Navigating the Customs Clearance Challenges of the E-Commerce Era

Machine Automated Transcript:

I loved how you were busting out the fallacies of some of the assumptions and come back around to some of this. But, you know, I’ve got my own opinion on one of the things where I think that customs needs to, in my opinion, again, put forth like, you know, the the equivalent reimbursables or something for these massive volumes, because and certain requirements, similar to the Express carriers. But, I mean, it’s, there’s, it’s ridiculous to think that they can handle these massive volumes with, you know, basically manual stuff. There’s no sort system. There’s no electronic way of selecting things. It’s, you know, here you go. No,

it’s funny, because I wrote that article. There’s three, it’s a series, and I my original intent was just to address some of the issues, because I was hearing so many false so much false information out there and in what was really concerning to me is some of the legislators started repeating some of these, some of these fallacies about what de minimis really is and what The intent was. And I was getting lots and lots of phone calls from different press outlets and and different individuals asking what my opinion was and to help them educate themselves. So the intent of the article was really to educate because there were so many things, so many rumors, so many inferences on what de minimis really was and what it facilitated, and how type 86 started, and it was really as a result of customs taking the action against customs brokers for filing what they called non compliant type 86 entries, which is what de minimis is. And I wanted to outline how the type 86 actually came into being, what de minimis was, why it was important. And then I started thinking, well, it’s it’s one thing to educate people, but then I have to talk about, what are the problems with that? Because not everyone understands what the problems are. So the first article was, this is what de minimis is, and this is, you know, here’s some basic facts, here’s what it’s not, here’s what’s false, here’s what’s you know probably true or we can’t confirm it. And then the second article focused on what are the problems? Let’s identify what the problems are from both customs perspective and the trades perspective. And let’s talk about what the what the issues are. And then the third article really was more based on my opinion, what can we do about this? What are some of the options that we have that can really address a de minimis environment? And, you know, taken all together, I thought it was a pretty good snapshot on what de minimis is, what some of the problems are, and then, you know, maybe some solutions of what we can do about it. And I feel for CBP, because they went from an environment where they were dealing with containerized freight, and that’s how, you know, post war trade has been done in containers, and you had importers, and importers were associated with that container,

and they controlled the container. They controlled the transportation, they paid the duty. They actually facilitated the whole thing from start to finish. And then you start seeing more Consumer Direct to consumer transportation and direct to consumer sales. And what, what a lot of people thought was that the Express industry really pushed this, that, you know, they facilitated this, and to a degree, yeah, that’s true.

I was a major part of that discussion at that era, at that time, and I know you and I really hammered a lot of things out as we were going through that, but it meant it evolved way past what the Express carriers were doing.

