S. importers that hold continuous U.S. Customs Bonds to be between 250,000 to 300,000, we find that there are between 22 to 27 importers for every one Customs Broker. Pretty cool!
03:32 – So what does this all mean? Licensed Customs brokers are required to pass a rigorous government-mandated test and background search prior to engaging in Customs business on behalf of U.S. Importers. At their foundation all Customs Brokers must possess an expert understanding of the Customs Code of Federal Regulations and display a deep understanding of the Harmonized Tariff System, as it ultimately provides the determination of the duty rate for each unique commodity.
04:00 – The combination of their expertise in these fields allows them to act as a liaison between the importer and Customs. What this translates to for many importers is that the Customs Broker prepares and delivers the necessary paperwork collaborates with the importer determine an appropriate classification pays duties and fees and handles other crucial interactions with Customs during the process of importing goods.
04:25 – Let’s take a moment to discuss an incredibly crucial topic, which is where legal responsibility of the goods lies in the eyes of Customs. The Importer of Record or IOR, not the Customs Broker, is liable for any mistakes made during the process of importation. Additionally, Customs absolutely will not accept an omission of understanding.
04:46 – In other words, saying you didn’t know doesn’t matter to Customs. Again, I can’t stress this enough, regardless of who makes the mistakes, the IOR is ultimately held legally responsible for their goods.
04:55 – So what does this mean for you the importer of record? When it comes to classification of your goods, it’s in your best interest to have multiple sources involved in the final determination of the classification you plan to use. While we’re on the subject, it is also in your best interest not to rely on the foreign manufacturer to classify your goods or more importantly, supplier HTSUS codes.
05:18 – Importers utilizing suppliers suggested tariff code may be falsely lured into perceiving lower prices as a result of a lower duty rate. The foreign manufacturer will not be held liable for the misclassification of your goods, again, as the importer of record the burden to properly classify the goods rests on your shoulders.
05:35 – What are some of the specific services and paperwork that Customs Brokers provide for an importer? Customs Brokers will transmit your Importer Security Filing (also known as ISF), declare your right to make entry, properly fill out and file your entry summary (7501), file your cargo release, pay duties and fees on your behalf, and they may even have helped determine your classification. It’s important to note that the accuracy of documentation is essential because while Customs may inadvertently accept inaccurate paperwork, they will eventually catch on to the inaccuracies which could result in massive penalties down the road. It is not unheard of for Customs to miss a classification mistake for multiple years and seek remedy for a period of up to five years prior. Even on entries that have already liquidated.
06:30 – Some of you, up to this point, may be thinking ‘That sounds great Nick, but I’m not really sure what any of this means.’ So let’s take a step back and analyze where the Customs Broker fits in during the process of entry of foreign goods. And on this chart, we can roughly lump things into two categories; everything that needs to happen before the goods reach the U.S., everything that happens once the goods arrive in the U.S.
06:50 – Let’s discuss what needs to happen before the goods arrive. The first step in the entry process happens even before the goods have left the foreign port. This step is known as the Importer Security Filing, in which you, or for the sake of this webinar, your Customs Broker is sending Customs various data elements about your cargo destined for the U.S. This is essentially a report that details where your goods are coming from, who manufactured and sold them to you, who is in contact with them at origin, and to whom they will be shipped. Basically, a means for Customs to pre-screen the goods you import and determine if there will be further inspection upon arrival. This data filing must be completed no later than 24 hours before the goods are placed on the foreign vessel bound for the U.S., so pretty far in advance.
07:39 – If your goods are due to arrive and their final destination is an ocean port, the Customs Broker can pre-clear your entry at the port of discharge up to five days in advance. If your cargo will be forwarding or travelling to some inland port, the Customs Broker must wait for the cargo to reach its destination port prior to making entry. The vast majority of Customs Brokers today transmit data through a method known as Remote Location Filing, ‘RLF’, allows your broker to submit your data entry and pay duties and fees from their living room in Fargo, while your cargo is sitting at the port in Memphis. Pretty cool!
