Episode Transcript
[00:00:02] Speaker A: We've never had a year like this.
[00:00:04] Speaker B: We've seen variations, 30, 40% week to week.
[00:00:08] Speaker A: Chaos is the new normal. We are where we are.
[00:00:11] Speaker C: The future trade won't be decided by tariffs or trucks. It'll be by whether your data entrusted enough to cross that border.
[00:00:18] Speaker B: We've seen already some countries start to implement some really sophisticated AI based risk management systems that I can only imagine we're going to continue and accelerate.
[00:00:31] Speaker D: Welcome to the Freight Buyers Club where we focus on the critical shift shaping international trade, shipping and logistics. I'm Mike King and we have a great episode for you today because make no bones about it, we are in the midst of an overturning of the global trading order.
US Tariff resets, new data requirements and the removal of de minimis exemptions are straining custom systems and reshaping global supply chains. And Asia is responding with new trade agreements as it seeks new markets. The Brics Group is strengthening and expanding. Europe continues to deal with Brexit's aftershocks while attempting to digitize and harmonize customs procedures. To explore all this, I'm joined by three of the world's leading customs experts. Greg Nichols is Senior Vice President of Global Customs Solutions at DHL Global Forwarding. With over 25 years in logistics and trade consultancy, he has expanded DHL's Customs business, rolled out his global operating model and launched Trade Connect, a new standard for digital brokerage. Hello, Greg.
[00:01:33] Speaker B: Hi, Mike. Thank you for the invite. I'm very happy to be here.
[00:01:36] Speaker D: Yeah, you're very welcome.
Steven Tracy is next up. He's Joint General Manager for Europe at WiseTech Global. He leads the rollout of Cargowise's European customs product and overseas integration across Europe multiple markets. With more than 20 years experience in trade compliance and technology, he previously built Customs Matters into Ireland's leading custom solutions provider before its acquisition by wisetech. Hello, Stephen.
[00:02:04] Speaker C: Hi, Mike. I'm delighted to be here as well. Thank you.
[00:02:08] Speaker D: And last but not least is someone very familiar to regular listeners. Cindy Allen is CEO of Tradeforce Multiplier and a former executive director at US Customs and Border Protection where she oversaw the ACE Business Office. With more than 30 years in trade compliance, including senior roles at FedEx Logistics, she now advises major importers and exporters on navigating tariffs, enforcement and supply chain risks. Welcome back, Cindy.
[00:02:35] Speaker A: Thanks Mike. Great to be here again.
[00:02:37] Speaker D: Thank you all so much for joining from around the world. Cindy, let's get into some of the detail. How are US Shippers coping with these constant policy changes swings? Have we ever had a year like 20, 24. Fine.
[00:02:50] Speaker A: We've never had a year like this. I can't. I've been in the business since 1987 and I can't ever remember a business like this. And, you know, I've been joking that it's a good thing that Canada is not buying as much whiskey as they used to, because I think we need it here in the US I think we've seen consumption back. Trade compliance professionals definitely go up.
I think it's very, very chaotic right now. We've talked about this before with the stacking tariffs, with understanding component and derivative products. You know, how do companies understand not just what they're bringing in, but what's in what they're bringing in? And that's been a huge challenge and caused a lot of consternation in the industry. And, you know, all of us are looking for those digital solutions.
[00:03:35] Speaker D: We're going to come to that. Some of that sourcing and these new transshipment rules a bit later. But can you just give our listener a taste, maybe a real world example of how they are being affected by the complexity of these rules?
[00:03:48] Speaker A: Well, I think one of the greatest concerns right now is how do you determine what's in your product? So I look at like a metal insulated cup. How do you understand how much is aluminum, how much is steel? Is there a copper insulating in there? And then if you haven't actually tracked that in an international trade perspective before, how do you even guess what's in there? How do you estimate that? You perhaps haven't sourced those products directly, so you have no idea of how much each of those components cost. So how do you properly declare that to U.S. customs and Border Protection? And then what guidance has Customs given, which has been very little in understanding how to properly claim the value of these underlying derivative products in what you're actually bringing in? So it's been a huge discussion among customs brokers and among importers how to actually compliantly do that.
[00:04:46] Speaker D: And I made all this. Well, and the German shepherd barking in the background, I think we can hear. Welcome to the Buyers Club podcast.
Cindy, how is Customs and Border Protection coping?
There has been some talk of the agency being overwhelmed by these constant changes in politics. What are you hearing?
[00:05:06] Speaker A: Yeah, definitely they're overwhelmed. And remember, they aren't getting much notice of these executive orders and these trade actions than the trade does. They might get a day or two to actually put the products and processes in place at CBP before the trade is notified. So they are all hands on deck, all the time and I know I worked at CBP and a normal week was 45 hours.
If it was more than that, it was unusual. And now we're hearing that these folks are working 50, 60 hours a week, working through the weekends, trying to implement things as smoothly as possible and not only do that on the technology side, but to get policy out, to get guidance out so that everyone understands, okay, this executive action happened on Friday. It's going to take place on Monday morning at 12:01. They have to get all of these things in place so that international traders can understand how, how do I actually claim these things at 12:01 on Monday morning? So it's been very stressful for them and we've seen some of the most senior folks who are eligible for retirement actually take retirement. So we're concerned about that moving forward.
[00:06:14] Speaker D: So those guys are much needed as well. Stephen, can I bring you in here? You've said before that that one of the key categories that WiseTech Global tracks is friction at borders and that egan hawk of raising tariffs can create visible and tangible disruption before the policies are even actually implemented. So from your vantage point, how much of this border friction that we have around the world at the moment is down to geopolitics, Whether that's conflicts in Yemen, these tariffs, regional tensions and how much is just the result of custom systems not keeping up with modern supply chains?
[00:06:51] Speaker C: Great question mark.
At WiseTech we view friction at borders as one of the most telling indicators of global trade health. In cargoise we look after the ABCs of international trade. That's automation, brokerage and compliance. And as a headline view, I would suggest geopolitical events create shocks and the custom system challenges and keeping up to date creates a lag. So collectively there are issues order friction is, as we know, a direct expression of politics.
We see it in tariff rhetoric. Even before duties are applied, traders start rerouting, stockpiling, sanctions, enforcement. We see where dual use goods are high tech, components are scrutinized because of conflict. Ukraine tension, the Red Sea and Yemen. As you mentioned, those measures create visible slowdowns and uncertainty and it happens very quickly, it's almost overnight. But there's also structural system issues.
