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| In previous articles we have seen how the climate of
compliance with Customs law has changed such as to require the
Importer and the Exporter to meet every increasing standards on
compliance. We have also seen how extensive studies have shown
that a majority of Companies did not know their
"pipe-line" costs. By this we mean all the costs
between leaving the foreign factory and final clearance into
warehouse in the UK. In essence these companies are not "in
control" at the level of the individual transaction, which
is where duty and costs arise. The reasons for this are that
"Downsizing" and de-layering in the 1980’s and
1990’s coincided with dramatic reductions in tariffs such
that few companies now have in-house expertise in Customs Law
beyond that necessary for clearing imports and exports through
Forwarding Agents. This was done at a time when systems for
in-house control were bespoke, expensive and complex. |
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| If there is a problem or a new market opportunity, there is no
"Corporate memory" to help decision-making e.g. where
to site the European distribution function, what systems are
needed, what Customs and Trade approvals are needed. With
globalization, forwarding agents are now more often asked to
handle transactions which are complex and involve a greater
knowledge of Customs Law than they can bring to bear in time
available. Some 60% of cases brought against companies are due to
errors by forwarders, yet the company directors are liable.
2003/4 is something of a watershed during which companies should
review all their Import/Export and Customs operations whether
they are computerised or not. |
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| It has always been the case that one mans export is another
man’s Import. In today's world almost all of the
communication in the loop is electronic from point of order
through despatch, from overseas supplier to the carrier to the
forwarding agent to customs on the import side. The missing link
is that short distance between the Forwarder, Customs and
Importer despite the fact that Importers own system in-house will
in all probability be electronic. |
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| Many changes to Customs systems are in the offing. Disputes
over the adequacy of import/export systems give rise to many
disputes with Customs and costly amendments. Companies may need
advice and support in the choice of in-house v. out-house
solutions, distributed v. centralised systems. Changes may be
enforced and expensive to implement if errors occur. Another
major UK weakness is that too few companies have taken advantage
of changes in customs systems and Simplified Procedures because
of their perceived complexity or simply out of ignorance. Customs
are implementing new systems which will enhance their efficiency
and in all probability identify a higher proportion of errors by
Traders. The stakes have increased. |
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| Customs systems and procedures |
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| Major systems will come into full stream in 2003 and impose
disciplines for which traders and agents need to be prepared if
they are to avoid penalties. Also, there is evidence that many
simplified procedures and economic reliefs have not been taken up
and that obsolete methods have been perpetuated, despite the fact
that cost-effective systems packages are now available. |
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| For example, with the reduction of tariff rates over several
years, many old IPR systems will need slimming down and may be
uneconomic against the cost of processing. Under Pareto’s
Law 80 per cent of the savings will be found in 20 per cent of
the transactions. What is different this year is that errors and
serious offenders will be "flushed out" by new systems
like CFSP and the New Export System, and give rise to penalties
on a cumulative basis. Examples of such misdemeanours include: |
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| Thus, for both positive and negative reasons now is the time
for companies to review their import and export operations with a
view to potential computerisation. The results of previous
studies have shown that movement of goods (of which duty is a
significant part) was the largest opportunity for cost saving
with the shortest payback period. And that it was all too
easy for managers preoccupied with their prime functions,
shipping staff and agents to bury their errors and write cheques
on the company. Widespread divisionalisation and decentralisation
of responsibility for Import/Export, the absence of specialist
personnel of sufficient calibre has inhibited change in many
companies, often this was accompanied by a fear of large complex
Import/Export systems which were expensive to maintain. What has
changed is that computer processing of Import/Export and Customs
Transactions has never been so completely packaged, user friendly
and economic. |
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| Many UK growing companies are of a size where a change to more
direct control of import costs is warranted and offers
opportunities for cost reduction. Progression to in-house systems
and/or a bureau service for Customs clearance is indicated where
the number of transactions or line items is in the low thousands
or hundreds if there is substantial duty and VAT and freight
bill. |
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| The perfect Import/Export transaction is one where there is no
duty, minimal carriage costs and instant delivery. They do happen
increasingly with the transmission of software and data over
telephone line but in Customs terms there has been no
importation. VAT however is due on the imported service – to
the extent that the service is charges – many are not. |
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| Remember one man’s export is another’s import.
Increasingly Import/Export clearance is effected fully
electronically. With each step in this direction two things
should happen. |
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a. Costs should fall |
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b. The staff calibre must rise. |
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| 1.
Survey Findings |
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| Since
no two companies are identical in their range of products,
geographical spread, volumes of business, or sources of supply
there, cannot be an identikit Customs approach. With that
qualification I will put forward an approach which is
commonplace in the computer industry, multinational companies
and many overseas corporations. However, it is less common in
British SMEs small and medium enterprises). |
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| A short survey of pipeline costs of a number of UK companies
indicated that in return for some investment in Logistics
control, Customs clearance, IT and staff training savings of
several percentage points of the cost of imports could be made,
for example |
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a. Documentation & so called Customs Clearance charges
are capable of being substantially reduced by use of a
software package and Customs clearance in- house or by a
bureau. |
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b. Documentation & so called Customs Clearance charges
are capable of being substantially reduced by use of a
software package and Customs clearance in- house or by a
bureau. |
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| c. Transport costs often need close Logistics control, but
data is lacking.
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| d. Customs classification and preferential duty arrangements
often give savings is there is a good control system |
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| e. Administrative savings and much frustration can also be
avoided by using a software package for Intrastat.. |
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f. Sometimes opportunities for consolidation bring enormous
savings. Often buyers do not negotiate or factor movement
costs into all up costs or contracts, because there is no
system which throws up these costs. |
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| Customs reliefs and procedures, plus well designed computer
systems which provide the data for management to act, can bring
these costs down dramatically. In today’s world these should
be of the order of one to two per cent. |
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| 2.
