Many times, the selection of customs broker is treated like buying any normal services, keeping in mind cost and savings as prime objective. However customs compliance, smooth flow of goods in international trade, avoidance of excess or short duty payments, availing correct benefits and handling disputes, should be given equal importance.
Essential steps in selection of customs brokers (refer chart 1)
First, prepare a list of customs brokers
Each organisation lays down certain objectives while selecting or changing customs brokers (elaborated in part I of this article). In line with these objectives, and planned strategy, a first-cut list of prospective customs broker is prepared. Market study, reference given by other industry players, existing service providers, etc., are used to prepare this list. The number of shortlisted custom brokers will depend upon the business volume as well as the final number of customs brokers to be contacted.
Non-Disclosure Agreement & Permission to Collect information
The first step is to sign NDA and Permission to Collect information from shortlisted customs brokers. This helps in due diligence as well as proper evaluation.
Request For Quotation (RFQ)
A well structured and comprehensive RFQ will result in successful selection and contracting. Most important is to specify service scope and compensation type. Various types of compensation are possible, such as activity based or success fee. However, success fees is always looked with suspicion by auditors and tightening of Anti Bribery and FCPA Laws. Therefore, success fee model should be avoided. It best to give a predefined rate sheet or provide online RFQ to avoid deviation information. In order to bring complete transparency, Standard Operating Process (SOP), all contract clauses, MIS formats and KPIs are provided with RFQ.
RFQ briefing meeting
After giving all inputs with RFQ, a face to face meeting with each prospective customs broker it must explain to them all the process, format, expiration. This also gives Customs Brokers opportunity to get clarifications and avoid assumptions.
Quotation receipt and preliminary evaluation
Even if due care is taken, sometimes it is possible that there are some errors or clarifications we need to handle, same on merits of case. Based of primary evaluation you can decide number of customer brokers to be eliminated at the first round and who should go to the next round. This is critical step and parameters should be kept simple. Most of the time this can be based on rates and total cost criteria.
E-Bidding
This is another way to handle first round of RFQ, however still a very few organisations are using e-bidding for customs broker RFQ
Feedback from other customers
Based on list of customers provided by the customs broker, few key customer can be selected to get feedback about performance. A good mix of customers consists of top customer as well as some small or mid-size customers. Structured feedback on various performance parameters should be used as one of the evaluation criteria.
Premise visit and assessment
Visit to customer brokers’ office will give you insights and first hand assessment about infrastructure and people. Short meetings with documents verification team, BE/SB filing team, classification team, and operations team will demonstrate their capabilities to some extent.
Selection criteria for customs brokers
In addition to cost, there are many important criteria (refer to chart 2). This includes:
1. Regulatory approvals & compliance
2. Financial capabilities and credit rating
3. Organisational structure
4. Management
5. Expertise
6. Infrastructure
7. Other value-added services, handling PGA Approvals, DGFT work, Litigation, Advisory etc..
Today, IT infrastructure and digitisation play an important role in day-to-day work. How is the readiness of Custom broker to integrate with customer’s systems Forwarders. It is important that he has trace and track systems which can be used directly or can be integrated with customer.
This is an abridged version of the EXIM Vidya segment that was published in the June issue of Logistics Insider magazine. To read the complete version, please click here.