Many customs platforms were designed for bulk containers and monthly filings, not real time E commerce shipments or just in time manufacturing. That gap shows up in fragmented data requirements. Within the EU, as we'll discuss a little bit later, there are 27, excuse me, different flavors of EU systems. Even the ICS2 system which recently went live on the 1st of September. There's also challenges around transit platforms that can't keep pace with modern logistics.
So even without a trade war, those frictions delay goods and do add costs. The real prize I think is aligning the two so modernizing customs so that when politics do intervene, the systems can absorb disruption without paralyzing trade.
However, until that time, you know, we're involved in maybe smoothing out those local bumps within cargoise with a global system supported by technical and local business experts.
[00:08:48] Speaker D: Stephen, you were front and center managing the customs fallout of Brexit. You mentioned the EU there was that a foretaste of the kind of complexity that maybe that we're we're of a more fragmented trading world that's sort of emerging now.
And can you illustrate what that complexity looked like maybe with data or with examples?
Should you have any?
[00:09:12] Speaker C: Sure.
Overnight trade between the UK and the EU went from being frictionless to 200 million transactions required on an annual basis. So that was fairly seismic shock. Every sector from a small email service provider or e commerce sellers to just in time automotive providers were impacting their supply chains were impact and those challenges went beyond the UK because any trading partners in the EU also had to increase the capacity of their custom system. In Ireland for instance, pre Brexit there was a 1.8 million customs transactions and in December 2020, the first year of Brexit there were almost 22 million customs declarations. So it was very significant the impact.
You know the second part of your question, I think the UK today I would argue is possibly the most complex jurisdictions in the world. We have three customs regimes operating in the UK running side by side. Obviously in Great Britain it's operating its own system called CDS Custom declaration system which has replaced chief Northern Ireland is subject to the Windsor Framework Agreement where goods moving from Great Britain to Northern Ireland fall into either green lane or red lane to depending on their final use. And on top of that there has to be a continuing alignment with EU safety and security filings for certain flows. So for an example, for a trader moving a single truckload from Birmingham to Belfast, they may need multiple declarations, different data sets and careful management of risk to avoid diversion. It's a real illustration of how geopolitics relates into operational complexity and it's not unique to the UK we're seeing a patchwork of new requirements. The EU ICS2 requirement there are 19 plus core data elements per pre departure and that scales to millions of E commerce parcels a day. NCT has phase five also introduce new transit obligations and there's 35 countries, it's not just within the EU, it's those of the borders and then other major economies we're aware of, us, Brazil, China, are digitizing what they are doing.
[00:11:29] Speaker D: Greg, how are manufacturers and forwarders adapting to this volatility and how is it affecting supply chain operational complexity worldwide? In terms of what you're seeing, you.
[00:11:40] Speaker B: Can imagine that we can look at it from two different angles. So certainly if we're looking at the US Trade, just the volume volatility has been very operationally challenging, I think, both for customs brokers, forwarders and shippers as well. We've seen variations 30, 40% week to week as shippers look to either take advantage of the tariff that was in place at that moment or in anticipation of tariff changes that they're expecting.
So that just trying to deal with those volume fluctuations has been, I think, a real challenge for everyone.
On top of that, of course, is what Cindy was referring to earlier. Just the complexity of the tariff and the ever changing nature of it makes it very difficult from a training perspective to make sure that everyone really understands what the rules are that week.
Makes it very difficult to automate anything within the systems because they change from day to day or from week to week.
So, yeah, a lot of challenge for us to not only make sure that our own people understand the rules and are applying them correctly, but that our customers understand the rules and are collecting that information that, as Cindy mentioned, maybe they never needed to collect in the past.
So this is certainly, I mean, in the US we see this, you know, as kind of a perfect storm. But even beyond the U.S. i mean, Stephen was mentioning some of the new EU rules. So we've got the C bomb, the customs border adjustment mechanism, we've got the deforestation measures coming on at the end of this year, where the rules, or at least the. The basics of what is required, has been known for some time. But still a lot of the specifics of exactly how the customs authorities are going to treat these things, you know, at the end of December, for instance, for deforestation, some of those specifics are still not known. And so we end up in a somewhat similar situation in EU and countries all around the world as they look to collect more and more data, often earlier and earlier in the process.
[00:13:47] Speaker D: Can I, can I just cast you back? Well, actually cast. Cast you back in time, but I want to widen this out a little just to see what this actually means as we look forward as well.
If I remember, you and I were both in Asia ahead of the first Trump presidency. Now Back then. Well, as I remember back then, most of the conversation seemed to me to be about expanding free trade. So we had ASEAN's deal with China, we had the TPP which is now the CPTP P, what includes the UK, supposed to be a trans Pacific deal, excludes the US so I'm still trying to get my head around that. All rather bizarre. Then we had the RCEP coming down the pipeline.
I recently spoke with your colleague John Pearson, CEO of DHL Express, and he told me that most of the world really is still leaning towards free trade or towards more free trade agreements. It's just the US is sort of opting out.
So we're going to come back to some of these new US policies in more detail. But from your perspective, Greg, are you still hopeful about the idea of free trade? This, the concept of smoothing that border in place or the customs interface, that that's good for economies and for people or is, as a lot of people have actually been saying, is globalization a spent force?
[00:15:04] Speaker B: So I don't think that it's a spent force, no.
I'm cautiously optimistic. I think that globalization remains, global trade remains and will remain at scale. It's just evolving into a bit of a different shape.
I think maybe the concept of one global order, one size fits all kind of order with global rules framework, maybe some countries have decided that that isn't necessarily fully within their interest and so they would rather pursue bilateral or multilateral agreements that are a little bit narrower and a little bit more more specifically aligned with their interests. I think one of the, you know, one of the interesting questions that we will see, I guess over, over the coming months and years is just the overall concept of tariffs and whether or not, you know, other countries start to think of this as a viable revenue source or is this something that, you know, will remain kind of a rest situation for some time? So far we haven't really seen that. We haven't really seen, you know, other countries really thinking of it in the same way. But you know, countries are all looking for revenues and I could imagine that there is some exploration going on in many places around the world around us.
