Customs clearance is an integral part of the import and export process and is essentially a means to safeguard the country’s security, national interests, and revenue. Regulatory compliance plays a crucial role in ensuring that customs services are efficient and meet all legal requirements.
The objective of customs clearance is to detect contraband and prevent illegal or dangerous goods from entering the country, besides ascertaining that duties have been applied at the correct rate.
In order to fulfill these objectives effectively, customs officials, like the U.S. Customs and Border Protection (CBP), have laid down intricate processes and exhaustive documentary requirements. Customs brokers are obligated to comply with these regulations to handle customs business on behalf of their clients, the importers.
Impact of Customs Clearance Gaps on Brokers and Importers
These documentary and procedural complexities present considerable operational challenges to importers and customs brokers.
Due to the magnitude of information required, the manual nature of the process, and the regulatory maze that needs to be navigated, there exist several gaps in the customs clearance process. Ensuring the proper paperwork is filed is crucial for overcoming these challenges and achieving timely and efficient customs clearance.
These gaps arise from several factors, including:
1. Complex Tariffs and Duty Structures
The duty levied on products varies based on factors such as the commodity, its origin, and bilateral agreements between importing and exporting countries. HTS codes, which consist of 8-10 digit classifications, play a crucial role in the classification of goods for customs and import processes. Given the sheer variety of products, geographical dispersion of production centers, and existing geopolitical dynamics, tariff and duty structures can be incredibly complex.
2. Cumbersome Documentation and Paperwork
Customs departments mandate that importers and customs brokers share information about all aspects of the commodity, transaction, and the parties involved, highlighting the shift from manual paperwork to electronic documents.
This information has to be collected from various stakeholders, is available in different forms, and has to be consolidated in the stipulated format, prior to submitting to customs, as a result whereof the likelihood of human errors and inadvertent omissions is higher.
3. Incorrect Classification of Goods
In international trade, goods are categorized using the HS code, which consists of 21 sections and numerous subsections. The categorization consists of numeric codes and is very detailed, with variants of the same broad commodity being assigned different codes. Considerable care needs to be taken while updating codes to avoid mistakes in categorization.
4. Lack of Real-time Visibility
Because of the manual and paper-based nature of the customs clearance process, it is generally difficult to ascertain the precise location and status of the consignment. This lack of real-time visibility prevents importers and customs brokers from planning cargo movement in advance.
5. Communication Delays
Since communication between stakeholders is largely manual, there is the possibility of delayed or incorrect communication regarding the actions required. This can cause avoidable delays and is a hindrance to proactive planning.
The cumulative impact of these gaps on the customs clearance process is felt by importers and customs brokers in the form of delays at customs, penalties, costly rectifications, and additional paperwork, all of which impede smooth cargo flows and can cause financial and reputational loss.
The Role of Software in Enhancing Customs Clearance Efficiency
Customs brokers and importers can use technology to overcome the inherent gaps in the customs clearance process.
Deploying customs clearance software can smoothen and accelerate the import process by addressing the root causes of inefficiencies. Integrating customs clearance software with third-party systems enhances operational efficiency and visibility, facilitating seamless data exchange with external partners and governmental authorities.
1. Digitalization of Documents and Information
With customs clearance software, documents can be digitized, easing the load of paperwork. With digitalization, it is easier to organize, store, and retrieve information. Data security is also ensured by restricting access while making it easier for authorized personnel to obtain relevant data.
2. Intelligent Document Processing (IDP)
Customs clearance software is equipped with IDP functionality, which can help process information across different formats and collate it as required by Customs. Forms can be auto-populated, and unstructured data processed faster and with more accuracy, leading to automated information flows.
This increases accuracy levels and cuts down document processing and preparation times to a fraction of what it would take if handled manually.
3. Automated Workflows
Customs clearance software can automate the entire workflow, meaning that information flows seamlessly from one stage to the next, and is transmitted to all stakeholders. The automation of workflows ensures that all procedural requirements are complied with and that timely alerts regarding the required action are generated and flagged for the concerned person.
Automating segments of the customs clearance process can help save time and increase efficiency, allowing customs brokers to focus on higher-value tasks and providing importers with faster and more reliable customs clearance. Additionally, automation tools like KlearNow’s Customs Engine can help to improve compliance, reducing the risk of penalties and fines associated with non-compliance. By automating customs clearance, importers and customs brokers can also gain greater visibility and control over the customs process, enabling them to make more informed decisions and optimize operations better.
4. Accurate Classification of Goods
Customs clearance software, combined with the expertise of a customs broker, ensures accurate classification of goods using the appropriate Harmonized System (HS) code. The software can suggest the most suitable HS code by analyzing product descriptions, previous classification history, and trade agreements, reducing the likelihood of errors. This accuracy helps avoid delays, rejections, or penalties due to incorrect classification, which can result in additional inspections or fines. Furthermore, the software can track changes in HS codes over time, ensuring compliance with the latest classification standards.
5. Apply Correct Tariff or Duty
The software calculates the correct tariff or duty rates for each shipment, factoring in trade agreements, duty exemptions, or preferential treatments that may apply. It can automatically apply changes to tariffs due to regulatory updates, ensuring compliance with the latest rules and minimizing the risk of violations. Additionally, the software can identify opportunities for duty savings, such as taking advantage of free trade agreements, duty deferral programs, or tariff exclusions. This level of precision not only helps avoid overpayment of duties but also enhances cost savings and optimizes the customs clearance process.
6. Risk Management
Customs clearance software uses Artificial Intelligence (AI) and Machine Learning (ML) to flag potential issues and delays, besides identifying high-risk consignments (based on analysis of historical patterns, origin country, shipper and consignee involved, and goods shipped). This enables importers and customs brokers to identify high-risk shipments and take remedial measures in case issues or delays with the consignment become apparent.
Enhance Your Customs Clearance Process with KlearNow
As one of the pioneers in the logtech industry, KlearNow’s product suite includes solutions aimed at the holistic supply chain as well as for individual stakeholders.
For customs brokers, KlearNow offers two dedicated customs clearance software products, Customs360 and Customs Engine.
Both these products help transform customs brokerage, leveraging AI and ML to bridge the gaps in the customs clearance process, unlocking efficiency, and improving compliance and accuracy.
With these products, customs brokers can eliminate manual data entry, provide real-time visibility, and streamline communication channels and workflows.
To learn more about how KlearNow can assist your customs brokerage business, click here for a free demo.
