The Real Value of Added Value

One of my fondest memories associated with international business was me, as a young boy, seeing my father off at the airport. I vividly recall the amazing sights and sounds and how the energy and excitement in the terminals was nearly palpable. Air travel then was truly a special event, and it showed. For instance, I’ll never forget how the passengers dressed — my father in his best double-breasted suit, the women in dresses complete with hats and gloves — and the flight crews in their sharp suits and uniforms. It was an incredible experience just to accompany him to his gate.

Fast-forward to today’s commercial air travel experience and you’ll find little distinction from that of taking a bus, as passengers’ manners, courtesy and even appropriate dress codes seem to have diminished in direct proportion to falling ticket prices. Aside from first-class amenities, value-added differentiators are nonexistent or presented in ludicrous offerings such as fee-based “upgrades” to get normal leg room, thus reducing airlines to largely compete on pricing alone.

As a result, air travel is widely viewed to be a victim of “commoditization,” where a good or service loses differentiation across its market base and is no longer able to generate premium margins for market participants.

One trade-related service I feel has moved precariously close to the commoditization cliff is the customs brokerage industry, where I began my trade career more than 30 years ago. It was a time when customs brokers were typically “pure plays” that offered a narrow band of services but with strong value-added differentiators that generally equated to being highly specialized within a specific product line or industry, and having strategic connections to key Customs officials or logistics-related service providers.

I remember the new-client meetings I sat in on and the excruciating amount of time and level of detail our company’s officers would require to ensure all product costs were identified and properly accounted for, or to carefully understand all of the materials and production steps involved in a new garment a client soon would be importing. A company officer reviewed entry declarations, hand-signing each “CF7501.” That’s not to say these attributes can’t be found today, but I’ve nonetheless seen a change that I feel has been influenced largely by two key events.

The first was the start of the new outsourcing trend called “third-party logistics,” where traditional transportation, warehousing and other logistics companies began adding multiple services, including customs brokerage, as a means of creating a competitive one-stop-shopping solution to prospective customers.

While a Swiss army knife approach can offer a number of conveniences to a customer, the downside can be a company strong in certain core services but glaringly weak in others. With regard to brokerage, I’ve experienced some 3PL operations that were so poorly staffed and managed that I could only think of them as being a liability to the company, not an asset.

The second influencer has been the steady rise of enabling technology. Dating back to Customs Commissioner William Von Raab’s famous “automate or perish” ultimatum to the brokerage industry in the 1980s, today’s sophisticated filing systems are capable of processing an unprecedented number of transactions.

But the danger is that this level of automation can turn traditional brokerage into little more than a clerical data-input function where value-added revenue is replaced by transactional volume, and employee performance metrics are no longer compliance-based but tied to the number of entries that he or she can push through the pipeline. With the absence of any added value, accepting importers can demand pricing based on lower clerical rates — and so begins the downward spiral.

Volume-related compliance concerns run especially high within the express package industry, where placing a shipment on hold for any reason runs inherently counter to the very essence of the express business. Unacceptable error rates have prompted some importers to make their express carriers implement strict compliance-related operating procedures in addition to acting as the importer of record as an additional risk mitigation measure.

At the end of the day, every broker should continuously evaluate the value proposition they project onto the market and ask themselves basic questions: If every broker can file an entry, what makes me different? Do I know what added value I bring to my customer (have I ever even asked)? How do I measure my value as a competitive differentiator?

Jerry Peck is a licensed customs broker and Global Trade Management expert with more than 30 years experience in regulatory compliance and GTM optimization solutions. Contact him at 469-235-5229, or at wmjerrypeck@gmail.com.

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