[00:16:23] Speaker D: I like the way you just excluded it just to a revenue generation so it's not a massive baton. But maybe Cindy wants to comment on that. Cindy, what strategies have your clients been using to limit exposure on a practical level? Have they been front loading cargo this summer during these reciprocal tariff truce windows that we've seen? And if so, are you getting the feeling that they're all fully stocked because some of the data seems to be.
[00:16:48] Speaker A: Suggesting that, yeah, that's what I'm seeing. I'm seeing a lot of customers front loaded. We also saw greater utilization of warehousing space here, indicating that people were bringing the goods in when they understood what the tariff was going to be in that period between April and August.
And there doesn't seem to be a peak coming. There doesn't seem to be that pre Christmas craze that we normally see in both ocean and air. And one concerning pattern from the US Perspective is we've seen foreign sellers start looking for other markets to sell their goods in. So there's just less of those goods coming into the US and as Greg had indicated, I know countries are going to different markets, they just are bypassing the US The US has opted out of trade in many regards and we're seeing the commercial market react to that to say, well, let's look bilaterally, let's look trilaterally, let's get agreements that make sense for us and let the US do their thing. Which is pretty concerning.
[00:17:56] Speaker D: Yeah, I mean obviously the Trans Pacific market on the ocean side is huge, but actually a lot of the growth and container growth has been reasonable this year even though all the stories at the moment are about spot rates declining on the Asia, Europe and the transparent slight rebound lately ahead of golden week. But the spot rates are going down. But actually Asia into Europe and Asia into South America and Africa has been growing really quickly this year.
We are seeing that clear signs that trade is diverting. Cindy. So I guess some of your clients, maybe, maybe they misjudged the timing on those imports. Did some of them end up with big tariff bills?
[00:18:33] Speaker A: I guess some did, but I don't think many other people's clients, yeah, I would say between April and August people knew what the tariff rates were and no one thought they were going to go down. No one said, hey, I'm going to wait until August to see what happens when the reciprocal tariffs are set again. So they looked at that 10% in most cases or 25% and said I'm going to go ahead and import, I'm going to be more judicious about my importing. I'm not going to send everything in but what I know will sell and what is needed in the market, that's what they sent in. And they took a gamble. And most of them were right because most of the reciprocal tariffs actually went up.
Very few went down. So it was a good strategy. But we did see them front loading and you know, not many ended up with a huge tariff bill. They ended up with the bills they thought they were going to get.
[00:19:25] Speaker D: And how have they been coping with these astronomic bonds? They've got a poster, I think U.S. customs requires entries to be backed by a bond to cover at least 10% of the duties paid over a year. Or it's something like that, isn't it? Can you explain?
[00:19:36] Speaker A: Yeah, it is 10% of the duty that you're expected to pay over the next year. So that has been completely upset this year. If you look back 12 months, you know, if you started in September, you have a good period of the tariff. So you can then determine what your bond amount is going to be. But what actually happens is Customs says, okay, you have a hundred thousand dollars bond the minute that 10% is reached. So it's saturated. From a customs perspective, Customs tells the company you have, you know, 30 days to get a new bond. Well, if you were paying $10,000 in duty last year and now you're paying 150, $200,000 in duty this year, you might have to get collateral because your insurance or surety company isn't just going to view that as the same risk.
So these companies are having to go out and get collateral to secure a new bond. They're having to get letters of credit. They're having to provide much more financial information than they ever did, and that's taking some time. And then if they underestimate that bond, let's say they import more this year, they reach that $150,000 mark in duty paid, and customs again determines that their bond is insufficient, and they'll have to go through that entire process again. And it's not like that first bond is subsumed in the second one. It's a stacking bond requirement. So they have to go out and get an additional capital security of 200,000 now. So it's been very, very chaotic and very hard for importers to understand what their liabilities are from a bond perspective. And many of us are advising our importers overestimate the amount of duty that you're going to pay because you want to put up one set of collateral, one set of financial records for these companies. So you don't tie up collateral for the first 100 $150,000 bond and then have to come in with another set of collateral for another $200,000 bond. So overestimate. So you aren't getting that stacking bond liability.
[00:21:45] Speaker D: Thanks for that, Cindy. Stephen, I think we understand how tariffs can affect consumers and business but from your perspective, how does enforcement challenge government agencies responsible for enforcing these trade practices?
[00:21:57] Speaker C: I mean tariffs are a tax on uncertainty as we've covered already. And they really are talk of changes, shifts, flows, pricing, inventory and customs. Traditional role is to look after revenue collection, trade facilitation and national security.
They're being asked to do more with less and the complexity has grown sharply. If we look at just some specifics, obviously there's an explosion of low value e commerce. Authorities must police billions of packages. I think in the EU recent survey suggests that 4 billion parcels annually. Most carry low duty, but each is a potential vector for undervaluation and counterfeit goods. So they need to look after that.
There's fragmented obligations. Greg mentioned them earlier in relation to enforcement, sanctioned screening, military dual use controls, product safety, carbon border adjustment mechanisms and indeed health regulations. Each policy requires different data sets and from different agencies. And that does create some bottlenecks and some risks of inconsistency. And then there's the data quality versus risk management. Customs really can physically only examine between 2 and 5% of shipments of consignments. The rest are based on risk algorithms. When shipment data is entered multiple times across supply chain accuracy software is re keying of data becomes an issue. Governments are pushing hard for real time high quality data and digital systems. Indeed, my own company, Whiteside Global is helping the New Zealand government where actually we're providing some tariff information through the New Zealand government for their traders to make it available. So having the right data at the right time is absolutely essential for the enforcement of proper enforcement. And increasingly customers, authorities, as I said earlier, have to do more with less. So proper data in a timely fashion is becoming key.
[00:23:53] Speaker D: Thanks for that, Greg. I was going to say you must have been busy this year, but I know you have helping clients navigate this tariff landscape. I mean, what stands out for you in terms of major trends or, or challenges?
[00:24:05] Speaker B: So definitely, I mean, just echoing. I think what Stephen just said to an extent is, you know, the right data at the right time in the right place. This is something that we are really working with a lot of our customers on their upstream processes to try to make sure that they understand what is going to be required, whether it's the US or any other country in the world.
[00:24:27] Speaker C: I mean there's.
[00:24:29] Speaker B: I can't think of any country where the declaration requirements, whether that's to customs or to other government agencies.
I can't think of any country in the world where the number of fields has decreased.
