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Are Customs Brokers Required for International Shipping?

Phuc Le
July 24, 2023

When first-time importers are planning to bring goods into the country, they often ask themselves, "Do I need a customs broker?" Importing goods, regardless of their size, quantity, or nature, is a complicated task that involves numerous intricacies and legal requirements. Understanding whether or not a customs broker is needed is one of the many things that leaves first-time importers scratching their heads.

To shed light on this matter, it's important to refer to the guidelines provided by Customs and Border Protection (CBP), the agency responsible for overseeing customs processes in the United States. According to CBP, you will need a customs broker if the goods you are importing are regulated by another government agency. These regulations could involve specific commodities such as food, drugs, alcohol, firearms, or certain agricultural products. In such cases, a customs broker can navigate the complex regulations and requirements set forth by the respective agency, ensuring compliance and smooth entry of the goods into the country.

WHAT DOES A CUSTOMS BROKER DO?

What Does A Customs Broker Do?

The services provided by customs brokers can vary depending on whether they work independently or for a company. However, their common goal is to assist importers and exporters in navigating the federal rules and regulations associated with international shipping.

Importing goods involves extensive research and due diligence, which can be time-consuming. By partnering with a customs broker, you can delegate these responsibilities to experienced professionals. Customs brokers take care of various tasks on your behalf, saving you time and allowing you to concentrate on other essential aspects of your business. Whether it's managing documentation, coordinating with customs authorities, or ensuring compliance, customs brokers handle these responsibilities, streamlining the import process.

Moreover, customs brokers provide invaluable guidance throughout the importing process. While they take care of most tasks, there may still be certain aspects that require your involvement. In such cases, customs brokers offer their expertise and assistance, ensuring you navigate these tasks effectively. Their knowledge and experience in customs procedures and regulations help you make informed decisions, reducing the risk of errors and facilitating a smoother import experience.

By working with a customs broker, you gain access to their extensive network and resources, which can further simplify the importing process. They have established relationships with customs officials, carriers, and other key players in the supply chain. Leveraging these connections, customs brokers can facilitate communication, resolve issues promptly, and streamline the overall import operation.

ARE CUSTOM BROKERS REQUIRED FOR INTERNATIONAL SHIPPING?

Are Customs Brokers Required for International Shipping?

When it comes to international shipping, the requirement for customs brokers varies depending on the specific circumstances and regulations involved. In many cases, customs brokers are necessary when importing goods that are regulated by government agencies. For instance, certain commodities such as food, drugs, alcohol, firearms, or agricultural products are subject to strict regulations that require the expertise of a customs broker to ensure compliance.

According to the U.S. Customs and Border Protection (CBP), customs brokers are mandated for certain regulated goods. For instance, the CBP states that if you are importing goods that fall under the jurisdiction of another government agency, such as the Food and Drug Administration (FDA) or the Environmental Protection Agency (EPA), the use of a customs broker is typically required to navigate the complex regulations and facilitate the clearance process. These agencies have specific requirements for documentation, inspections, permits, and certifications, making the expertise of a customs broker invaluable in meeting these obligations.

Even in cases where a customs broker may not be legally required, their services can still provide significant benefits for international shipping. Customs brokers possess specialized knowledge of customs procedures, tariff classifications, and trade agreements. This expertise can streamline the shipping process, reduce the risk of errors or delays, and ensure compliance with customs regulations.

Research conducted by the International Chamber of Commerce (ICC) has shown that incorrect or incomplete documentation accounts for 50% of customs-related delays. By engaging a customs broker, importers can rely on their expertise in handling the necessary paperwork, including customs declarations, commercial invoices, bills of lading, and other documentation, to ensure accuracy and compliance. This helps expedite the clearance process and minimizes the risk of customs-related issues.

Customs brokers also have in-depth knowledge of tariff classifications, which are essential for calculating duties and taxes accurately. The World Customs Organization (WCO) estimates that errors in tariff classification contribute to approximately 4% revenue loss in customs duties globally. By leveraging the expertise of customs brokers, importers can avoid classification errors and optimize their duty payments, reducing costs and ensuring compliance with customs regulations.

Furthermore, customs brokers serve as a communication bridge between importers and customs authorities. They have established relationships and direct lines of communication with customs officials, which can help facilitate a smoother clearance process. According to research conducted by the Global Trade Management Market, the use of customs brokers can reduce the number of queries or issues encountered during the customs clearance process by 40%. This efficient communication helps minimize delays and ensures a seamless flow of goods across borders.

