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Customs Brokers – Challenges & Future

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When I was born in 1962, nobody thought that I would be dealing with the Indian Customs Act which came in force the same year. It will be close to 39 years since I am working in the area of Import Exports
and Customs which is now coined as ‘Trade Compliance’ to give the topic a modern look.

First time in 1982 when I was deputed to Air Cargo Complex, Mumbai I was informed that Customs House Agent -CHA (Now termed as Customs Brokers) will clear your shipments and your job is only to follow up with him. Over the period, I got deeply involved in understanding Customs clearance and
working of Customs Brokers. As time passed there was a ‘Sea of Change’ in Customs, and it is important to have a new look at ‘Customs Broker – Challenges and Future’.

There are many topics which have an impact on Customs Brokers, however, we will focus only on four main topics which have the highest impact.

  1. Changes in Laws, Regulations and Simplification of Customs Process.
  2. Transformation of Industry and Digitalisation
  3. Competition
  4. Customer’s Expectations

Each area is subject by itself, so a few salient points are as below:

Changes In Laws, Regulations, Ease Of Doing Business, Trade Facilitation For Simplification Of Customs Process

With WTO focusing on ‘Ease of Doing Business’ and WCO working hard on ‘Trade Facilitation Agreement’, a lot of simplification is done by various countries and India has implemented FTA aggressively in the last 5 years. Some of the changes resulted in transparent customs procedures, digital and reliable and trade friendly.

  • EDI Connectivity, National Portal for Indian Customs ICEGATE.
  • Digitisation -E-Payment of Customs Duty, E-Sanchit, Single Window, Digital Signature, OOC, etc.
  • Schemes like Authorized Economic Operator (AEO), Clearance under Self Assessment, ‘Turant’, Faceless assessment etc.
  • Elimination of old outdated notifications.
  • Implementation of online processes such as Project Registration.
  • Simplification of SVB process

Many countries including India have made the use of customs brokers as optional. This means importers and exporters can file declarations directly with customs. Considering a combination of simplification, digitisation and use schemes like AEO, RMS and online out of charge, work of Customs Brokers is reduced.

All simplification and digitisation have an effect on the Customs Brokers community across the globe. Customs clearance is handled in-house in most parts of Europe, however USA, South America, Asia continues to use Customs Brokers.

In India, more than 99% of companies are using customs brokers. Considering the need for expert knowledge, 24×7 working, harsh working conditions, and lower cost of operations, the industry will continue to outsource clearance work to Customs Brokers.

Transformation of Industry and Digitalisation

How business is done, is fast changing in each industry. The way we order food, book taxis, listen to music, shopping, travel, and banking has transformed. Mobile phones have provided all solutions. COVID -19 has further accelerated the process and many activities which were never dreamed to be done online. Customs compliance is influenced by the wave of Digitisation. We could never imagine the customs clearance team in companies Working From Home (WFH). Customs Brokers team filing documents from home and field operations to be limited to take delivery of cargo. Barring a few documents customs allowed scanned documents to be submitted on ICEGATE/e Sanchit after digital signature.

Increased number of start-ups in the area of Supply Chain, Logistics and Trade compliance are defining new ways to handle supply chains seamlessly. EDI connectivity right from Suppliers, Forwarder, Customs Brokers, is looked at by most Industries.

In addition to digitisation mentioned above, customs has developed robust AI tools for analysis of classification, valuation etc. This has helped Customs officers to compare imports across all ports and for classification, valuation and use of notification etc.

Customs has moved very swiftly towards digitalisation with a focused approach, however, the industry and service providers are yet to catch up. Customs Brokers’ core competency was to interact with customs for submissions, clarifications etc. which has now changed, and back-office work has become
more important with new skill sets. Customs brokers need to handle not only customs and IT systems, but different IT systems of forwarders, custodians, shipping companies, port and industry. Each system has their own set of challenges, and in case of any delay in clearance, Customs Broker is finally held
responsible.

The pandemic has accelerated the need for minimizing the physical presence and maximizing electronic transactions which require the Customs Brokers to redefine their roles and responsibilities. In future Blockchain solutions will change border management and will impact on working of customs brokers. Every business is moving on to mobile, and customs brokers need to develop robust mobile solutions for
importers and exporters.

Competition

In today’s world no-one is free from competition, everyone is facing competition. It is important to know the nature of competition. Unless you know competition, you cannot make plans to stay ahead.

Competition from new players from outside the Industry – In today’s world you cannot imagine who will be your competitor tomorrow. Cloud/Ghost kitchens used by food delivery companies suddenly became competitors for restaurants. Old well-established companies for decades are being challenged by companies completely from different fields.