It only increases.
And so more and more pieces of information often are needed and often they're needed earlier in the process.
Whether that's because there's a pre arrival filing of some sort that needs to occur or because we want to take advantage of the ability to clear pre arrival and we're going to need then the full data set as early as possible. So a lot of effort goes into trying to make sure that we have the right systems to be able to collect that and share that in the right way. So one of our big projects at Global Forwarding has been to tie together all of our local declaration systems into one data platform. And this is nearly done now after several years of effort. But it at least allows us to have the proper data environment to capture and then share where it needs to go in the best possible manner. But yeah, this is something that I think a lot of companies are still very immature around understanding what the real upstream process is and how they're going to gather long data in the most efficient way possible.
[00:25:46] Speaker D: I'm going to have to drag this back to the US as well here. Greg, Cindy, if you want to come in after. Greg, but just a legal angle to some of this. Would I be right to think you're both advising clients to keep detailed records of all tariffs pay just in case these lawsuits against tariffs and presidential power succeed at the Supreme Court?
[00:26:04] Speaker B: I mean, absolutely. On our side, I think, you know, irregardless of the court cases, it's, it's just good practice anyway, of course, to have, you know, meticulous trade documentation and make sure that you, you've got not only, you know, what did you submit, but some rationale on why did you submit it. On our side, we're of course making sure that our data is clean, that our declarations are defensible, and that we're in a position regardless of what happens right. With the court cases, to assist our customers, whether that's with future refunds or challenges or questions that they may get from CBP that, you know, we've got a proper, a proper record keeping on our side to support them and whichever way that they may require.
[00:26:53] Speaker D: I'd be interested. Cindy, I mean, please follow up on that. I'm sort of, as I listen in, I'm thinking if you're one of the brokers here and you help people to keep track of all of this, do you get a bonus if they get a rebate?
[00:27:05] Speaker A: Well, it depends on how they issue that rebate. Right. If you have to do an additional filing, you know, brokers don't work for free like Anyone else. So they'll get a fee for doing that. But I've been advising, you know, customers kind of a few things. One is review what your broker is doing, make sure that they are claiming it correctly. And that's because the custom systems, we're used to them having very robust edits and telling us as we transmit the data, hey, you got something a little wrong here. And with all of the stacking tariffs, the customs system in the US doesn't do that anymore. So it's easier for a broker to make a mistake and there's no back end to catch it unless you have a system like Cargowise who has put some of those edits in and can can help you recognize when you're making an error. But it really does depend on the information that the importer is giving. So the first thing is check what your burger is doing. The second as as Greg mentioned is make sure that you have all of the information as best as you can and documented while you're making that decision. Especially when you're talking about splitting those component or derivative level products out. You have to have a rationale for that. And then the third thing is check ace. The CBP ACE system has records of all of the transactions. Make sure that you are taking those in, recording what is there, comparing it to what the brokerage records say, comparing it to your own records. And then the final thing is track finalization of the entry or liquidation. We are seeing that liquidation if a broker makes a mistake or an importer says, hey, I gave you the wrong information, let's do a correction with the customs system that automatically liquidates when customs takes that action.
And that's been a process for many years. However, it didn't matter now. It matters now. If you have a liquidation and it could be possibly subject to this court case, you want to make sure that you're filing a protest. So watch the finalization or liquidation of your entries to make sure that you've kind of protected that right for, for a future refund.
[00:29:14] Speaker D: Just on these transshipment rules. Greg, you can take this or Cindy however suits.
Anyone who's listened to previous episodes will know that people have been finding it hard to pin down exactly what they involve. Can you walk through how U.S. customs actually treat transshipment when goods are routed through a third country before entering the U.S. what is not the containing shipping definition of transshipment? What determines whether it's considered legal re export vs tariff evasion? And how is CBP enforcing those rules?
[00:29:44] Speaker B: From my perspective, I know that there's a lot more data analytics going on with some new systems and probably AI powered systems as well that CBP is deploying, looking for outliers, looking for things that might flag something that needs to be looked into deeper. I know that there's more origin verification audits going on than have been in the past.
There's also a lot of use now of the False Claims act, which encourage whistleblowers because yeah, there's a lot of upside for potential upside for whistleblowers under that act. I guess one of the, one of the complexities is when we're talking about non preferential origin, so origin that hasn't been clearly defined within a free trade agreement.
The concept is still a little murky, it's a little bit gray of exactly what is substantial transformation.
It's not very explicitly spelled out in any law or any regulation. I think the courts haven't interpreted, you know, as kind of a, a change in the name or the character or the use of a finished good vis a vis its components. But that's still probably not as, you know, it's not as solid and clear a decision tree as we would like.
And that adds to a lot of complexity. Right. For shippers or importers trying to, trying to make sure that they're not trend shipping that something is in fact being substantially transformed in a third country.
[00:31:12] Speaker C: Right.
[00:31:12] Speaker B: To a degree that, that's going to satisfy cbp.
[00:31:15] Speaker D: Thanks for that, Greg. Cindy, maybe you can come back in on this a bit later. We're a bit pushed on time and I want to ask you something really preposterous that's just come into my head because I'm just thinking about you mentioned before about we now know what the reciprocal tariffs are. We also know what the diminishment exemption. Well, we know that it's gone. Can I float the idea that maybe we've got more stability now, at least compared to the rest of 2025? A low bar. I know, but are we seeing the emergence of a new normal?
[00:31:47] Speaker A: I would say yes. I think it's still chaotic. Chaos is the new normal. That's we are where we are. But I think that chaos as a negotiating tactic has kind of been discovered by the, by the other countries that are looking at this.
You know, they, they are looking at the patterns that this administration has rolled out. You know, throw a bomb in the room, let it let all the dust settle, figure out where we have a possibility, throw a number in and then watch and learn. And then the other countries are taking note of this and they are then coming in and saying, okay, we're going to approach this a little bit differently than we have in the past and understand where our opportunities are. So I think it is the new normal, but I think the rest of the world is adjusting to that new normal and better position to actually take advantage of the situation and ensure that their own objectives are met as well as, you know, the US's objectives. And I think from the government perspective, but from the importer perspective, I think they are also understanding that there's an opportunity here. They need to have more data. They need to have more data earlier in the process.
