Offshoring In The Canadian Customs Brokerage Industry
A very interesting blog post caught our eye by our industry neighbor, Cole International. They wrote about the hot topic of Canadian Customs Brokers offshoring their entries in Is Your Canadian Customs Broker Offshoring?
In support of this question, we wanted to add to this discussion.
First off, it is true.
Your Canadian Customs Broker may be offshoring your entry release requests. It is important you are notified if your customs entries are being outsourced. This blog details why offshoring your Customs entries is important to you and how outsourcing your Customs entries can affect your relationship with Customs moving forward.
Why Are Canadian Customs Brokers Offshoring Your Entries?
- To cut costs.
- Because they can.
Unlike in the US, where confidentiality and record keeping rules prohibit customs business from being conducted outside of the US, in Canada, there are no such rules at this time. US Customs work must be completed and filed in the US by a licensed Customs Broker. In Canada, a Customs Broker can contract out this work, entry work that is being completed on behalf of their clients, to another business. Neither Canada Border Services Agency or the Canadian Government have addressed this.
Some businesses in the Customs Brokerage industry have adopted a strategy of cutting their costs by using less experienced outsourced labor to handle vital client Customs data entry. Cost-cutting measures are common practice for any business, but cost cutting the quality of Customs entries has a drastic effect on clients compliance with Customs agencies. The costs of not being compliant with Customs can hurt business where it hurts the most, their wallets, or at an extreme, losing the privilege of conducting cross-border trade.
There is a catch. Customs Brokers who are willingly adopting this strategy are not at any actual risk because, importing risk falls on the importer, not the Customs Broker or their contractor. If a Customs Broker submits a declaration to Customs on your behalf incorrectly, Customs penalizes you, the Importer of Record, and NOT the Broker. Yes, it is true that you could then turn around and try to pass that monetary penalty on to your Broker that made the error, but you might not win that case.
Errors in understanding increase each time a new party is used to relay instructions. If you do not have a close relationship with the broker clearing your entries, your risk increases. Just like the telephone game, the more people your instructions pass through, the more diluted and incorrect the final message is.
The relationship you have with your Customs Broker needs to be founded on a clear understanding of your supply chain, importing needs and any specifics that require the broker to take extra care and attention when submitting your declarations to Customs. It requires close communication and access to those that do this sensitive work for you. That is why it is important for importers to choose their broker wisely; fully knowing the weight of the decision the broker makes for you falls squarely on your shoulders.
Looking For A Customs Broker To Clear Entries On Your Behalf? Check Out 10 Questions To Ask When Selecting A Customs Broker
Is Offshoring An Issue?
Offshoring is not an issue provided the staff members who are completing the entry work on your behalf know your company's importing practices intimately, hold industry certifications assuring training in Canadian import regulations, and have a stakeholder relationship with YOU and not just the Customs Broker which pays them.
Here is an example of how these three fundamental aspects of your relationship with your Customs Broker play into the declarations they make for you.
Say you import prefabricated buildings. Your Customs Broker knows this and notices that the more recent entry release request they received from you was for 10 boxes of bolts from a new vendor. Upon review, the paperwork is perfect; all components necessary for declaration are present. However, a shipment made up of only bolts is out of the ordinary.
A Broker who is not familiar with your trade practices would process the perfect paperwork as is.
A Broker who is familiar with your practice would call you to find out a little more about the shipment.
During the conversation you inform your Broker the 10 boxes are a part of a prefabricated home and the vendor was just unfamiliar with the paperwork process. The entry should clear as a prime ETA and not as a singular shipment.
If this was not caught, extra duty and tax would have been paid unnecessarily. It took a Broker familiar with your work, access to speak to you the about anomaly, and the training in Canadian entry types to avoid over-payment.
In this example the person clearing the entry on your behalf has a duty to you directly, to get it right, and not a third party.
If your Customs Broker is using a third party for the data entry portion of the entry, they likely also have an account manager in place to review that third parties work. However, like most review roles, the account managers attention is spread across multiple accounts and hundreds of entries each day. Therefore, they likely prioritize shipment review based on complaint and error, if and when it is brought to their attention. The quantity of output should never outweigh the quality of input. Your best chance of an excellent compliance rating with Customs is supported by a Customs Broker who prioritizes quality by hiring experienced Brokers and fostering continuous improvement through education.
Some may look at this as an issue of keeping Canadian jobs in Canada or from the opposing view that to offshore is an opportunity to provide better rates to clients while providing an opportunity for jobs in other Countries. Or perhaps offshoring allows small brokers the ability to handle your business when it grows past their capacity to process your requests. However, looking at it solely from the perspective of compliance and client service may help you determine if it is the best option for you.
According to the Office of the Auditor General of Canada's Report, in 2014-2015 Canada Border Services Agency lost $42 million or more in revenue due to misclassification of goods by importers. As a result, the Auditor General recommends "The Canada Border Services Agency review its penalties in order to better protect import revenues and ensure compliance with trade programs." CBSA agreed with this recommendations and we expect significant increases to monetary penalties for non-compliance.
What Can Importers Do To Ensure All Levels Of Client Service And Compliance Are To Their Satisfaction?
Can you reach the person that holds your documentation in their hands 24/7 and get the answers you need? Do they understand your business and why the entry needs to be cleared in a specific way? If your entries are being offshored, it is recommended you take extra care in your own internal practices to make sure you have shown reasonable care with Customs. If you can demonstrate to Customs that you are showing reasonable care of your entry process than you will have a better opportunity to stay compliant with Customs.
Although to date compliance has seemed like a secondary worry for many importers, stricter penalties are more likely than ever with the influx in tariff increases and surtaxes applied at the border.
As a business who conducts trade across the border, eventually, Customs will put the microscope on you. The question you have to ask yourself is, "Am I confident in the work being completed for me by my Customs Broker?" If your answer is yes, happy trading. But if your answer is no, find a Customs Broker who you can trust.