Well, I think it evolved for for a couple of reasons. One, in the beginning, the Express couriers and the truck carriers were the only parties that could actually request a release from customs in an automated fashion. And truck was kind of accidental, I think, from the customs perspective, when they went to look at, how do we automate the truck manifest, which is one of the first pieces of the ace that was rolled out, they said, Okay, what is, what is, what are all the release mechanisms in a manifest, and how do we ensure that it’s. Automated. And one of the things that carriers used to do was request section 321, release. They also used to request instruments of international traffic. And so customs looked at both of those kind of in the same vein and said, We need to automate these. There is no regulations. There was no policy that was issued. It was just here is the manifest ability in an automated fashion that allows you to do what you’re doing manually. So that was the first automated section. 321, and then the Express industry was growing. 128. Was passed. The Express regulations subsequent to that, you had the the amount of de minimis go from 200 which it did in it went to 200 in NAFTA, and then it went to 800 in TIFIA. And a lot of people think that’s what facilitated a lot of the explosion in de minimis freight. And I don’t necessarily agree with that, because we’re still seeing de minimis shipments, on average, are still between 55 and $60 so the value has very little to do with it. What it did was it raised that in the consciousness of the importers. And they said, Oh, hey, maybe we can, maybe we can take advantage of this. Also, something else happened, we all have these, these phones, and they are a sales mechanism in your pocket. It’s 1000s of 1000s upon 1000s of catalogs that you can buy things from. So that was the second thing. And then the third thing was that everyone started understanding how easy it was to buy off the internet. Amazon came into prominence, and there was a mechanism to deliver that. And as Amazon grew in their direct to customer sales, a lot of the other retailers started doing direct to consumer sales. And originally you had the truck manifest, then you had the the with the 19 CFR, 128, which is the Express regulations. It outlined an automated ability, the second automated ability to ask for customs to release it under section 321, so that’s where the Express industry started, taking advantage of that to a greater degree, and then you have this explosion in direct to consumer and in this was even before covid. Customs actually came to the coac when I was on that the commercial operations Advisory Committee and customs the the executive assistant commissioner came and said, We need help. Our officers need help. We have containers arriving interior ports in the United States like Des Moines, Iowa and, you know, St Louis, that have 1000s of shipments in them, and they are requesting a paper section 320 release. So these were shipments that were big box retailer to big box retailer. And it was an importer to importer, you know, type of scenario. And that big box retailer actually controlled that entire thing. And they discovered, hey, we can do direct to consumer shipments. People can go online, they can go in the store, they can order this, you know, whatever, dress shirt, you know, shoes, whatever, online, and we have the ability to deliver to them directly. And so they knew that they could take advantage of section 321, that meant that they were bringing in goods that they knew were selling so they didn’t have inventory costs. They could reduce distribution centers. They could reduce taxes, because they aren’t actually holding goods in the United States, and it’s a sale

when it already comes in, or when it reaches their distribution center. Customs was opening these and there were 1000s of individual shipments, and before how customs address that is, they would have these importers give them spreadsheets with all of the information, and customs would download those spreadsheets into the old entry system, and they would be able to be released in a semi automated fashion. Well, what happened was that old system got retired at customs so they could no longer release freight like that, and that required the customs officers to input every single one of those 4000 shipments in the targeting system and. And, you know, there was no way that they could do that, because you have 123, person offices at customs, because they’d have 20 or 30 containers, you know, a week, and one customs officer can address that if it’s a whole container. But when you’re talking about, you know, a whole container, even if it was 10 containers and there were 4000 each, now that customs officer is putting, you know, 40 400,000 shipments in themselves. That’s,

that’s where I’m having a problem, where it was my understanding, out of all the, you know, redesigning of the entry process, the clearance process, the different things that were going on. How is it that on these sections that I was under the impression that customs was going to be requiring electronic manifest to be transmitted into the system, and somehow, there it circumvented that. How is that? No,

it didn’t really circumvent it, because if you look at how manifests are transmitted, that was really the driver for truck. You have to list every consignee for air. You list every consignee in ocean. You list the master is, who, who actually the goods are being delivered to. And then, if you have House bills or sub House bills, then you issue you list those continents. And the way the transaction was structured was it was still big box retailer to big box retailer for the transportation. So it said that warehouse in air. Same thing if you had big box retailer sending a shipment to big box retailer, that’s who the consignee was. And it wasn’t until it got to the distribution center that the actual sale happened. So the sale was structured to actually not be sold until the goods arrived in the United States, so they didn’t have to list each of those individual continies, because the sale was structured in a manner where the big box retailer was still the importer, and so customs was not happy with that. They weren’t. They weren’t happy with that.