This is something that I testified, when I testified before Congress a few years ago, I talked about the need to have data earlier in the process so that the governments had visibility to that and importers could be assured that if they were totally transparent with their supply chains from not just a security perspective but also from a commercial perspective, that their goods wouldn't be held, that they could receive that top tier treatment from cbp. And, and I think that we are still looking at that possibility. De minimis is gone. I don't ever expect it to come back to the US in the way that it was. We saw that with Congress passing the bill, you know, that it was going to go in 2027 anyway. So I really don't think that's ever coming back. And I think that the, the entire de minimis e commerce industry has kind of shifted to the new normal in.
[00:33:52] Speaker D: That Stephen, on that diminished exemption, obviously pretty catastrophic for people in E commerce or air freight having to massively rethink those supply chains. But I'll throw the argument to you. Does this simplify trade even though it's making it more expensive for shippers or consumers?
[00:34:08] Speaker C: Again, de minimis is a two way sword. On one hand you're right. It hits E commerce platforms, parcel operators and ultimately consumers because the cost of clearance of duty collection has to be born somewhere.
But for air freight and express carriers, where margins are tight and volumes are high, even a few euros per consignment makes a big difference. What governments would argue that de minimis thresholds distort the market so they create an uneven playing field. So we look In Europe, if €149 parcel from outside the EU avoids duty at that and 151 Euro parcel domestic seller must pay, must charge them, it don't restore a degree of fiscal fairness in what's happening. And from an enforcement perspective, there's a case for simplification. Custom vouchers no longer have to check where parcels sold under or over that particular threshold. Shipments are subject to the same data sets, which is what we're talking about as well as the importance of data. Same check, same risk management.
And politically it helps address concerns about undervaluation and fraud associated with high volume E commerce loans. But interestingly, a study by Copenhagen Economics on the removal of de minimis estimates that there's an increase of approximately 2.3 billion Euro per year in compliance costs and that has to be borne somewhere from a European perspective. And of that they suggest that 2 billion of that has to be borne by business operators.
So it is quite interesting and you just juxtapose that with what's happening in the EU customs reform package where there is a suggestion of a €2 per consignment or per parcel charge as part of that reform package. And there's also a suggestion that for warehouse movements that could be reduced internal warehouse movements to 50 cents. So it is changing and adaptation is going to be key in actually keeping business sustainable moving forward.
[00:36:09] Speaker D: Greg, the National Customs Brokers and Forwarders association of America has launched bit of a tongue in cheek campaign make trade boring again.
So sort of the same question to you. Do you think there's any chance trade policy is going to get more predictable? Or as Cindy said, is volatility the new reality?
[00:36:29] Speaker B: I think that we're probably in for a period of volatility as I mean not only the U.S. but as countries respond to the U.S. as I said, whether or not they decide that tariffs may be a good thing for them as well or as they continue to look to implement other policy goals at the border as the choke point. So things like environmental controls or labor controls or whatever it may be.
So I do think that that will continue. But at the same time there's a somewhat contradictory trend that's happening in the same countries often where they are still looking to simplify the process with things like pre arrival clearance. Ten years ago that was available in only a handful of countries. Now it is available in many countries. Single window systems tying together all the different government agencies that may be involved in the import export process.
So things like that. You know, I think there is still good movement towards simplification but at the same time this kind of contradictory movement that, that, that of trying to, you know, use, use the import export process as the choke point for all sorts.
[00:37:42] Speaker D: Of different policy goals just sort of widen out slightly. We I mentioned rcep, these different acronyms for these different trading groups. So we've all got the rise of brics. We've got China's deepening global trade links sort of reshaping. A lot of those supply chains talk about ocean shipping volumes before this year and those growth lanes.
Is this part of a, of a reshaping of the rules based global trade order that people are talking about, Greg, just particularly with the US more unpredictable.
[00:38:14] Speaker B: In terms of overall trade flow shifts?
I mean, yes, I would, because, I mean there was already, of course, for, for a few years now, for some years now, kind of a China, the China plus one right. Concept of looking to diversify sourcing bases a little bit. I think with this additional uncertainty from the tariffs, with, you know, many other supply chain shocks that of course have hit over the last five years or so, I can't imagine that.
I think more and more companies will decide that, you know, as diversified a supplier base as they can get, it is probably in their interest and they will look to do so. Of course, how deep the supplier bases are in different places, it will take time to evolve, but I definitely would see that that continues to expand.
[00:39:02] Speaker D: Is this the end of the WTO as a place where people settle their differences?
[00:39:08] Speaker B: I think that the WTO as an enforcement body, it may well be the end of that. The wto, you know, some of the core principles within the wto. I mean if we take something like the customs valuation agreement, right. I don't expect that that will go away. Right. I would expect that that would continue to be the global understanding of hollow customs value is arrived at or many other things of that sort. You know, where a global standard has been set, has been agreed to in the wto. I could imagine in many cases those will continue on and that the WTO may still have a role in terms of modifying or evolving those standards over time, but as an enforcement body, perhaps not.
[00:39:52] Speaker D: Cindy, you said chaos is being used as a negotiating tactic. Is this the end of the US in terms of backing that rules based trade? The idea that rules based trade or a rules based order is good and if so, what does that mean for long term planning for importers and exporters in the us?
[00:40:11] Speaker A: I don't think that they are abandoning a rules based tariff. I think that they just want to set the rules on their own.
They want everyone to follow their rules and they want everyone to adapt to the new reality in the US which makes it very tough for importers to react. And I think that, you know, knowing an importer, knowing their data is so important. And what we've seen is the beginnings of a lot of these companies being actually forced to be more global, which is not what the US intended when they rolled out some of these tariff remedy and trade remedy programs.
Companies are looking at their data and understanding where they can pull different levers. If I manufacture over here, I might have a 25% tariff, but if I manufacture somewhere else, it might only be 10. I have to make sure that my manufacturing base and supplier base is diversified so that I can have options in this area, which takes, you know, sometimes years. But I think we're forcing global companies to look even more globally at their supply chain and understand if the end product is coming into the U.S. how do I pull the levers behind the scenes to make sure that I'm not increasing my duty? Coming into the United States and where parts and components were made in the US we're seeing some companies saying we're going to bypass that component level manufacturing in the US if we're manufacturing for an export market. So outside of the US So we're seeing some movement outside of the US of some of those middle types of manufacturing processes. So I think that was unintended. But companies have to know their data, have to understand where their supplier bases are, have to understand their manufacturing processes and really look at that globally now, when before it might have been regionally.
