We’ve discussed Global Supplier Visibility and Performance, Supply Chain Finance, and even Supply Chain Audits, but we have not yet delved into Global Trade Data Management, an area that, if mismanaged, can cost you millions of dollars.
Why? Maybe it’s because if it’s done properly, there are no considerable savings opportunities when compared with other areas of the supply chain. With visibility, there are always new ways to manage risk that can be significantly more cost competitive. With finance, new payment methods or arrangements always present noticably increased potential. With sourcing, we know where the enormous opportunities are. With global trade, governments fix tariffs and duties and that’s that.
But only if your items are property classified and validated and only if you pay the right amount. The reality is that, in many corporations, error rates in global trade processes approach 10% to 20%. The effective control of global trade processes is often 100 to 200 times worse compared to accounts payable processes in the same company.
Why? A combination of reasons. Up until 1993, the government was responsible for reviewing the accuracy of documentation and markings and assessing appropriate duties. Then the Customs Modernization Act shifted responsibility for import compliance to the importer. Businesses were not ready, so they deferred to third-party providers (customhouse brokerage services). But as they expanded, so did the broad range of countries and commodities they had to processes, as well as the ever increasing range of HTS (Harmonized Tariff Schedule) codes they had to deal with, many of which had confusing sub-classifications that were not well known or commonly used. In addition, whereas accounting had a number of sophisticated accounting systems to choose from on the marketplace, technology solutions for these customhouse brokerage providers were almost non-existent. In effect, proper classification depended on the expertise of the human classifying the data – which leads to errors, all of which are costly since they will result in delayed clearance, fines, or undetected overpayments – the last of which the government is not looking for on your behalf.
How could this happen? Many categories have subcategories. Consider 3703.10, photographic paper. It’s US HTS rate is 3.7% unless it’s 3703.10.60, Other (not falling into the .30 category of rolls exceeding 610 mm), and then its 3.1%. If you were unaware of this special subclassification, or simply left off the .60, you’d be paying 0.6% more. Another common error is a mixed shipment where a rushed or lazy agent simply uses the high level four digit code in a mixed shipment. If the majority of the shipment was at a lower rate, or was subject to reduced rates because of a free trade agreement or free trade zone, you could be considerably overpaying. And if you’re importing 50M and overpaying 2%, that’s 1M you’re losing.
So what can you do? Up until recently, the best you could do is subscribe to a service that kept up-to-date rates and manually verify each shipment against the rates, which required lots of manpower and might cost more than you save if you are a mid-sized company or smaller. Today, there are technology solutions to assist you. One such solution is that offered by Global Data Mining, a company that specializes in helping high-volume, high-value global trade businesses build effective trade databases for extensive trade reporting and comprehensive auditing to significantly improve their processes, reduce their error rates, and save time and money in their global trade endeavors.
Earlier this week I had a chance to speak with the president of GDM, and the president of their sister company, International Trade Bureau, and I must say that I was impressed with their knowledge of the issues in the global trade space and their processes and solutions for addressing them. Although they do not provide a complete solution on their own, with the right internal team and consulting partners, the foundation their solutions provide will allow you to address your trade issues end to end. How? That’s a topic for a later post.