Those goods are cleared into the commerce under an entry, so a big box retailer on the bill of lighting to a big box retailer, and they’re going to tender and a formal entry because of all that, let’s just say, Okay, I don’t have a problem with that. But if they are looking at individual shipments, and their master says, box retailer to box retailer. But they are wanting to clear that into the commerce. Then after that, under a section 321, then to me, I’m like, all bets are off. You have to transmit all those individuals along with the commodities and all of that. Why is that not the case? They didn’t

have to do that on the manifest. The manifest rule said you only had to list list who it was being delivered to. So it was being delivered to the warehouse, and that’s why you have in because it was not an automated manifest release request. The manifest served only in a normal manifest environment to tell customs where it’s coming from, what’s in the box, and where it’s going to and it still did that. It just said it was going to this distribution center. And what happened from there was that that spreadsheet was the entry request. So the entry request was not married or incorporated

into the manifest filing. It was two separate things. So you have a manifest filing go into the warehouse, then you have an entry request for release. That was that spreadsheet with all the individual continents. So that’s what the difference was.

That’s how using a spreadsheet was the connotation of how to, somewhat, I won’t say automated, but how to supposedly efficiently handle these massive, 1000s of shipments, or hundreds of shipments in a container. All right. However, even with that, then there’s the physical scenario of what I was hearing, is that, okay, let’s say that CBP wants to do a few inspections, Spot inspections, just for the sake of saying of what you’re declaring. Is it in there? And I was, I guess the accusation is, well, we can’t, you know, this like two boxes out of hundreds. How are we going to find that? I’m like, sorry if that’s how you’re going to clear it. You need an automated way of doing it. Or if it takes you all day to unload that, and it shouldn’t be on cbp small,

well, that’s, that’s the way LTL freight works. Less. And truckload freight works that way anyway. So you have one master carton, and then you have individual boxes in in a carton. That’s how less than container load freight works. It’s just that these were smaller packages, so you had 100 in a skid instead of, you know, 10 or 20. So this, this is also a physical space challenge for CBP, if they wanted to look at any of that freight.

See, to me, a physical space challenge is customs. Is there to facilitate the the clearance, the release of it. However, the operator should be responsible, in my opinion, for providing sufficient space, facilities, systems, whatever, to process that. I think it’s unrealistic and a horrendous burden on those CPP officers. When they show up, pop the doors like, oh, Son of a biscuit eater, this is too much. And it’s like, to me, it’s like, no, it’s your it’s the operator’s problem. Well,

that’s why, that is why CBP started moving to the centralized exam sites within the ports, and their goal is to have a CES a centralized exam site in every port, so that they have a facility that they can go to or staff that facilitates all of the exams. Yeah, and that’s true at most facilities, other than the Eco Express consignment operators and the eccfs, the Express containment cargo facilities, which have that box by box exam presentation requirement.

Where I’m going with this is, as you well know, we’re both, you know, have been on both sides of this and and obviously I’ve had a long background with the express carriers. But in looking at that, the CES is being set up by the port and more specifically, the government, right, that’s where I guess I have a problem. Is that if these private sector is electing to do this, then why is there not an effort? And maybe we can talk about this and come up, maybe you and I can talk through it and come up and offer some suggestions. Why is there not, like a reimbursable or something so that it pays for those facilities and or require those facilities,

I’ll tell you why, and I talk about this in the articles too, because there was an issue with not having enough officers and not not having the staffing that is required by TIFIA and other legislation. CBP said we are no longer and this was probably 10 to 12 years ago. We’re going to curtail other facilities

that aren’t directly related to the port, because we’re having problems staffing the ports themselves, and they’re our highest priority. So our officers are going to go there first, and we’re going to stop approving or or facilitating other types of operating models. And in, you know, 1012, years ago, if you wanted to get an eco approved or an ECCF approved, it was very difficult, and CBP even messaged at some point. We aren’t, we aren’t going to expand anymore, because we simply don’t have the officers to be able to staff these locations. So they went to the CES because they could limit the number of officers, limit the number of, you know, facilities they had to go to. They stopped going to Container freight stations and much and said, you have to bring your cargo if it’s for exam, to the CES. So they tried to streamline the availability of the officers, and in doing that, they limited the number of ECS, eccfs and ecos. So it was they didn’t do it on purpose. They did it for valid reasons. But you know, 10 years later, man, they’re saying we need more eccfs because, one, there isn’t a reimbursable associated with an ECCF if you’re going to bring this cargo in and in a package by package basis, you need to be able to present it to us on a package level basis, and ces stations and CFS stations aren’t built that way. So it’s kind of a result of cbps posture 1015, years ago that they now have limited capability to address the new way freight is coming in. So it’s a confluence of factors that dress. You know, unfortunately resulted in where we are today is not enough ECCF facilities, a reimbursable program that is, you know, understaffed because of the limitations of having enough CBP officers available, and this new wave and freight and you know, you and I both know, once covid hit, that exploded far beyond any analysis or economist thought it was. It was 12 years of growth in the E commerce environment in two years.