The Approach |
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| I suggest that a project manager is asked to look into these
factors drawing on information from all relevant in-house sources
about future plans. He would need to be satisfied that the cost
savings proposed were real. Assuming the decision is made to more
directly control "pipeline" costs, it will be necessary
to build up in-house expertise over time and it may be that use
of a bureau or a different forwarder who is online to Customs
system CFSP will achieve many of the savings. However an in-house
system not only provides a means of handling the import data, it
produces the reports which enable one to make other cost
reductions. These are not normally obvious from existing
accounting systems, for example freight and insurance costs are
often buried in aggregate figures. |
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| Getting the balance right between the wishes of the user and
the ambitions of the DP specialist is even more important in the
Import/Export field than in others because general management
soon tire of the intricacies and give wither the user or the
analyst their head. The presence of the Customs service as a
third party helps concentrate minds and today’s software is
particularly attractive in that it is packaged – limiting
user and analyst to an approach that is a well proven, business
concept. One at least of your Import/Export supervisors or
managers should (at a minimum be a sophisticated computer user
experienced enough to reject large complex, inflexible systems
and adopt a modular approach. Much can be done simply by PC based
systems and word processors, but for any large scale savings in a
big organisation nothing short of an integrated specialised
computer system will suffice. In my view autonomous or specialist
dedicated systems are to be preferred rather than systems fully
integrated with other systems. – otherwise, you may find you
cannot get amendments done on time and economically. |
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| 3.
The Feasibility Study |
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| For the initial study you should build your team from a mix of
experienced shipping people, Accounts personnel and in-house or
outside Consultants and systems people. Thereafter the
import/export control function needs a specialist manager, well
tuned to the company’s plans, capable of advising buyers,
divisional managers as well as managing the transactions. |
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| 3.1. Choice of System, Systems Implementation and Staff
Considerations. |
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| a) It is best that an agent or bureau using a system which is
in widespread use and is modular is chosen in case the company
decides to go the whole hog and take the work in-house at a later
date. These days it is possible to obtain at low cost modular
packages, but the key issues are Systems Implementation
and Staff Considerations. A pay back period of a few months is
possible, provided no extra staff are needed. |
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b) I would recommend a progressive approach e.g.
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use a bureau for CFSP or use a forwarding agent’s
CFSP system initially.
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do classification and Intrastat using the packages
progressively and
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build up expertise and data on costs, alternatives,
Customs procedures.
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| c) The prime constraint will be the learning curve of the
staff involved, who normally would have Inventory, Buying and/or
Logistics backgrounds and responsibilities. They will develop
expertise through having a period of parallel running, whereby
some imports are cleared by an agent and others through the new
system. The agent must obviously be one of those who have
installed the chosen system and the prospect of new business or
of retaining Gardman ( if the existing agent is willing to
co-operate ) should provide the incentive for the agent to fully
assist in implementation and staff familiarisation. |
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| d) Ideally the Imports and Intrastat systems chosen should
interface directly to existing Product, Accounting and Inventory
systems, by which means duplication of data input and a lot of
staff time will be saved. 733 containers means a lot of line
items of data, but much of the header information is held in the
system. Since interfacing is usually the most difficult aspect it
may prove beneficial to run impatex systems as free standing
initially to ensure that the interfacing eliminates this
duplication and does not perpetuate it. There is a tendency for
software houses to understate such difficulties and we have not
had a demonstration of the system. |
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3.2 Typical System package costs
Costs for modules for Customs Classification , Intrastat
and entry to CFSP which does the import clearance to
Customs but not the initial entry at the port will be in
the range of £500- £ 1,000 pa rental plus the costs of
Interfacing, Installation and Training and Support .
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| 4.
Staff training |
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| Irrespective of the need for systems solutions and training,
there appears to be a need for growing familiarisation with all
the commercial and physical aspects of importing. In view of the
significant level of duty payable, it will be necessary for staff
to learn something of Customs law. This is especially true of
Customs Classification if there has been an error/ first offence. |
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| It is also recommended that at least one member of staff be
sent on short courses at the Institute of Export and/or a
specialist consultancy at a cost of £100 to £200 per day. Staff
should also get alongside the forwarding agent as much as
possible during the development of the new system/service. |
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| Studies have also shown that initiatives to improve control or
Import/Exports have often simply lapsed into "good
intentions" with initial savings and no follow-on. In todays
world, software is now available at comparatively low cost and
with considerably easier ability to integrate with existing
systems than has ever previously existed. These systems have the
potential for providing the necessary control which will ensure
compliance and be self financing out of saving. |
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| 5. Intrastat Customs |
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| Import and Export systems should ideally conform to the same
standards and protocols so that they can interface. Outside of
these a product file separately updated should be used to
maintain lists of all your imports and exports including tariff
data, rates, part numbers; you may already have a purchase order file
which import staff can interrogate, and the Imports product file
should logically be a subset of your master file automatically
updated. |
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| Alternatively you may reject the in-house solution in favour
of shared facilities or links with a particular freight
forwarder. If so, the message is the same. Management must not
lose control. Initiate output reports and audits which enable one
to ensure |
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| a.
that a sledge hammer is not being used to ‘crack a
nut’. e.g. unwieldy and over complex procedures |
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| b.
that variances can be picked up and anomalous situations
investigated |
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| c.
that clerical procedures or sub-systems are designed for
your particular needs. |
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