08:15 – Let me go into more detail on that, before your goods arrive in the U.S., the Customs Broker, on behalf of the importer, must also make arrangements at the port of entry, the place where duties and documentation will be filed. What this does is signals to Customs at which port you’ll be interacting with them, so when the goods arrive at the port the Customs Officials know what to do with the goods and what to expect.
08:36 – Once your goods have arrived in the U.S. they cannot be cleared by Customs into your broker has coordinated the commercial documentation for Customs review or immediately.
08:45 – What are the commercial documents required, you asked? Your broker will need your commercial invoice, packing list, and bill of lading and they may additionally request the arrival notice. Submitting these documents to your broker prior to arrival will ensure the timely release of your cargo and help you to avoid any unnecessary storage fees. As long as the Customs Broker has all the proper documentation they will generally file for Immediate Release which encompasses filing the cargo release, filing the entry summary 7501, and paying estimated duties.
09:21 – Here’s a quick breakdown of each of these. Filing the Cargo Release: this releases the goods from Customs custody and declares that the importers have the right to make entry into the U.S. File Entry Summary: also known as a Customs Form 7501. Customs Brokers file this document by collecting the data from your Commercial Invoice, Packing List, and Bill of Lading. They gather and collect data that informs the classification of your goods, the origin of the goods, the value, and quantity of the goods. Pay Estimated Duties; as you can imagine this is a crucial step in which the Customs Broker pays duties and fees assessed on the tariff and value the commercial invoice on your behalf, based on the information contained in the 7501.
10:00 – For more details on the entry process, check out our previous webinar: The Process of Liquidation and Entering Goods into the United States. As you may have gathered, at this point the Customs Broker plays a massive and crucial role in the Process of Importation that directly affects your supply chain. Which means finding the right one is also a crucial task.
10:23 – To that end, I’ve compiled three of my favorite questions to kick start the vetting process of finding a good Customs Broker. Question number one: Mr. Customs Broker, how will you help my company ensure proper compliance with Customs regulations? One of my favorites. Basically, you want to make sure that they have a finger on the pulse of Customs. How are they monitoring new compliance protocols being released by Customs? Are they part of any key trade compliance organizations? For example; I-CPA, which is International Compliance Professionals, or the NCBFA, a National Customs Brokers And Forwarders Association of America.
11:01 – Question number two: Mr. Customs Broker, do you have any pending lawsuits or violations and/or have you been sanctioned by Customs? As you can imagine you probably wouldn’t want to work with a Customs Broker that has pending lawsuits or violations. Additionally, if they’ve been sanctioned by Customs, that means they have to make cash deposits to Customs. Effectively eliminating payment by other means and severely limiting their capabilities. As you can imagine, being sanctioned by Customs is not a good thing.
11:29 – Question number three: Mr. Customs Broker, how much do your services cost? It’s important to know how much your Customs Broker is going to charge you and asking for a breakdown of fees is a great way to compare Customs Brokers. Here’s a few things to ask about to get you started. You can ask about ISF filing, entry filing, warehouse entry, partner government agency (or PGA), entry filing, or even for Customs Bonds. Now many of you may already be aware, but the Customs Bond can be sourced directly from an insurance agency just like TRG.
12:03 – Customs Bonds aside, there are roughly 11,000 Customs Brokers out there, so don’t feel like you’re stuck with one. By all means, do a cost comparison between your favourite options.
What Are Freight Forwarders?
12:40 – To start, Freight Forwarders can be defined as a firm specializing in arranging storage and shipping of merchandise on behalf of its shippers, it usually provides a full range of services including tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filing of insurance claims. Freight Forwarders usually ship under their own bills of lading or air waybills, called house bill of lading or house air waybills, and their agents or associates at the destination (overseas freight brokers) provide document delivery, deconsolidation, and freight collection services.
13:22 – As witnessed in the previous definition, the term Freight Forwarders can conceivably cover a wide range of professionals and services and their role depends on the need of your company. The advantage of working with a Freight Forwarder is that they can act as an extension of your business, their level of involvement in your organization’s supply chain can vary depending on how you engage them.
