blog
Trade Compliance
Global Supply Chain

The Drawback to Duty Drawback: Getting the Attention of the CFO

One of the responsibilities of a CFO is to find new sources of revenue. Yet many financial executives are unfamiliar with the international trade practice known as duty drawback.

Dan Gardner

Solutions Consultant at 3rdwave

In an organization that buys and sells products internationally, the Chief Financial Officer is going to have a vast number of responsibilities. In addition to being tasked with compiling and publishing the results found on a company’s balance sheet, income statement, and cash flow statement, most CFO’s are also entrenched in activities as diverse as raising capital, currency hedging, and acquisitions.

Whereas CFO’s are definitely focused on activities that include finding new sources of revenue, it seems ironic that some financial executives are unfamiliar with the international trade practice known as “duty drawback”. In what is essentially a refund of customs duties paid on imported merchandise that is subsequently exported, it’s only reasonable to think that the CFO of an international organization would be intimately familiar with the benefits of a drawback program. But that is often not the case.

Out in the real world, there are a number of legitimate reasons why a CFO might not be aware of duty drawback. For one thing, in order for a company to qualify for drawback there has to be an import and export transaction, and not all companies engage in both activities. Basically, because there are way more importers than exporters in the U.S., there isn’t a vast pool of companies that have experience in both areas, thus limiting the exposure to drawback that a CFO might have.

In spite of the fact that duty drawback has been around for decades, two other reasons why news of its benefits hasn’t hit the C-Suite is that a) import duty rates in the U.S. have been historically low, and b) Free Trade Agreements have eliminated some import duties entirely. Add to these realities the perception that duty drawback is a time-consuming, administrative quagmire, and it’s no wonder that many CFO’s have either never heard of drawback, or if they have, it’s not seen in a positive light.

Duty Drawback = Low Hanging Fruit for Revenue Enhancement

While the above statements are true, the global trade landscape has changed so dramatically over the last three years that duty drawback is enjoying a revival. Due to increased expenses in raw materials, labor, industrial real estate, and other factors, importing into the United States was getting expensive long before the Coronavirus outbreak. To add insult to injury, the Section 301 Tariffs imposed on China in 2018 tacked an additional 25% duty rate on most products of Chinese origin, making imports from America’s number one trading partner even more costly.

Fast forward to 2021 and both air freight, as well as ocean freight costs, have increased tenfold since the Pandemic began in late 2019. With similar increases in domestic transportation and logistics services, companies are scrambling for ways to cut costs and increase revenues. Given the financial benefits of a drawback program, it is critical that CFO’s understand how it works and they’re made aware of recent software innovations that eliminate the manual tasks that have hobbled drawback programs for years.

The good news for companies that import and export is that there are people in these organizations that know a great deal about drawback. Oftentimes there are many compliance managers and director-level trade professionals that can speak with authority on drawback, and what needs to be done to recover 99% of the customs duties, Merchandise Processing Fees, and Harbor Maintenance Fees paid on imported merchandise.

In the Age of Trade Disruption, it is the trade professional that needs to be the cheerleader for duty drawback and take on two responsibilities (if they haven’t already) to ensure a successful program.

They have to find a way to get the word on duty drawback to the CFO. After all, if the senior ranking financial executive is responsible for reporting all sources of revenue for an organization, it only stands to reason that she would be very interested in hearing more about duty drawback.

Whether this gets done through traditional chains of command (i.e. they tell their boss and up the line it goes), a virtual suggestion box, or a bold statement on a Zoom meeting, now is the time for compliance pros to take duty drawback mainstream. And if a first attempt doesn’t get the job done, they’ll need to keep trying until someone starts paying attention. At the very least, if a company imports and exports, a Feasibility Analysis should be conducted to determine if a drawback opportunity is real.

In scenarios where the CFO is aware of drawback but has a negative impression, it’s up to trade professionals to dispel that negativity. All too often, CFO’s hear stories about how the compilation of drawback data consumes human resources, confounds I.T. professionals and results in mountains of spreadsheets that no one understands. Certainly, a well-earned reputation, the next step for trade professionals is to study the Global Trade Management software market for drawback-specific solutions.

3rdwave - a Powerful Duty Drawback Solution

One such solution has been developed by the GTM software house, 3rdwave. With over thirty years of experience developing trade management software, 3rdwave has capitalized on its expertise in Product Master Data to create a solution that addresses the challenges associated with the preparation of the duty drawback file for the drawback broker. Through a core algorithm that “mines, aligns and refines” data from multiple sources, 3rdwave is able to automate key activities in a way that not only saves time, but that maximizes the amount of a duty drawback claim.

Armed with this new solution, compliance people can go from drawback believers to managing programs that put money in their company coffers. Whereas many trade professionals have been pushing drawback for years, they’re now armed with a proven solution that dispels any negative connotations around drawback. In other words, by deploying 3rdwave, companies can remove any drawbacks associated with drawback and start recovering the import duties they’re entitled to!

To learn more about the 3rdwave duty drawback software solution, visit us at 3rdwave.co/duty-drawback or download our eBook - A Shipper’s Guide to Duty Drawback