Role of Customs Brokers and Freight Forwarders in International Trade
The exponential rise in global trade has been accompanied by trade imbalances and lopsided Balance of Payments for certain countries.
Various countries have started imposing trade restrictions through tariff and non-tariff barriers to redress these challenges and respond to geopolitical pressures.
As a consequence of these factors, the inherent complexities of international merchandise trade have now been compounded by the need to comply with additional regulations arising from trade restrictions.
In this context, customs brokers and freight forwarders play a vital role in ensuring regulatory compliance and facilitating the smooth flow of international trade, acting as value-adding intermediaries and occupying a critical position in global supply chains.
Rising Role of Customs Brokers & Freight Forwarders in International Trade
Given the geographical dispersion of manufacturing capacity and globalization of supply chains, most products comprise components that are sourced or manufactured in other countries.
The growing intricacies of international trade legislation and customs requirements in different countries make managing logistics and customs clearance a highly specialized role, requiring considerable expertise and knowledge.
Further, in this era of specialization, companies find it reasonable to focus on their core competencies, which generally are product development and manufacturing, where they rely on external logistics service providers to efficiently handle export and import procedures, trade documentation, and customs clearance activities.
In this context, the significance of customs brokers and freight forwarders becomes increasingly critical. Their specialized and comprehensive understanding of trade documentation, customs, and other logistical processes empowers them to streamline customs clearance and manage trade documentation efficiently. This expertise allows for the optimal handling of merchandise exports and imports, showcasing their pivotal role in the international trade environment.
Manufacturers and exporters have acknowledged this and are more amenable to contracting customs brokers and freight forwarders for logistics management. Customs brokers have certain innate advantages by virtue of their expertise in trade documentation and procedural requirements, as well as their established rapport with government officials, which can sometimes help resolve issues faster.
Besides that, since their primary responsibility is handling customs clearance and trade documentation, customs brokers invest heavily in building teams of qualified professionals, which would be unviable for a typical manufacturer. A resultant benefit for manufacturers, importers, and exporters is that using customs brokers or freight forwarders can reduce their cost per transaction and save on logistics overheads.
Overcoming Challenges for Customs Brokers & Freight Forwarders with AI/ML
It is clear businesses within the supply chain are interested with adopting AI/ML solutions to tackle challenges, as reflected in the recent MHI Industry Report where roughly 85% of manufacturing and supply chain leadership surveyed look to adopt these technologies within the next five years. While customs brokers and freight forwarders are better placed to manage customs clearance and trade documentation, they nonetheless face specific challenges, the most common of which are:
1. Handling Extensive Documentation
Trade documentation covers each stage of the supply chain, ranging from certificates of origin to commercial invoices to bills of lading to insurance policies and delivery notes. It is estimated that global trade involves 4 billion paper documents daily. The volume of documentation can be overwhelming, rendering the process time-consuming and prone to errors.
Customs brokers and freight forwarders can use AI and ML-powered platforms to streamline the process, ensure accuracy, reduce processing times, and minimize risks of delays.
2. Managing Large Volumes of Trade and Customs Data
Customs brokers and freight forwarders collate, process, and transmit humongous amounts of data, which is generally beyond human capacity to analyze.
AI and ML algorithms provide Customs brokers with the computing prowess to store and analyze all such data, delivering valuable insights, predictive analytics, and optimizing operations through data-driven decisions.
3. Diverse Formats of Trade Documents
The complexity in efficiently managing trade documentation is exacerbated by the varied formats in which information is available. The wide range of stakeholders and geographies involved contribute to this challenge, resulting in information being shared in multiple formats such as Excel spreadsheets, Word documents, PDF files, emails, and even traditional paper documents, all without a universally accepted standard.
Manually extracting relevant information from all these documents is extremely cumbersome and error-prone. Customs brokers and freight forwarders can benefit by using a smart platform equipped with advanced Optical Character Recognition (OCR) technology, which can seamlessly interpret and process information across formats, ensuring a smooth and standardized workflow.
4. Dispersed Customs Data and Multiple Languages
Customs data is prepared by numerous stakeholders, depending on their roles and requirements. This results in information being stored across locations, often in different languages.
Smart AI and ML-powered platforms serve as central data repositories, storing information from disparate sources, and facilitating a centralized and cohesive approach. The infusion of natural language processing capabilities can aid in interpreting multilingual documents, ensuring accurate and consistent data extraction.
5. Lack of Standardization in Document Templates
The absence of globally mandated documentation standards and stipulated templates complicates customs clearance processes.
AI and ML algorithms can adapt to varying document structures, learning from patterns and establishing a standardized approach to extracting information. This ensures that the platform remains effective in the face of evolving document formats.
6. Unstructured, Non-Digitized Format of Trade Documents
With an estimated 80% of enterprise data being unstructured, processing data can be challenging. Trade documentation and information required for customs clearance are often unstructured and non-digitized, where a smart platform becomes a transformative tool.
Customs brokers and freight forwarders can leverage AI and ML technologies to convert unstructured data into a structured format, unlocking the potential for automation, improved accuracy, and enhanced efficiency in customs clearance processes.
7. Speed of information flows and updates
In response to the VUCA (volatility, uncertainty, complexity, and ambiguity) environment and rapidly evolving macro-level supply chain trends, manufacturers in recent years have had to contend with supplier diversification, dispersion of manufacturing capacity, emergence of new markets, consequent changes to transportation networks, and altered demand patterns. In this scenario, the speed of information flows is crucial to ensure that relevant information is passed on to concerned parties. Missing updates on shipment status or milestones in the transport process can result in costly service delivery failures.
AI and ML ensure that every piece of data is captured as soon as it appears. These tools ensure the information is categorized, allocated to the correct shipment, and validated for any changes that operators must act on.
8. Overwhelming complexity in integrating systems
Most organizations have adopted a siloed approach to implementing technology, depending on organizational priorities and the perceived criticality of core functions. As new systems are introduced, they are linked to existing systems, resulting in a myriad of disparate but interlinked systems. The fragility of these linkages means that issues with one system can have organization-wide repercussions.
For customs brokers and freight forwarders, AI simplifies this process of integration. Smart ML and AI-powered systems can easily collate and validate information and subsequently format it into an output that integrates back into operating systems or legacy systems.
Transformative Role of Technology
In a market characterized by intense competition and growing customer expectations, customs brokers must incorporate technology to enhance operational efficiency and position themselves as reliable partners.
In this context, implementing AI and ML-powered smart trade documentation platforms in this context can be a strategic move toward efficiency, accuracy, and competitiveness.
By addressing challenges associated with extensive documentation, diverse document formats, and multilingual data, these technologies empower logistics professionals to navigate the complexities of global trade with confidence.
Embracing the digital transformation propelled by smart platforms ensures customs brokers and agencies are well-positioned to thrive in an ever-evolving and demanding international trade landscape.
KlearNow and Data Engine: Futurizing Supply Chains since 2018
A recent Descartes’ study found that over half of all supply chain and logistics operations they surveyed were prioritizing automation. And for good reason. KlearNow has been at the forefront of digitizing trade documentation and automating customs clearance activities, with its suite of products designed to cater to the holistic and specific requirements of customs brokers and freight forwarders.
KlearNow’s Data Engine is an innovative and reliable trade platform, having a 95% first-time hit rate on new documents and 99.9% accuracy in transforming unstructured data, which lends customs brokers a competitive edge and helps them deliver a superior customer experience.
To learn how Data Engines can benefit your business, click here.