13:42 – At their root Forwarders are logistics professionals with a deep knowledge of moving freight from one location to another and managing the transportation to avoid or minimize freight holds, demurrage, and attention for their clients. Forwarders working on behalf of importers will coordinate and provide necessary documents to the Customs Broker such as the bill of lading and arrival notice.
14:09 – Unlike the Customs Broker, who has expertise in Customs regulation, classification, Customs required forms, and clearing Customs; the Freight Forwarder advocates for the timely pickup and delivery of her customers’ shipments by coordinating with a vast network of transportation and compliance professionals. The most classical example of Freight Forwarders are UPS, FedEx, DHL. Makes sense right?
14:32 – They pick up the freight at one location, they utilize their shipping network to determine the movement of the goods, and finally freight winds up in a different location at its destination.
14:40 – So we’ve got a basic idea of the breadth of service Freight Forwarders cover. Let’s discuss some of the common terms associated with Freight Forwarders that we frequently get questions on.
14:50 – First, let’s discuss Freight Consolidation and Deconsolidation. Freight Consolidation is the means by which multiple smaller shipments from different importers are grouped together to create a larger, fuller shipment. Usually utilized as a cost-saving technique, in addition to time-saving, by frequency of travel in specific trade lines.
15:10 – Deconsolidation occurs after the goods have arrived at the shared destination. The goods must then be separated back out into their smaller shipments to be further dispersed to warehouses or final destinations.
15:25 – Next we have FCL/LCL which stands for Full Container Load and Less Than Container Load. Full Container Load means that all the cargo in a single shipping container is all your cargo. Less Than Container Load shipments are those of lesser volume and can be consolidated at an origin point with many cosignee’s goods all sharing cargo space. It’s like buying a seat on kayak.com but in an ocean container.
15:52 – Followed by FTL/LTL. Similar to FCL/LCL, FTL stands for Full Truck Load while LTL stands for Less Than Truck Load. You’ve probably noticed that instead of a container the goods in this sense are being moved via truckload instead of by a container. Additionally, another difference is that in some cases less than truck load may simply mean that you require a smaller specialized vehicle to move your goods. It doesn’t necessarily mean your goods have been consolidated with another’s as compared to container shipping.
16:24 – Moving on, let’s discuss a few more items you’ve probably heard thrown around. First, Ocean Carrier which generally refers to the shipping lanes that operate the cargo ships that are physically moving the goods from one country to another. Some of the bigwigs in the game are Maersk, Hapaq-Lloyd, CMA CGM Group.
16:42 – Next we have NVOCC, which stands for Non-Vessel Operating Common Carrier. Again, this is an element that could very easily be an upcoming webinar topic all of its own. But for now let’s stick to a simple definition NVOCCs are similar to carriers, however, they don’t own the cargo ships. Instead they’ve purchased slots on cargo ships from the shipping line that they, in turn, turn around and sell to Freight Agents, Freight Forwarders, or otherwise.
17:08 – So what are three great questions for a Freight Forwarder? Question number one: do they offer the services you require? First determine what services you may need and then find out if that Freight Forwarder offers them. In many cases this can be resolved by checking out their website, however, it never hurts to ask and reassure that what you’re looking for is what they offer. Not only will you be able to discern what services they offer from the website, you’ll probably also be able to get a pulse from their customers reviews or testimonials how their service compares to their competitors.
17:40 – Question number two: how will they manage your shipments how will you interact with them? In general you want to get a feel for how they handle their customer service. Is it more than one person who will be your points of contact? Should an issue arise, are they easily available in the event of an emergency? Remember, these are your goods at risk, so you want to ensure that should an issue arise during their contracted shipment, that they’ll be available to support.
18:03 – You question number three: how much experience do they have? Perhaps my favorite question asked, which really gets to the heart of the matter. How much experience do you have? As a Freight Forwarder, Freight Agent, have you been doing this for years, months, days? Are they a reputable Freight Forwarder? Again, you can always start with a basic Google search and get a wealth of information including reviews from customers.
