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 Show Date: 2/25/2008
 Segment 3 Ė Current Issues in Importing Ė Kelby Woodard

Colette: Weíre speaking with Kelby Woodard of TradeInnovations.com about current issues in importing and how they impact online sellers.

Colette: Kelby, we were talking about importing a diversified source of products from multiple countries. There has got to be some sort of standardized trade data or something that can benefit online sellers in helping them deal with a lot of overseas suppliers, is that the case?

Kelby: Well, thatís correct. Certainly, the entire world has gotten together and created what is called the Harmonized Tariff System, so technically, if youíre importing a widget from China into the U.S. or importing the same widget from South Africa to Saudi Arabia, the same tariff code, meaning the same data reported to customs is universal. As long as you can prove that thatís the same description thatís in the Harmonized Tariff System. So thereís that aspect of it, there is a harmonization going on today of particular items. The problem is itís a pretty complex world, being able to make sure that you put it in the right tariff can be a problem, which is typically why most companies, when they begin to import, use a customs broker to do that job for them. There are many regulations, thought, that are unique to countries, and the U.S. is probably the most unique and the E.U. would come in second. Because those more advanced economies typically have much more regulation associated with trade than other countries do. For instance, some of the rules for importing into the U.S. include providing manifest data of cargo coming into the U.S. 24 hours before that cargo is put on a vessel bound for the United States. Most countries donít have that requirement. So if you can import into the U.S. and you get all of the regulations and requirements into the U.S., with the exception of the E.U., you pretty much have it down for any country in the world.

Colette: What would you recommend is the best way to find a customs broker or freight forwarder thatís experienced in working with this type of imports and how they can actually help online sellers?

Kelby: Well, the absolute best way is to have somebody recommend one to you. But when you donít have that as a luxury, the next best bet is to use a very large one until you gain more experience in the importing process. So companies like FedEx do a very good job for small parcel, for those smaller shipments going back and forth. And as you begin to get your feet wet on the importing process, using a FedEx or a UPS or a DHL Express, those companies do a very good job of that. Itís when you become more sophisticated in your approach that you want to consider things like filing those entries yourself and avoiding paying a customs broker. And those kinds of ideas become much more apparent as you grow in size and your volume grows for importing and exporting.

Colette: Does Trade Innovations provide customs broker services, or maybe you can speak a little bit about Trade Innovations and what services you do provide?

Kelby: Sure. We provide whatís called a direct filing service. Itís basically a software very similar to a TurboTax. So if youíre filing your own income taxes here in the U.S. a lot of people use TurboTax because itís a fairly simple process and itís almost idiot-proof. If you try to make a mistake it notifies you, hey idiot, youíre making a mistake.

Colette: (Laughter).

Kelby: So we have software thatís very similar to that for customs entry. But our primary business today is consulting, is helping companies understand the regulations, helping them find the right suppliers and the right sourcing around the world is our primary business today. And our focus really is on small to medium size companies who tend to get ignored by the big customs brokers and the big freight forwarder who, in a lot of cases, try to take advantage of their naivety or their lack of experience in this area. So thatís primarily what we do today.

Colette: That sounds like a wonderful service that you provide. Letís talk a little bit more about customs brokers and freight forwarders. What should sellers expect from the customs, what are those basic things they should look for when they are evaluating hiring on a customs broker or a freight forwarder?

Kelby: Okay. Let me start by clarifying one thing on the customs broker; there is not a requirement in the United States that you use a customs broker. You, as a U.S. corporation or a resident corporation in the U.S. or a resident individual in the U.S., have the ability to file an entry all by yourself, just like you would your income taxes. However, for the most part, especially smaller importers tend to use a customs broker for the expertise so they donít have to deal with some of the things that weíve been talking about. So when you select a customs broker, hereís what you should expect: you should expect that they are classifying your merchandise correctly; that they have all the right partnerships around the world to make sure this transaction can occur seamlessly and smoothly; and that you trust them, and I think thatís the primary piece, itís the hardest piece. Because you have to be able to trust that theyíre going to act in your best interest and arenít going to just make a quick transaction thinking they can make some money off of you and not worry about any issues you may face as a result of their mistakes. And a lot of times customs brokers, just like anybody else, make mistakes. Accountants make mistakes on your income taxes. In the same way, brokers make mistakes on your entry into the U.S. The bottom line is that when they make those mistakes youíre the one left with the liability with customs because customs looks at you as being the importer and all the customs broker did was help to facilitate the process. So you cannot outsource your compliance or your liability. All you can do is find the right person to help you with the expertise to help you with that import process. This is probably a good point too to talk a little bit about the small parcel, the FedEx kind of brokers and the UPSís. A lot of times they like to, on smaller shipments, be considered the importer of record. So if youíre bringing in, letís say, a few cartons of merchandise from somewhere in the world, those cartons going through the small parcel process at FedEx, FedEx usually becomes the importer of record. The problem with that is if those shipments were, as I described before, the counterfeit watches as an example, you are still personally responsible, not FedEx, for all the fines and penalties and being able to prove to customs that it wasnít counterfeit or that when they ask for record keeping all that comes from you. So you have to be very careful with that. As long as youíre the importer, sometimes it doesnít matter whether youíre listed on the customs entry as the importer of record or not, youíre still held liable and responsible for it.