WHAT SERVICES DO CUSTOMS BROKERS PROVIDE?

What Services Do Customs Brokers Provide?

  1. ISF Filing

Any merchandise imported into the U.S. by ocean vessel must be accompanied by an Importer Security Filing (ISF) prior to arrival. ISF filing can be completed by the importer directly or by an assigned agent – a customs broker. It has to be completed and filed at least 24 hours before arrival at a port. Even goods entering a Foreign Trade Zone (FTZ) must have one filed.

There are ten data points that must be included by the importer with every filing:

  • Seller information
  • Buyer information
  • Importer of Record number or FTZ applicant number
  • Consignee
  • Manufacturer or supplier
  • Transport ship
  • Country of origin
  • Harmonized Tariff Schedule (HTS) Code
  • Container stuffing location
  • Consolidator

Some of this information is very straight forward – buyers and sellers are simple enough, and even things such as country of origin shouldn’t be too difficult. Information on HTS codes, however, must be exact. 

If the CBP fails to receive an ISF filing or receives ones with mistakes, consequences include:

  • $5,000 fine per violation
  • CBP hold preventing product release or transfer
  • Refusal of an unladen permit
  • ‘Do Not Load’ orders upon arrival 

Although only one of these is a specific fine, the others could cost you just as much money. Delays can cause missed deadlines on promised deliveries, and some holds result in having goods seized and destroyed. In comparison, the average service charge from a customs broker for ISF filing is between $25 to $50. Paying less than a hundred bucks to save yourself thousands seems well worth it. 

  1. Customs Bonds

If you plan on importing more than $2,500 worth of products, you need a customs bond. A customs bond is how the CBP ensures that all necessary fees and import duties owed are paid. 

The bond amount needs to be at least 10% of any duties or taxes that need to be paid. Customs brokers arrange for the purchase of bonds through a surety company. Importers pay a service charge that depends on both the broker and the amount required. 

Some brokers simply charge a flat fee for a bond if it’s under a certain value. Most brokers begin with a base charge of about $40 and add on from there. Flat rates typically vary between $200 to $400, but prices may change based on the state of the economy.

There are two types of customs bonds brokers can arrange on behalf of their clients. 

  • Single entry bond
  • Continuous bond 

Which one you require depends on your import practices. What’s stopping an importer from simply getting a bond directly from the surety? In most cases, it’s the surety itself and their unwillingness to risk their business. 

These are companies placing themselves on the line for what could be thousands in customs entry taxes. Most sureties will not work with anyone other than a licensed customs broker. In their experience, most importers simply don’t have the needed experience and are more likely to make mistakes that end up impacting the surety company. 

  1. Power of Attorney

Customs brokers make importing simpler by consolidating many of the required tasks. To accomplish this, they must often work with various government agencies. Other than the CPB, agencies that are frequently involved in the import process include:

  • U.S. Department of Agriculture
  • Bureau of Industry and Security
  • U.S. Food and Drug Administration
  • The Environmental Protection Agency

In order for a customs broker to work with these organizations on behalf of an importer, they need to be granted power of attorney (POA). It won’t give the broker any control over the inner workings of your business. It simply allows them to legally sign off on certain documents. 

Fees for a POA filing are rarely charged separately because it’s being used to complete other tasks. Anytime you use a customs broker to assist with customs clearance, there must be a POA signed and on file with the CBP. 

This is actually a requirement of 19 CFR 141.44 and is completed with Customs Form 5291 or another valid POA authorization.    

  1. Importer of Record Registration

An importer of record (IOR), whether a company or an individual, is the party the CBP will hold responsible for complying with all import laws. This is an important role that can have severe financial and legal consequences if mistakes are made. Because of that, the chosen IOR is often part of the negotiations between the involved parties. In many cases, Incoterms® are used to officially designate the buyer or seller with the job. 

There are 11 different types of Incoterms® used in international trade.

Depending on the contract terms, the responsible party must then complete an importer of record registration. Customs Brokers can assist with this in two ways. 

  • A licensed customs broker can complete the registration process for your business or for an individual.
  • A licensed customs broker can agree to act as the importer of record as a third party affiliated with your company. 

The majority of brokerage firms will complete your IOR registration without an issue. In this case, you are using their services to make sure that all the right information is present and that it’s being filed with the correct authorities. 

Fewer brokerage firms are willing to act as the IOR in your business’ place. By taking on the responsibility of being the IOR, they also place themselves in the hot seat should anything go wrong. For many firms, it’s just not worth the financial liability it places them in. 