Customs Brokers and Freight Forwarders Webinar Conclusion
18:49 – However, if you prefer the old-school brick-and-mortar option, you can find Customs Brokers and Freight Forwarders in every state and, typically, concentrated around ports, especially the larger ports.
19:02 – Finally, don’t forget that our sister company, Strix, is a Customs Brokerage and Freight Forwarder that specializes in self-filing software as well as domestic, international freight services. You’re welcome to reach out to us after the webinar and we can put you in touch with them if you want to find out if they’re a fit for your company.
19:24 – So if you’ve made it this far you hopefully have a better understanding of Customs Brokers and Freight Forwarders, but in case you’re still wondering what is the difference between Customs Brokers and Freight Forwarders. Well Customs Brokers expertise is in the language of Customs and making sure that all Customs required paperwork is filed accurately with Customs while Freight Forwarders are the logistics professionals who are in charge of maneuvering your goods from ports and places to the world to other ports and places in the world.
19:54 – As a final note, due to the complimentary nature, as well as need for cohesion between the two, we often see that many Customs Brokers also take on the role of Freight Forwarder and vice versa. And that’s it!
20:03 – At this time we’d like you to please submit your questions, we’ll try to answer them in a little bit, but first we want to tell you a little more about TRG. While we collect questions from the audience, I’d like to tell you about TRG. TRG is an international trade insurance agency.
20:24 – We work directly with importers and exporters. We’ve been doing this for 26 years, we’ve got over 13,000 clients that we work with every day specifically discussing these complex topics and helping them navigate through this world of Customs. We’re an additional resource for them with their Customs Broker and Freight Forwarder.
20:41 – So our model does help save time and money and our multi-year billing cycles are significantly less usually on the Customs Bond. Typically, people are paying somewhere between four hundred and seventy-five and five hundred and twenty-five dollars for their Customs Bond and we’re down to $225 a year with our multi-year pricing on the fifty thousand dollar bond.
21:02 – You can continue to work with any Broker or Forwarder of your choice and if any issues arise our in-house claims assistance from our Licensed Customs Brokers are available to help you.
21:17 – All right, let’s answer a few of those questions. First question from Gary; ‘should an importer be concerned about their Broker if that Broker has few, if any, questions about what they’re clearing for the importer?’
21:26 – I’d say that really depends on what kind of goods you are bringing in and how frequently. If you’re bringing in a fairly simple commodity a couple of times a year, you’ll likely receive fewer questions than someone who’s bringing in significantly more complex commodities at a higher frequency. So to answer your question, no not necessarily. However, it never hurts to shop the market if you feel like your Customs Broker isn’t adequate, don’t feel caged in. Check out the competition.
21:56 – Penny asked; ‘what is the best way to compare costs between Customs Brokers?’ First, I would start by collecting as much information about the costs for each of their services, including specific fees that could be related to your business. Some Brokers will break out those prices on their website. After that I would, you know, more extensive questioning especially if you’ve narrowed it down to three Customs Brokers and kind of get that in person if you can or by the phone, whichever works.
22:21 – Sandy asked; ‘do Customs Brokers review all of their entries?’ Sandy, I’d say that Customs Brokers worth their salt are likely reviewing their entries. If you feel like your Customs Broker isn’t on par, it never hurts to get a second opinion from another Customs Broker.
22:39 – Thank you, for attending the webinar if you have any questions please don’t hesitate to reach out to me directly by my email at firstname.lastname@example.org or you can reach out to us via our Facebook group ‘International Trade Professionals – TRG’. The added advantage reaching out to the Facebook group is you’ll access not only our experts on staff, but also experts in the international trade community.
23:06 – Additionally, check out our blog www.traderiskguaranty.com/TRGPeak it’s got a treasure trove of excellent articles and information. Don’t forget you can find us on Facebook, Twitter, Linkedin, Instagram, and most importantly on YouTube. If you’d like to be notified when we release the recording of this webinar and all of our awesome videos as soon as they come out, subscribe to our YouTube channel.
– Again thank you for attending the webinar!
Meredith Lambert • April 25, 2018
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