Yeah, yes, yes. And All right, so as we’re talking through this, I guess where I want to go with this one, one thing I want to address or make comment on is, you know, again, that the issue there’s a lot of, and you mentioned it, where the Express carriers, well, they push for a raise of the de minimis from 200 to 800 and that’s where this all started from. And to your point, that’s not it, but I will say that again, I was personally heavily involved in that era, and did an analysis. And at the time, custom system was maxed out, and there were still things coming through, and these low dollar entries were clogging the system with entries that had to be processed. So a an entry like, let’s say, an informal entry of $250 shipment was standing in the way of a $25,000 formal entry. You know, it’s the system could only process so many. And when that de minimis was raised, when we analyzed that the number of entries that were pulled out of the entry system, that were being transmitted was astronomical, and it was like, I mean, to the tune of, like, hundreds of 1000s of entries less being transmitted per month, I guess, or even week, I don’t know. You know, just astronomical numbers now, as we progress on down through the road here, you know, and the entry type 86 was designed so that, again, the thought was, you didn’t have to go through and do an individual entry for the section. It was for those that for Oga clearance for an individual item. And yet, now it’s just, it’s compounded itself. See, you’re

wrong. You’re wrong about that, and that’s what a lot of people actually think, is that type 86 was developed to address the PGAS, and that’s not correct. What happened was when EAC Todd Owen came to coac and said, We need a way to automate these hundreds of 1000s of entries that are coming in in paper requesting section 321 release. We need an automated way to handle that, because the old system has been retired, we have no ability to get that in an automated fashion anymore, and our officers are having to input the this information and containers are being delayed, you know, a week, two weeks, sometimes three weeks, and customers are complaining because they’re paying, you know, paying demerge and detention and customs isn’t releasing their goods, and there’s no way for us to automate that process. So at that time, we had a work group that was established with every different type of importer and every different type of carrier and all the