New Tech companies/start-ups are building logic and software for filing custom declarations and making the process of clearance more automated and digital. Filling customs declaration can be done from any part of the world with a higher skill set, reduced risk. These companies will be new challengers for Customs Brokers.

Competition from Logistics service providers like Freight Forwarders, 3PL Companies and Transporters – It is logical extension and coverage of wider area of operations for logistics service providers by offering Customs Clearance Services to their customers using the tag line of ‘end to end solution’. Most global companies and MNCs are looking for umbrella service providers, mostly global forwarders or 3PL
companies to give end to end services. Logistics service providers may either have their own customs clearance licenses and team or subcontract customs clearance to customs brokers at rock-bottom rates.

In the last few years, transporters who are handling import or export cargo are increasingly getting involved in customs clearance, as an additional source of income. Many customs brokers who do not
have their own vehicles have already seen impact on their business.

Competition between Customs Broker Community – Each Importer-Exporter is looking for cost savings, in past companies used to work with customs brokers for a long time without any changes in rates. Now a new trend is to release RFQ every 2 year. This results in stiff competition between Customs Brokers. In case the customer is a Global/MNC company, competition becomes multi fold.

Competitors from new area – shipping companies, ports and Terminals – After windfall profits in last 2 years, now shipping companies are not only investing in Airlines but also entering with new focus to provide ‘end to end service’. Small and medium exporters are looking for these services to reduce hassles and multiple handling. Shipping companies are also giving warehousing solutions. Last few years ports and terminals were providing only Transportation Services. Now they are pushing their existing customers to take end to end service from them.

In house BPO /Shared services by Importers /Exporters – Many global companies are already having their shared services or BPO in countries or in regions, handling topics like HR, bill passing, accounting etc. These companies are working to establish Tax Compliance share Services or BPO handling custom delectation filing. This helps them not only in better economics but more compliance and visibility.

Self-Clearance by Importers and Exporters – Due to simplification by Customs, companies are contemplating to handle customs clearance internally. Even though most Indian companies prefer Customs brokers, this trend may pick up in future. In Europe where customs declarations/returns are filed on a fixed period, it is possible to submit such returns directly from system and custom brokers are used on a small scale.

Customer’s Expectations

‘Customer is King’ and customer is changing fast, resulting in a new set of challenges to the
Custom Brokers community.

  • In past customs brokers were contracted for a long period and rarely changed, all contracts were always extended without any change or minor changes. Today Management of each company is focusing on cost savings. SCM or Tax team have targets to reduce customs clearance costs. This results in reduced margins for customs brokers and sometimes losing customers which were serviced for decades.
  • Many Global companies and MNC comes out with new strategies such as use of global forwarder for Customs Clearance, one customs broker per country etc. In such cases new strategy implementation results in a new set of challenges. Change in global contract with forwarding agent results in change in customs broker.
  • In order to cater to Import Export at various ports across India, everybody is looking for customs brokers having pan-India presence. Customs brokers working at few locations lose business to competitors with pan-India presence.
  • Reduction in number of suppliers is a trend and customs brokers reduction is helping corporates in many ways. Firstly, the volume of import and export is handled by a few customs brokers so that they can work more efficiently and offer reduced agency charges due to economies of scale. Importers and exporters have advantage of better control on service, easy to implement new processes, IT tools and better data quality.
  • Companies are continuously restructuring themselves – this results in customs function moving internally from one dept. to another. Taking an example, customs clearance moved from SCM to Finance, Tax or Logistics. Another trend is centralisation. Changes from decentralized working where customs clearance was handled by each plant independently after centralisation entire handling is done from office. Mergers and Acquisitions is another event which poses such challenges for customs Brokers.
  • Many times, importer and exporter force customs brokers to make payments of customs duty or port charges demurrage on their behalf. This amount gets blocked for a long time.
  • Delay in clearance results in demurrage cost. Many times, this could be reasons beyond control of customs brokers or may be due to delay by the importer in providing documents/clarifications. Some importers deduct such cost from customs brokers payments which is wrong practice.
  • In line with today’s trend attrition of people handling custom clearance in corporates is high. The new person taking over makes changes to give him better control as well as to showcase success. Most professionals are looking for short term gains like cost reduction and customs brokers are always soft targets.

All these hard and soft facts result in challenges to the Customs Brokers Community.

In the second part of this article, I plan to cover the topic of how to convert the above challenges into opportunities, and look beyond normal customs clearance in areas of Trade Compliance.


This article by Pramod Sant, Former Vice President – Head of Import, Export and Customs, Siemens Ltd. originally appeared in the EXIM Vidya segment for the October 2022 issue of Logistics Insider magazine. All views expressed in the article are his own and do not represent those of any entity he was, is or will be associated with.


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