[00:42:09] Speaker D: Stephen, I remember you saying to me that customs is primarily there to protect society. Is that how you still see it? Because sometimes it feels like customs or trade policies almost being weaponized. And a two pronged question here. If that's the case, what's your view on where the role of the WTO or global standards in the future?
[00:42:31] Speaker C: Yeah, I agree with the customs one. First, I think customs now they used to be the guard at the gate, but now they're, they're also the diplomat at the border. So it's a very significant change. But in my view, I think customs are fundamentally there to protect society. And that's their historic mission. Keeping unsaid goods, counterfeit product, drugs, illegal weapons out of our communities. But very importantly, ensuring legitimate trade continues to flow. And that's really important.
In recent years, policy has been, you know, trade also use a geopolitical instrument, as we've said.
And you know, if we look at a number of examples, sanctions on Russia in relation to military dual use goods, customers are involved in making sure that they're checking the veracity of data there. U.S. china tariffs, 301 measures, CVAM, which we talked about earlier.
So as a guardian society, they do protect customers and facilitate legitimate trade. But as a tool, they're being asked to enforce more measures which can disrupt trade flows. So I do think the role fundamentally is to protect society, but importantly and increasingly they have to ensure that legitimate trade flows in a timely fashion. And in relation to wto, you know, like Greg, I see it's different, the role, it's different from the past. The dispute system as we know is effectively paralyzed and big players have turned to bilateral deals, unilateral tariffs and sanctions. And it does weaken its influence. But global standards still matter enormously. Like a common language, a lingua franca for trade is really important and the WTO's importance in that there is a harmonized system for tariff codes as we know, and it underpins in over 200 countries and custom schedules. Without that, every container would have that tariff babel type approach. But they do provide a framework and a framework for fairness where smaller mid sized economies need rules anchor their trade.
So trade wars may be fought outside Geneva, but trade still moves on the standards set inside it.
[00:44:46] Speaker D: Just on that point, I think everybody nodding there, what's Europe's role in this? Some people say it's doubling down on its regulatory power through sustainability standards, digital customs reforms.
Do you think Stephen, that Europe can maybe therefore be a stabilizer in this fragmented order?
Or is it just a more organized pole in this new multipolar system?
[00:45:11] Speaker C: Yeah, good question. Europe is definitely doubling down on regulation, whether through sustainability measures we've seen which are being pushed out like TV carbon border adjustment mechanism or even the digital customs reforms we touched upon. In one sense it does make Europe more of a stabilizer and its approach is rules based and predictable, which is what everybody likes.
Traders may find it complex, but the direction of travel I think is quite clear. The new EU customs data hub which is suggested will centralize declarations across the 27 member states. And that kind of integration gives consistency that you don't see in many other regions.
But Europe is also becoming a pole, as you've asked in a multipolar system to the so called Brussels effect.
So Europe is effectively exporting its rules globally. And we've seen that as ICS too. We've seen it with AEO where there's mutual recognition of trusted trader status. In other trading blocs, there's mutual recognition with CTPATC, Customs Trade Partnership against Terrorism and indeed with AEO. With ICS2 there are 19 data elements for pre arrival and it does force. Europe is sort of exterritorially suggesting supply chains and making supply chains upgrade.
So yes, Europe brings stability, but it isn't just stabilizing, it's also shaping, I think, very deliberately and very much in its own image.
[00:46:41] Speaker D: I want to come back to Europe in a minute with you, Stephen, but Greg, can you just give us an insight into how things have coming, working out in Asia and particularly in terms of renewed focus on China, plus one sourcing that within the last few years. At the moment we've got India and Paris on goods into the US are higher than China's depending on the products, I'm sure Cindy would point out, because they can stack up. How are you advising clients to plan for both current needs and these future risks?
[00:47:07] Speaker B: I mean, I think that there's the near term and the long term, of course. And in the long term, as I mentioned, I think that given the uncertainty, particularly when we're talking about the US market, given, you know, it's very difficult to necessarily make a decision that you're going to move to a new supplier with all the verifications and all that that's required for that, or to build a new plant if you're manufacturing yourself, you know, when you don't know if in fact, you know, the Taiwan duty rate is going to be higher or lower than the China duty rate, you know, three weeks from now. Very difficult, difficult to do that. So I think in the short term, for the most part, companies will stick with the suppliers that they know are going to provide a good quality product to them. Right. In a, in a timely manner over the long term. I mean, if, if there's some stability, then I, I could imagine that, that some of those decisions will be made. But more broadly, as I mentioned earlier, I think there will be a trend to try to diversify the supplier base and to start to look for and to really conduct the deep dives that are necessary to identify suppliers all around the world that are going to be able to meet the quality and timeliness requirements that the companies have. So I think in the short term they probably are for the most part forced to stick with what they have. But in the long term, they look for going those kind of strategic partnerships in many different places around the world so that they have some, some insulation from sudden shifts.
[00:48:39] Speaker D: So, so plan for diversification. But maybe you're not moving out of China until you know more definitely what the trading rules will be.
[00:48:47] Speaker B: Yeah, I think so. I mean, it, yeah, but big, I mean, I don't think that anyone would move wholesale out of China, you know, based upon the tariff rate of the week.
[00:49:00] Speaker D: Yes. Until we've got stability. Right. So you Just can't do that. Make that planning. Okay, fair point. DHL has rolled out its global Target operating model and Trade Connect. How do these work for shippers in terms of managing compliance risk and building resilience?
[00:49:13] Speaker B: Yeah, so for us, I mean, I mentioned earlier that we have been tying together all of our local declaration systems. And for us, that was really the baseline because customs brokerage, at the end of the day, it is a local service. It requires local expertise. Declaration process is different. The declaration itself is different in different places. But we really believe that despite all of those differences, despite that diversity, customers should be able to expect certain, a certain level of experience throughout the world. And so by tying together our data in one place and then being able to set some policies around that, we're able to offer a more truly global customs brokerage experience where, you know that your documentation, for instance, will always be available electronically. You know that you'll be able to get global reporting. You know, we now have it available in over 80 countries in the world through one system. We know that we'll be able to build data analytics off of that, off of that data pool to be able to look for things like trade preference opportunities or to be able to model impacts and things like that. So that's really what our, what we call our, our global trade operating model is about, is to be able to, you know, harmonize those things that, that make sense to harmonize, to be able to provide our customers with a, a more consistent experience regardless of what country that we're talking about.