HOW MUCH DOES A CUSTOMERS BROKER COST?

Customs broker fees can vary based on factors such as the transaction value, complexity of the shipment, and the specific services required. Understanding industry averages and obtaining detailed quotes will help you assess the cost of hiring a customs broker accurately. By considering these factors and evaluating the expertise and services provided, you can make a well-informed decision while ensuring compliance and efficient customs clearance for your international shipments.. Customs brokers typically charge their fees based on one or a combination of the following methods:

Transaction-Based Fee: Many customs brokers charge a fee based on a percentage or a fixed amount of the shipment's declared value. According to a survey by Integration Point, a global trade management software provider, the average transaction-based fee ranges from 0.5% to 5% of the shipment value. The specific percentage or fixed rate can vary depending on the complexity, value, and type of goods being shipped.

Hourly Rate: Some customs brokers opt to charge an hourly rate for specialized services beyond standard customs clearance. The hourly rates can vary based on factors such as the customs broker's expertise, experience, and location. According to a report by Armstrong & Associates, a supply chain market research firm, the average hourly rate for customs brokerage services ranges from $80 to $150 per hour, depending on the location and level of expertise.

Additional Service Fees: Customs brokers may charge additional fees for specialized services or circumstances that require extra attention or resources. These services can include obtaining permits, certifications, or licenses, managing customs audits or inquiries, or providing trade compliance advice. The fees for these additional services are typically based on the specific requirements and complexity of the task. The rates can vary widely, and it is advisable to request detailed quotes from customs brokers to understand the costs associated with these additional services.

THE BENEFITS ANALYSIS WHEN YOUR BUSINESS HIRE A CUSTOM BROKER

The Benefits Analysis when your business Hire a Customs Broker

Hiring a customs broker for your business can offer numerous benefits that positively impact your international trade operations. Let's conduct a benefits analysis to understand the advantages of engaging a customs broker:

Expertise and Compliance:

Customs brokers bring specialized knowledge and expertise in customs regulations, ensuring compliance with trade requirements. According to a survey conducted by Integration Point, 76% of companies find it challenging to keep up with changing trade regulations. By hiring a customs broker, businesses can leverage their expertise to navigate complex regulations and reduce the risk of non-compliance, penalties, or shipment delays.

Time and Resource Savings:

Engaging a customs broker allows businesses to save time and resources by offloading customs-related tasks. A study by Amber Road and the American Association of Exporters and Importers (AAEI) found that 58% of respondents consider the completion and accuracy of documentation as one of the most challenging aspects of global trade compliance. By delegating documentation preparation, customs clearance, and communication with customs authorities to a customs broker, businesses can focus on core operations and strategic initiatives, increasing overall productivity and efficiency.

Tariff Optimization and Cost Reduction:

Customs brokers can optimize tariff classification and identify cost-saving opportunities. The World Customs Organization (WCO) estimates that errors in tariff classification contribute to around 4% revenue loss in customs duties worldwide. By leveraging the expertise of customs brokers, businesses can reduce costs by accurately classifying goods and leveraging preferential tariff programs. This optimization improves profitability and enhances competitiveness in the global market.

Risk Mitigation and Compliance Management:

Non-compliance with customs regulations can lead to financial penalties and reputational damage. Customs brokers help mitigate risks by ensuring compliance with regulations. According to Thomson Reuters, 78% of companies identify regulatory complexity as a major challenge in global trade compliance. Customs brokers provide ongoing compliance management, stay updated on regulatory changes, and conduct thorough compliance checks, reducing the risk of non-compliance and associated consequences.

Industry Insights and Consultation:

Customs brokers offer valuable industry insights and consultation, aiding businesses in making informed decisions. A survey by Deloitte shows that 88% of businesses believe customs brokers play a significant role in helping them navigate the complexities of international trade. By leveraging their industry knowledge, businesses can optimize supply chain strategies, capitalize on trade agreements, and adapt to regulatory changes, gaining a competitive edge in the global marketplace.

 

CONCLUSION:

While customs brokers are not mandatory for international shipping, their expertise and assistance can significantly simplify the process, ensure compliance with regulations, and mitigate risks. By understanding what customs brokers do, their role in international shipping, and the benefits they provide, you can make an informed decision on whether to engage their services. Remember, a reliable customs broker can save you time, money, and headaches, making your international shipping experience smoother and more efficient.

 

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