What Every Multinational Company Should Know About … Overseeing Customs Brokers and Freight Forwarders

We have received requests to publish a comprehensive set of Customs and import compliance best practices that covers all aspects of importation and supply chain management. As part of this series, the topic this week is best practices for overseeing customs brokers and freight forwarders. Over the coming weeks, we will be publishing a comprehensive overview of all aspects of customs and importation, including supply chain integrity. Links to our previously published customs-related topics are found at the end of this article.

We are still surprised when we encounter frequent importers who say they do not need to spend much time on Customs compliance because “the customs broker takes care of that.” But while customs brokers (and freight forwarders, who often provide customs broker services) are licensed professionals, the importer of record is still legally responsible under Customs regulations for ensuring compliance with all import-related requirements — not the customs broker, whose main responsibility is ensuring the submission of all electronic paperwork and clearing the goods through Customs. So, while the customs broker (or the freight forwarder) will generally be the entity submitting information to Customs and handling any payments, this is all done on behalf of the importer of record. Any errors in the information submitted, or the payments made, are completely the responsibility of the importer of record. If there are problems, Customs will look entirely to the importer of record to fix the errors.

Thus, having good oversight of customs brokers is crucial for importers to ensure that customs brokers act as accurate intermediaries between importers and Customs. Maintaining systematic procedures for overseeing this important relationship is essential, for the following reasons:

Ensuring Regulatory Compliance: Even though customs brokers handle the electronic paperwork, the importer is ultimately responsible for the accuracy of customs declarations. Good oversight ensures that brokers are filing the correct information, such as accurate tariff classifications, declared values, country of origin details, and the full and complete submission of all tariffs while minimizing errors in filing or non-compliance with Customs regulations that can result in penalties, fines, or import delays.

Preventing Misdeclarations: Misreporting or underreporting the value of goods can result in the underpayment of duties, leading to Form 28s, Form 29s, customs audits, and retroactive duty assessments and penalties. Proper oversight helps ensure that the broker correctly reports all relevant information.

Optimizing Duty and Tax Payments: Oversight ensures that customs brokers use the correct Harmonized Tariff Schedule (HTS) codes, which directly impact duty rates. Accurate classification can help reduce duty costs by ensuring the importer benefits from lower-duty classifications where appropriate.

Protecting Against Fraud and Misconduct: Unscrupulous or negligent brokers may engage in practices such as false invoicing, undervaluation, or misclassification of goods, which could lead to severe legal and financial consequences for the importer. Oversight helps prevent fraud and ensures the broker is acting in the importer’s best interest.

Enhancing Recordkeeping and Documentation: Importers must maintain accurate and complete records for customs transactions. A fair number of these records pass through the hands of customs brokers, which are responsible for filing important documents such as entry summaries (CBP Form 7501), invoices, and packing lists with Customs. Oversight of brokers ensures that all customs filings and supporting documents are properly filed, organized, and accessible in case of CBP audits or inquiries, and to meet Customs recordkeeping requirements.

Reducing Liability Exposure: Good customs broker oversight can help identify import-related issues early, enabling importers to correct mistakes before they lead to legal action, penalties, or increased scrutiny from customs.

Ensuring Proper Use of Customs Programs: Customs brokers often handle participation in duty drawback, Foreign Trade Zones (FTZs), and the Customs-Trade Partnership Against Terrorism (C-TPAT) programs. Effective oversight ensures that brokers correctly implement the requirements of these tariff-saving programs, helping importers maximize their duty savings and other benefits. If brokers handle goods imported under FTAs, good oversight ensures that they follow the proper procedures for duty savings.

Mitigating Supply Chain Risks and Supply Chain Disruptions: Errors or delays in customs filings can result in the detention of goods, causing delays in shipments, additional costs, and customer dissatisfaction. Good customs broker oversight ensures that brokers perform their duties appropriately, minimizing the risk of import delays or detentions.

Oversight of customs brokers accordingly is essential for importers to ensure compliance with customs regulations, minimizing risk, optimizing duty payments, and preventing costly errors. Here are some best practices for importers to manage and oversee their customs brokers:

Identify All Customs Brokers for All Company Affiliates: Surprisingly, we find it common that frequent importers are not aware that they are using multiple importer of record numbers (particularly if they have recently acquired other companies) or do not have a good handle on how many customs brokers they are using (e.g., procurement is handling imports on its own, or a subsidiary has a separate importer of record number). Doing a companywide survey to identify all customs brokers used in the last five years is a good starting point for frequent importers.

Select a Reputable Customs Broker: Choose a customs broker with a strong reputation for accuracy, that regularly operates at the importer’s commonly used ports. Look for a broker with experience in the industry and knowledge of the specific countries or regions from which the importer commonly imports.

Foster a Collaborative Relationship: Develop a collaborative relationship with the broker, based on trust and mutual respect, to facilitate smooth operations and effective problem resolution. Provide constructive feedback to the broker, and encourage the relationship contact to offer suggestions for improving the import process.

Define Clear Roles and Responsibilities: Establish a clear service agreement outlining the broker’s responsibilities, including customs declarations, compliance checks, and recordkeeping. Specify the scope of work and any additional services the broker should provide (e.g., trade compliance consulting, tariff classification). Carefully review the customs power of attorney to ensure it is not too broad (giving a general power of attorney rather than one limited to customs matters) and is for a limited period of time.

Communicate Effectively: Designate a single point of contact within your organization to coordinate with the customs broker, to streamline communication and keep track of Customs issues being handled by or with the broker. Schedule regular meetings or calls to discuss any issues, updates, or changes in import processes or regulations and how to handle new products and their classifications as they are developed.

Evaluate Risk Management: Assess the broker’s approach to managing risks, including how it handles potential compliance issues or disputes with customs authorities. Work with the broker to develop contingency plans for potential disruptions or challenges in the import process.

Leverage Technology: Use technology to integrate your systems with the broker’s customs software, facilitating data sharing and streamlining the import process. Use electronic communication tools for faster and more efficient processing of import documentation and queries.

Document and Address Issues Promptly: Document any issues or discrepancies encountered with the broker’s services and address them promptly to prevent recurrence. Have clear procedures for resolving disputes or issues with the broker, including escalation protocols if necessary.

Monitor Performance: Regularly review reports from the broker on import activities, including transaction summaries, compliance status, and any issues encountered. Conduct periodic audits of the broker’s activities to ensure compliance with customs regulations and the terms of the service agreement. Regularly review the accuracy of customs documentation submitted by the broker such as import declarations, invoices, and certificates of origin. Verify that the broker is following your company’s customs compliance procedures, including accurate classification, valuation, and documentation. Ensure the broker is aware of and adheres to any changes in your company’s procedures or customs regulations.

Conduct Annual Reviews of the Customs Broker Experience: Conduct annual or semi-annual performance reviews to evaluate the broker’s overall effectiveness and whether they continue to meet your company’s needs. Reassess the service agreement periodically and make necessary adjustments based on performance and any changes in your business requirements.

By following these best practices, importers can effectively oversee their customs brokers, ensuring that customs operations run smoothly, regulatory compliance is maintained, and any potential issues are promptly addressed.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Foley & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. Click here to register.

Looking for more information on managing your imports and your international supply chain? Our previously published articles on Customs, importation, and supply chain include the following:

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

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