Colette: Right, and that makes perfect sense. So these small parcels, this is one package, a pallet load, what would be considered a small parcel where FedEx would be the importer on record, as you said?

Kelby: A lot of times it depends upon the value of the product as well as the size of the product. So if youíre bringing in a container load, if youíve got enough to fill a 20-foot ocean container or a 40-foot ocean container, that is an example where youíre going to be the importer of record. FedEx does not want to take on that responsibility. But if youíre bringing in smaller items and less valuable items, somewhere in the neighborhood of $5,000 and less, typically the FedExís of the world like to be the importer of record because it makes their process smoother. Now, youíre paying for that as a service and itís almost a default service. You have to call them and tell them you donít want them to be the importer of record, but it makes their life easier when they are the importer of record on those smaller shipments. So it depends upon the company youíre dealing. FedEx has different rules than UPS. But for the most part if itís in the $5,000 and under value range those kinds of companies are typically the importer of record.

Colette: Weíve talked a lot about how we involve customs brokers and freight forwarder and all these elements, paperwork, there are so many things you have to deal with between Point A and Point B, so is it really realistic to expect in the near future for drop shipping from overseas manufacturers to really become competitively priced to the point that itís really feasible for a small home-based internet seller?

Kelby: Wow, thatís a very good question. If you are a small home-based internet seller, then you really have to take a very strong look at whether or not this is something you want to be involved in, because the liability does exist. There is a breaking point at some point where you want to stop paying the margin of the domestic to the drop shipper because it can be a very significant margin. And once you gain that volume and that sophistication, thatís when you really want to look at importing. But I think you bring up a good point, itís not something to get into lightly. There are significant benefits to it from a financial standpoint, but the downside is if you donít have the sophistication and really the attention to detail needed to be a direct importer, then you can get yourself into a lot of trouble. So thatís a very good point, I think.

Colette: You know, weíre hearing a lot in the news, all this upcoming elections and whoís going to win the next election, Democrat or Republican administration in 2009 and, really, every time the administration changes there are all sorts of requirements and laws and regulations that end up just kind of domino effect that come through the line. Is there potential for this to really impact importing requirements as well?

Kelby: Yes, there certainly is. Regardless of your political persuasion here in the U.S., if there is a democratic administration elected in November, as you mentioned, there will be some changes. Because, obviously, the philosophy the republicans have had over the years is not the philosophy of the democrats, so theyíll want to make sure and make their mark on everything from international trade to social security. And if you listen to the candidates the republican candidates tend to talk about more of the same from the trade standpoint, so thereís more stability in what would happen under a republican administration versus a democratic. If you listen to the democratic presidential candidates, they like to talk a lot about how free trade agreements have not been good for the U.S. market and the U.S. economy and there is a lot of talk of NAFTA and whether NAFTA is beneficial or not. And the democratic candidates are fairly open about saying that those kinds of free trade agreements are not good for the U.S. whereas republican administrations have typically said they are good for the U.S. Also, the democratic congress that weíve had over the past 18 months has been very active in creating more regulations regarding the import process. They have seen that the republican administration and their viewpoint has been more lax in enforcement measures and relying more on the importers themselves to self-police. And the democrats in congress today are very focused on increased regulation in this area as opposed to voluntary self-policing. So I think again, I certainly wouldnít want to change your mind one way or the other on how to vote, but there will be significant changes under a democratic administration if that were to come about in November.

Colette: Well, either way youíre going to see your importing requirements are going to get stricter. No matter what niche you are importing is a great feature whether you do it from China or whether you do it from any other country in the world. But you just have to be aware, you have to know what those requirements are whether you work with a customs broker or freight forwarder or you do it on your own and you go visit that country and figure it out for yourself.

Kelby: Right.

Colette: Thank you so much, Kelby, for being on the show again.

Kelby: Thank you for having me.

Colette: Itís wonderful to have had you on the show so we could finish out all the things we wanted to discuss with you. Please check out Kelbyís site at TradeInnovations.com to find out a lot of great information about all these importing requirements even as they change. Kelby, thanks so much. Coming up next, our Product Source of the Week segment, when Product Sourcing Radio continues. Iím Colette Marshall.

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