[00:50:39] Speaker D: Steven, back to Europe. Europe hasn't been the primary target of US Tariff policy, but it has been one of those targets. How's that affecting European importers and, and forwarders as they try to grapple with what higher cost of trade means for them?
[00:50:55] Speaker C: Even when Europe is in the direct target of US Tariffs, the ripple effects are very real. Okay. And we look at maybe European importers, the challenge is indirect exposure. So take German carmakers, an Irish pharma producers, a very significant number of markets, many of their inputs are sourced globally. If US Tariffs disrupt Asian or Mexican supply chains, the cost and availability of components in Europe are impacted and they actually can change overnight, as we know. Just even the verbiage and the talk of tariffs trigger suppliers to actually change their direction and reroute, raising prices, lead times before an actual single policy takes effect. But for forwarders, it's about volatility. Tariff rhetoric, ships, trade lanes. More cargo is expected to flow through Turkey, Mexico, Southeast Asia as companies, you know, as Singh mentioned earlier, Seek to bypass US China routes, forwards in Rotterdam and Antwerp suddenly see flows perhaps they hadn't completely planned for. And they have to manage the customs complexity of new origins and indeed working with new partners. But we then have a compliance angle too. So European forwarders are often filing U.S.
import and export data on behalf of customers or working with brokers.
When tariff schedules change suddenly they're the ones have to ensure the right duties are applied. The customers aren't left with unexpected penalties, which is not just penalties, but it's reputation and damage and everything that goes with that. So even though Brussels is not the primary target, Mike forwarders and importers are feeling the consequence of higher cost shifting. Trade matters and they need to adapt.
[00:52:40] Speaker D: You've described customs platforms as a pizza base with national toppings.
Where is fragmentation in Europe still most problematic? And will the EU's customs reform package with a single entry system and this proposed EU customs authority, will it fix this?
[00:52:57] Speaker C: Yeah.
[00:52:58] Speaker D: Is this the death of pizza? Yeah.
[00:53:00] Speaker C: The food analogy I think is a very European thing and I think it's quite accurate in relation. So the, the UCC unified customs code, UCC 6 is very much a pizza base, but as we spoken earlier, as Greg earlier said earlier, there is unique implementation, so it's two examples. So in Germany there's an 11 digit tariff code while the EU standard is eight. And that's an extra layer of complexity of one country. And ICS two, the Import Control system too has, although it's designed as a single EU system, there are different nuances within that on a local basis and each member has added some specifications. So the EU customs reform package is very significant and far ranging in its ambition and it's very ambitious and it wants to move to a single system. One declaration valid across 27 countries through a single gateway. Now that is very.
It is very challenging. It will be very challenging and it is a very far reaching ambition and it is very ambitious.
And then a new EU customs authority, so a single authority looking after all 27 member states.
So fragmentation currently is still a problem. Reform package is the best chance to solve it. But it does come down to political will and we're very uncertain political times in relation to what's happening until the time the traders, I think traders start utilizing digital tools to capture correct data once and reuse it many times. I think that is going to be key. But this may take quite a number of years. 2028 is stated for one of the timelines, but depending on political realm this could take quite a number of years.
So we would still see that the importance of having, you know, a single platform that allows customers have an ability to trade locally. The last kilometer customs filing as we call it. And it's nearly, if I could use the expression, nearly, a Rosetta stone for customs and Cargowise and other platforms, but Cargowise in particular, give that particular visibility and that local knowledge that customers require.
[00:55:15] Speaker D: Just on those digital tools. You told me that one of the biggest inefficient efficiencies in supply chains was re keying data. And I think IATA found that the average airway bill is re entered 10 times as it moves through the supply chain. You said the real breakthrough is a custom system that lets export data from one country be reused as import data in another within a single platform. Sort of what you touched on just now. How transformative is that reuse of data for compliance and visibility? And why is the industry still struggling to get there?
[00:55:46] Speaker C: Sure, I think re king of data is one aspect and it is a very big asset aspect. The second was fragmentation of systems as well. But just if we focus on the re keying of data, you know, there are lots of statistics, but the UN Conference on Trade and Development UNCTAD estimates an average Customs transaction involves 20 to 30 different parties. There are up to 40 documents, 200 data elements, 30 of which are repeated at least 30 times and retain 60, 70% of all data at least once. So if we think of just the overhead associated with that is significant and errors that can happen.
So the breakthrough, as I've said and we've spoken about, is through data reuse. So an export data file in Singapore is becoming seamlessly the import data in Frankfurt. On that example, within the same platform, the same data space dataset just enriched what each side needs and that would mean compliance that's faster and cleaner, no duplication, fewer errors, real time visibility for all players on the supply chain, which is really important, including the customer's authority. So the same digital truth. I mean, we talk of cargoise as being the single source of truth for customer data and that data can be reused. There are efficiency gains and less paperwork, lower costs and quicker borders, quicker border crossings. But why aren't we there yet? Paper is still moving in the supply chain. Okay? There is fragmentation of systems. We've dealt with one particular customer who had quite a number of different brokerage systems and they're now trying to standardize that and that's quite prevalent whereby local management have the authority to actually go and source their own local customs last kilometers custom system. But that brings fragmentation it's not a single platform, but data can be reused. There has to be handover and gateways, and building gateways and APIs can be complex. If you're not using the single source of truth for a platform, that becomes problematic. I also think that the, you know, the EU customs hub will also help in the future. But as I said, I have concerns just about the timeliness of when that will happen.
[00:58:02] Speaker D: Cindy, sticking with our a digital hook here, looking back at US policy shifts, what has Trump 2.0 and particularly CBP's response revealed about the ability of Customs Enforcement to adapt to new rules? Are there lessons here for all the customs agencies in terms of digitalization?
[00:58:23] Speaker A: Well, you know, it's funny because 30 years ago, the US was leading the way with their ACE system and developing that approach and the single window. That's when a lot of the countries started sitting up and taking notice of data standardization and practices that they came to agree on.
