Every year, just as certain as the blooming of the bluebonnets in Texas, I get asked for my opinion about where I consider to be the best fit for trade compliance within a corporate organization. The reason for the question’s frequency is because trade compliance, like the proverbial hot potato, often finds itself handed off from one organization to another because few people fully understand the function and role of trade compliance operations, seeing only additional cost, complexity and potential liability.
In response, what follows are the five most popular business departments responsible for trade compliance — ranked from bottom to top as a result of my own personal experiences, observations and opinions over my career:
5. Traffic/Transportation: Given that clearance of imported goods is a natural step within the transportation process and requires tight communication between the two functions, this tends to be among the top picks for placing trade compliance. Unfortunately, it also happens to be the worst. For starters, the traffic department is under constant pressure to support internal and external customers, which can become especially demanding at the end of a quarter or during peak seasonal demand. With the traffic department’s performance (and bonuses) tied to this support, an inherent and dangerous conflict of interest now exists because those responsible for trade compliance in this scenario could feel pressured to take shortcuts, such as guessing at product classifications, or worse, making a false declaration in order to free an urgent shipment that’s stuck in customs.
Second, a large piece of the traffic department’s role is to manage the costs associated with international freight. While there’s nothing wrong with this at face value, the tactics used on carriers don’t translate well with customs brokers where value-add and cost-process efficiencies tend to improve with the relationship. Instead, I’ve witnessed traffic managers swap customs brokers over a mere $5 reduction in filing fees without blinking an eye, and without factoring the tremendous disruption in business this can create because of transitioning to a new company’s systems, procedures and personnel. An equally inept practice occurs when the carrier of the freight also is allowed to clear it as the customs broker, creating a compliance nightmare of having to monitor and support a constantly changing array of carrier-brokers.
4. Tax/Treasury: With government import duties and fees considered indirect taxes, alignment under the tax department tends to be a popular choice for many companies. My problem with it, though, is that this decision often seems to be made on this association alone without further consideration for the actual operations this department must perform, or that it adheres to a different set of U.S. laws and regulations. It also loses points as an optimal fit for value-add opportunities.
3. Procurement and 2. Logistics/Supply Chain: I rank these two operations very close, but with the edge going to logistics/supply chain, as both provide an opportunity where the trade and customs teams can have a direct impact on cost savings, such as by providing landed-cost analyses between purchasing foreign or domestic sourced materials. For this to happen, however, there must be a supporting strategy where the trade compliance operation is effectively hard-wired upstream into the beginning of the procurement and supply chain decision-making process so that advice on import duties/tax, admissibility requirements and/or other related issues can be factored in.
1. Legal: This tends to be my top choice for a couple of simple reasons: First, given international trade’s dizzying array of laws, regulations and stiff penalties for a company’s non-compliance, alignment under the legal department helps to ensure the company’s trade activities have full visibility. The second is a more intangible benefit that comes from the added clout of having “corporate legal” under your e-mail address, because this can be particularly effective in getting cooperation from other business operations when rolling out new trade-related policies and procedures. And, although organizationally aligned under the legal department, a best-in-class implementation is to physically locate members of the trade and customs group within traffic procurement-supply chain operations for enhanced communication and planning, as explained earlier.
Regardless of where trade compliance is organized, what matters most — and is necessary to provide the greatest opportunity for effectiveness — is the level of support and commitment trade compliance receives from the company’s executive leadership. Without this backing, as support with corporate trade initiatives as well as budgeting for staffing and systems, any trade compliance department will have a poor chance of succeeding.
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 email@example.com.