Best Practices for Importers' Relationships to their Customs Brokers/Freight Forwarders

January 1, 2003

I. Selecting a Broker/Forwarder

A. Be very specific about the services needed

  1. Freight forwarding (All Modes - Air/Ocean/Rail/Truck)
  2. Customs brokerage
  3. Data management and technology and systems integration
  4. Insurance and risk management
  5. Geographic region specialization

B. Be very specific about the types of transactions expected

  1. The types of shipments expected
  2. The volume of shipments Expected
  3. The types of services determined needed
  4. Quality management
  5. Fairness of fees
  6. Ability of the broker to deliver and its reputation

C. Identify the type of provider desired

  1. Global Logistics Provider

    The best global logistics providers are "one-stop shops" for all transportation needs. They offer the most services at competitive rates. They are also usually capable of being a "global partner" with the company, or can provide a "global account manager." The two types of relationships are not necessarily mutually exclusive, but the "partnership" is generally a less structured relationship and may not provide the same management benefits as having a global account manager.

    a. Global Partners

    "Global partnerships" are generally business relationships wherein the broker attempts to act as the "partner" responsible for logistics needs to its client, and its client provides the broker with a very high volume of imports and exports. The broker in is supposed to be able to provide any type of services the client needs at a given time. Companies should be mindful, however, that in these types of loose, fluid relationships, broker's may over promise what they can deliver. If a Company believes that this type of relationship is best, then it should ensure that the contract negotiated with the broker is specific in its requirements that the broker be able to perform every promised service in a timely manner.

    b. Global Account Manager

    In a "global account manager" relationship, the client company is assigned a manager responsible for handling all of the logistics needs for the company globally. The company benefits by having a "one-stop-shop" and one person entirely responsible for seeing that the services are provided on a timely basis. Depending on the size of the clients, a global account manager may have only one or two clients. Generally the manager may spend a great deal of time with the client in the early stage of the relationship in order to get the operations running smoothly. It is the manager's responsibility to ensure that all departments of the broker are providing services to the company as quickly and efficiently as possible. Later in the relationship, as the client gets more familiar with the broker's staff, the manager may only need to be responsible for general oversight and special projects.
  2. Local Transactions Provider

    Unlike the partnership and account manager relationships, a smaller, local broker may have only one or a few domestic offices and may need to work in conjunction with other forwarders and service providers in order to provide the same types of services as the larger brokers. These smaller providers may specialize in specific geographic areas or by types of commodities. For example, some brokers claim to be experts in northern border or southern border transactions. However, these brokers may not have the same abilities as the larger providers in handling the various types of in-bound and out-bound transactions.

D. Review the Power of Attorney carefully

  1. Review the power of attorney from its selected broker and make appropriate modifications. Brokers should, at a minimum, agree to indemnify and hold the importer harmless from any penalties, costs, or damages due to the broker's negligence or errors.
  2. Limit the broker's ability to issue sub-powers of attorney without providing notice to the company.

E. Check Credentials

  1. Knowledge.

    For imports, brokerage services generally include entry processing for all types of entries and certain other pre and post entry activities. A potential broker should be experienced with all entry types including (1) consumption entries, (2) temporary importations under bond ("TIB"), (3) drawback, (4) reconciliation entries. Companies may also be interested in considering a broker who is able to perform remote entry filing. A broker should also be experienced with handling protests and supplemental information letters.
  2. Demonstrated Compliance

    Because Customs is a law enforcement as well as a revenue generating agency, a broker's compliance with the laws and regulations governing imports is imperative. To ensure compliance a broker is required to exercise supervision and control over its employees. Companies should seek a broker with a demonstrated record of compliance. The company should consider whether the potential broker has a compliance officer or equivalent person on its staff. Companies should have the potential broker state how often reviews and audits are made on entry transactions. The broker should also not fear regular audits by the company of its import transactions, and should be prepared to make any necessary corrections to specific transactions and implement procedural improvements where necessary.
  3. Ability to Manage Multiple Types of Transactions

    Companies should also consider what types of transactions it expects to have and whether the potential broker is prepared to handle the types and volumes. Companies' highest volume of transactions will most likely be consumption entries of completed products and parts. However, companies may also determine that it needs to use a TIB, file for drawback, or utilize reconciliation if it determines that NAFTA eligibility or specific valuation information is unavailable at the time of entry for a large number of items. A prospective broker should be able to handle any of these types transactions.

II. Managing the relationship with the Broker/Forwarder

A. Oversight and Audit

A company should establish and follow a policy of regular audits of its brokerage activities. A relevant sample of customs entries and export documents should be reviewed for accuracy. Errors should be reported back to the broker immediately and corrective actions should be taken. A broker should expect and not fear this kind of review by the company it serves. Brokers with good quality controls will generally regularly engage in audits of themselves.

B. Set Up and Maintain Efficient, Regular Communication

  1. Central Point of Contact

    At the start of the brokerage relationship, companies should consider having a central point of contact and control for the broker. This point of contact should be responsible for managing the relationship with the broker and helping to obtain any necessary information. Having a central point of contact will be helpful because the new broker will not likely be familiar with the entire company, and forcing the broker to contact each department individually will add much time and labor to the processing of the transactions and can drive up the costs.
  2. Regular Communications

    A company should also be in regular communication with its broker. Regular communication will ensure that the company is providing the proper oversight of the broker, and that the broker is acting in the best interests of the company. If the broker is not in regular communication with the company, any number of potential problems can evade notice.

C. Companies Should Respond Promptly to Broker Requests

A Company should put in place a process to ensure that all requests for information and notices of actions taken by the various government agencies are responded to in a timely manner. In an import transaction, almost all information requests from the broker are the result of some action on the part of Customs or because some pertinent information is not available to process the entry or the export. In either case, there are strict deadlines to which the broker must adhere. For example, an importer has only 30 days in which to respond to a formal request for information issued by Customs. If the broker requests information necessary to classify an item in order to make entry, the broker has approximately 10 days or less in which to process the entry. Failure to respond to the broker and the government agencies will only cause problems for the company's transactions and can result in fines and penalties assessed against the company.

D. Ending the Relationship

When a Company makes the decision to terminate its relationship with a broker the company should ensure that it takes the following actions:

  1. Revoke its power of attorney;
  2. Obtain any outstanding files not already delivered;
  3. Design and implement a transition plan so that the switch to a new broker can be made with the least amount of interruption in services.