Logistics Technology

What Does A Customs Broker Really Do?

Grant Sernick
June 18, 2024
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min read
What Does A Customs Broker Really Do?What Does A Customs Broker Really Do?

International trade plays a vital role in the U.S. economy, with imports representing approximately 15% of total GDP and exports representing about 12%, according to the World Bank. Facilitating the movement of goods and services across international borders for Beneficial Cargo Owners (BCOs) and shippers are more than 14,000 US customs brokers licensed through the U.S. Customs and Border Protection (CBP).

Importers are required to use what’s called “reasonable care” in supplying an accurate classification, declared valuation and rate of duty of the merchandise. If not, the importer could face penalties and stiff fines. To ensure “reasonable care,” importers employ customs brokers in-house or via a third-party agreement. However, there is often room for errors within the customs process, which has increasingly grown complex due to additional rules and regulatory requirements from the CBP.  These errors can prove costly for BCOs and shippers.

In our latest paper, The ROI of Automating Your Customs Process, the reader will learn about the challenges BCOs and shippers face with the traditional customs process and how automating the process is beneficial from a cost and time perspective.

The Role of a Customs Broker — A High-Level View

We all know what a customs broker does. In a nutshell, they help organizations meet the documentation demands of importing goods and pay tariffs and other fees associated with the imports on the organization’s behalf. The goal of customs compliance is to ensure that the information filed with Customs is done timely, correctly, and explicitly every time a shipment is imported.

Equally important, customs brokers must demonstrate “reasonable care” in their duties. “Reasonable care” applies to the efforts undertaken to ensure that all the information about an import provided to the CBP is as accurate and compliant as possible. Despite the best intentions, though, “reasonable care” can open the door to a number of errors.

Understanding What a Broker Really Does

Brokers need to do quite a bit of manual work to support the customs process. They work to eliminate gaps between inputs (the commercial invoice) and outputs (the customs entry). It’s Data-Crunching 101, along with some transformation and verification. But unlike a student solving a calculus problem on a midterm or final exam, customs brokers operate in a “black box” — they don’t have to show their work.

Let’s step inside the black box for a moment. Creating a customs entry involves several steps, beginning with what we describe as translations in which the proper harmonized tariff schedule (HTS) code is married to the product imported. The broker applies the duty rate, calculates the appropriate fees and taxes, and records the appropriate Partner Government Agencies (PGA) filing information.

Conversions occur when the broker must manipulate the data provided to meet the standards laid out by each HTS code. Finally, aggregation happens when the customs broker aggregates the commercial invoice line items of the same HTS code onto one line.

During this process, shippers and BCOs are on the outside looking in. All they see is that the outputs (the customs entry and other filings) do not look anything ilike the inputs.

The Importance of the Product Master Database & Visibility

While the customs broker’s work might be great, “great work”  is insufficient for an importer to meet their obligations to customs, namely ensuring that it is done correctly.

Visibility across the supply chain is important to achieve the required data for customs entries. No matter where in the supply chain, one false piece of data can snowball and potentially result in penalties and fines from the CBP. This is why the importer’s product master database (PMD) is so important. The broker requires the PMD, as it defines how to execute the conversions based on instructions from the importer.

The PMD contains the master data related to the products required to effectively process goods through customs and other government agencies upon import. Data such as item description, country of origin, HTS number, product testing, and various PGA requirements are typically included in the PMD.

Importers (and exporters) must work diligently to ensure that their PMD covers all facets of item-level requirements. One false data point or lack of data points will negatively impact calculations and could result in additional costs for the BCO or shipper.

Moving From ‘Reasonable Care’ to Certainty

A customs broker can ensure that your goods reach your customers quickly and safely, but brokers need to be able to ensure with certainty versus with ‘reasonable care’ that the process is a smooth one. There are too many ‘black boxes’ throughout the process, which can lead to higher costs for importers. But, planning ahead of time and managing the key supply chain data properly is key to making sure that the product master database has the correct elements necessary for the customs broker to do their job successfully and to keep any potential extra costs to a minimum for importers.

3rdwave’s Shipment Execution Platform™ helps automate the customs process to make life easier for the customs broker and the importer. The platform allows BCOs and shippers to plan early, observe what’s happening in every stage, and respond in real time to ensure favorable outcomes.

Like what you read? Be sure to check out our next blog in this series, in which we’ll discuss the benefits of automating your customs process. If you can’t wait, go ahead and download our latest paper – The ROI of Automating Your Customs Process.

If you’re ready to take the next step, contact us to learn more about 3rdwave’s solution for automating customs filing.

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