And CBP now is looking not just at the goods that are arriving. So a lot of the systems right now, especially the brokerage systems, the freight forwarding systems, are focused on goods arriving that are arriving right now and shortly before that. You know, we all file data earlier in the process so that we can get release, so that we understand what we can do with the goods when they arrive. But one of the things that CBP has been looking at and really spurred on by forced labor, was understanding before the arrival of goods what happens all the way back to the source of the materials that the goods are made from. And they're looking at that in mapping entire supply chains. So when they map an entire supply chain, they can identify anomalies. And that 30 years of ace data used to be looked at manually at customs. They had a few tools that they could look and map things, but a lot of the analysis was done manually. And now through a lot of the sourcing tools, these mapping tools came AI analysis capabilities. So CPP can now look at an entire supply chain and understand anomalies, not just in the goods arriving, but before for that, which is extremely important.
I can go back to that, you know, metal cup analogy. If you had a metal cup and you said this is all made of steel, and you do the steel 230t tariffs and claim that. But CBP looks at that and looks at their map, the entire sourcing map that they have, and say, you know what? We see three aluminum suppliers here. Why are you claiming this is all steel? Steel? And they'll start asking questions of the importers based on the data analysis that they have in the entire supply chain mapping, that also becomes key, as Greg had mentioned, in country of origin determinations. When you have that map and you can see the entire supply chain, you can make some assumptions on where those manufacturing processes are actually happen.
So if that last country of origin that someone slept on that metal cup was nearly pre printing something on the outside and they said, oh, this is now country of origin, Vietnam, because we printed something on the outside when the entire manufacturing process before that came from China.
Now Customs has some teeth to dig into that. So it's really going to be important for importers to understand and look at some of these new tools that are out there to understand their entire supply chain and look at anomalies. Because I can guarantee you that U.S. customs is doing that and U.S. customs is sharing that data with other customs authorities and they're saying, hey, we're seeing that there's a manufacturing process here.
Do you support that with your import and export declarations? And they're comparing that information.
So as both have indicated before, understanding that entire supply chain and linking all of those systems is so important moving forward. And I really do think that's where, you know, we're kind of headed next as a customs industry is not just the arrival of the goods, but helping importers understand where their goods came from and all of the manufacturing processes and all of the country of origin inputs that will happen. So Customs is looking at that and some of their pilots here in the US And I'll be interested to see if some of those pilots. Pilots are then copied around the globe.
[01:02:15] Speaker D: Greg, before we move to our final act, a question for you on technology and enforcement. From DHL's perspective, how important is it for Customs authority to harmonize digital systems across jurisdictions and what progress, if any, are you seeing towards that goal?
[01:02:32] Speaker B: Ideally, it would be wonderful, of course, if there was a harmonization between, you know, at least a critical mass of countries where they could agree on common data sets. Right. Whether it's for the clearance process or other government agency processes, I mean, that would definitely be an enabler of trade. It would simplify things, it would reduce the cost, particularly for smaller companies. So I think as an ideal, it's excellent idea. Something that, you know, has been talked about has been moved to a greater or lesser degree of success I think throughout the world. If we look at say, asean, they have been working on various ASEAN integrations for at least 20 years now. A few of those are now in place and are somewhat active. Many of those are still in progress after 20 years. So I think it's difficult because the interests of countries is, you know, they don't necessarily align. And the same country's interests, if it's acting as an exporter, may have a different interest if it's acting as an importer. And so to try to reconcile all of those things and bring it into, you know, something that can actually be worked on then by IT folks and make something seems to take an awful lot of time. But we remain hopeful.
[01:03:54] Speaker A: And I would add on to that, it's not just the customs authorities, it's all the other government departments and their requirements. Because that's where I find the most anomalies. What Australian, you know, agriculture wants versus what US Agriculture wants versus what Canada agriculture wants completely different. And those agencies haven't come together in the same way that the customs agencies have. So it's, it's a huge barrier.
[01:04:20] Speaker D: Thanks for those insights, guys. I'd like to finish up by asking each of you the same question. Looking ahead five years, what is the single biggest shift you expect to see in global trade and customs? Cindy, do you want to take us away?
[01:04:36] Speaker A: Yeah, I would say more data is going to be required earlier in the process.
DBP and other government agencies as well as around the globe are going to require greater visibility into the manufacturing processes to ensure that you're declaring your goods properly. And I see continued higher levels of enforcement based on that data and based on individual country interests. So those are the three things I think are coming.
[01:05:02] Speaker B: I would definitely echo everything that Cindy just said. I mean, I think that, you know, what maybe the trade is not yet prepared for is the impact of the enforcement systems of AI based, particularly enforcement, where, you know, the AI cannot, not only is it able to look for, you know, gaps or patterns, but it is able to increasingly assess, you know, whether or not whatever that data input, whatever that field says makes sense in the greater context of all the other data that it has. And that's something that, you know, to be honest, a human officer could never do, right, would never have the ability to compare not only what that same importer has done or not only what that same importer's, you know, upstream supply chain may look like according to the data, but also to compare it against peer companies right in their supply chains and the data that it has on a peer company. And we've seen already some countries start to implement some really sophisticated AI based risk management systems. And I can only imagine that that's, they're going to continue and accelerate and it means that, yeah, importers, exporters, ourselves as customs brokers, everyone involved in the trade really is going to have to operate at a different standard of quality of data quality than we ever have in the past.
[01:06:18] Speaker D: And Stephen, what's your biggest, single biggest shift you expect to see in global trade and customers in the next five years? I would be very aligned with everything.
[01:06:26] Speaker C: Greg and Sidi said. So I think the shift will be from paper driven fragmented compliance to real time data driven oversight. I think over the next five years we'll also see customers move more decisively. Digital era, I think Greg has mentioned in relation to their use of the AI, from a risk perspective we'd see that.
I think that shift will change the whole dynamic. Compliance stops being about filling forms and starts being about data quality and trust. And those who can provide clean data, have it reused across borders, will move faster and cheaper. So I think the future of trade won't be decided by tariffs or trucks. It'll be by whether your data is trusted enough to cross that border.
[01:07:08] Speaker D: Thank you very much. That's it for today. Cindy Allen, Greg Nicholls and Stephen Tracy, thank you all for joining me.
[01:07:14] Speaker B: Thank you, Mike.
[01:07:15] Speaker A: Thank you.
[01:07:16] Speaker D: Much gratitude as ever to Karen Ball and Tom Matthews for their production skill. We'll be back soon. And Mike King, thanks for listening to the Freight Buyers Club.