brokers. And we said, Okay, what is, what is the best solution here? So what we said is, hey, let’s look at the Express process, because one of the things that the brokers have always complained about is the lack of parity for the Express carriers, because they have this automated ability to request section 321, and the truck carriers do too, but brokers don’t. So we started on the premise that, okay, ocean carriers aren’t going to want to transmit line by line by line, information to request a section release the ocean carriers said, We don’t want to be in that business. So if they are going to do it, who else can do it? So the broker said we would do that. So we said, Okay, what’s the best way to get that done? And we looked at what is known as code 86 on the Express manifest, and that is the code that is transmitted to CBP on the Express manifest to request a section 321, release. And we said, why don’t we just take that, that same data set and actually transmit it in abi? The data set is already there, you know, exactly what you need. It could be transmitted in abi, and that way the brokers could do that. And that’s how it got named type 86 it got actually named after the Express manifest code. And so the Express carrier said, Why should we get behind this? You know, we have, we pay all this money in reimbursables. We have a, you know, a package by package way, and all these costs associated with it. Why should we get behind this? So we said, well, can we request PGA clearance on section 321, because at that time, and the Express carriers did some, you know, rough math and said we could probably save our clients 20 to $25 million a year. Because right now, if we have something subject to an F, you know, an FDA or CPSC, we do that on an informal entry and pay duty, even though it’s, you know, $50 so hey, if you take the PGA record set and attach that an ABI to this type 86 section, 321, release request, the carriers will get behind it. So the Express carriers said, Yeah, great. You do that. We’ll, we’ll, we’ll be okay with this, and we’ll move forward. And so that’s, that’s the only reason that was the reason it got talked about to begin with, because the Express carriers said, What’s in it for us? And all the other you know, broker said, yeah, that’d be fantastic, because we have to do that now. So it’ll give our clients a an option to, you know, clear section 321, in a compliant manner with the other government agencies. So that’s why the PGA was was included. So they went back customs, went back and looked at all the automation, and said, How can we build this? Because Todd was like, it needs to be quick. It needs to be cheap, it needs to be fast. Because we’re getting drowned by these. We have to make sure this works. We can’t keep doing this. Well, they looked at all the automation, and was Jim Byram. And Jim Byram from customs, they looked at all the automation and said, the easiest way to do this and the most similar to what the actual data elements on the manifest for a code 86 and the type 86 and ABI is to use release. So they took the release message set and said, Okay, what’s different? Well, the biggest thing that was different was the HTS number, and they said, We can’t everything in ABI revolves around an HTS number, and it’s virtually impossible for us to pull that out. We’d have to start from scratch and a release mechanism and build it completely differently than what what the current release mechanism is. And so they said, Okay, we have to include the HDS number. So there was a lot of discussion about, can we use a dummy HGS number? Can there be an HTS number for just a section clearance. Can there be? Can we bucket it, you know, by like Canada does for low value imports? Can we do it by chapter or by section? You know, let’s have 10 tariff numbers that actually note what’s in the shipment. And they went back and they said, That’s we can’t do that. So you have to have an HDS number and other government agencies who became involved in this process, and we need that anyway, for our PGA. So we said, okay, for PGA, we can do it, but for everything else, it shouldn’t be required, because it’s not required on the truck manifest, and it’s not required on the Express clearance manifest. So we got stuck with that because it was the cheapest and quickest way for CBP to roll this out. That

was one of the things, is that the brokers were hollering, screaming for something like this, and then it was launched. And I’m like, why are they taking forever? But now it’s, it’s being used widely now, right? Yeah,

absolutely. And I think once, once people understood what it was, they immediately started using it, because why not? And the Express carriers used it for PGA shipments, but that was such a small percentage of what they were actually handling in this section environment, because

they were still and express carriers still use the manifest clearance process for the other stuff, right? It’s,

it’s more streamlined for their processes. They it, and it’s all of their systems are, are built to actually facilitate that. The last thing I will say is there’s a lot of finger. Pointing going on, saying there’s so many violations found in type 86 and if you look at the volume, of course there are, because that is the vast majority of what’s coming into the United States. You have 40 to 50 million normal entries that are 25 or over $800 and then you have 1 billion shipments coming in under that volume. So of course, you know, by percentage, you’re going to have more. And I would be worried if customs wasn’t finding things in that environment, because that’s where the majority of the freight is coming in. If you look at it from a value perspective, the value of section 321, is still like 10% of what everything else is, even though the volume is so much higher. So the violations are coming in in every environment. It just seems like it’s more because you’re looking at, you know, one package versus one container, and that container might have 5000 individual packages, but they’re both counted as one. So yeah, it does look massive, but of course it does, because it’s the majority of

the freight. Cindy, you’re always phenomenal. I always love talking with you. It’s it’s always good. We need to have some more of this, because this is a deep topic, and I would love to have folks. If there are any of you out there that are like what we said or don’t like what we say, you know, let us know, and we may even have a nice debate online here, so that we can let’s get into the heart of it and deal with this. But thank you, Cindy, so much for joining us.

Thank you, thanks for having me again. All right, folks, we’re going to turn it back over to you.