Just when the headaches of 2020 were behind us, 2021 continues on with its own set of issues. Brexit is here, and the world of customs brokerage has all eyes on them as they sort through confusion at the borders of the EU and UK. Nanoh Park, Director of Global Customs at Expeditors, explains why Brexit is so unique from traditional trade agreements and how customs has come into the spotlight in recent years.
Chris Parker (Host): Welcome to the Expeditors podcast, where you can hear about front of mind topics in the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker, and today's topic: The Brexit Switch, Flipped! Since 2017, Brexit has been on the minds of everyone that moves freight, but it'd be hard to argue against the customs world game to claim that lately, they have the biggest headaches to deal with. And they do. Since New Year's hit for 2021, customs between the EU and UK has not undergone an elegant transition, with shipments stalled due to new processes, paperwork, requirements, and ham sandwiches. With me today is the Director of Global Customs at Expeditors, Nanoh Park. Nanoh, I'm going to spare you a crummy joke that I usually ask other people and just simply ask, how have you been doing these past couple weeks?
Nanoh Park: It has been busy, and that would be an understatement.
Chris Parker: Before we talk about how busy you've been, I want to get to know you a little bit more. What's your background in customs? How'd you get involved in it? And what's your journey been like to becoming Director of Global Customs at Expeditors?
Nanoh Park: Yeah, I've been at Expeditors for almost 20 years, September, actually. Started in our Houston, Texas office right after college. After I got married, I was given an opportunity to come to our corporate office in Seattle to, at that time, implement what was known as 10+2 or Importer Security Filing. That really kicked off my customs journey, if you will.
Chris Parker: Well, all right. Then as Director of Global Customs, what are your main responsibilities?
Nanoh Park: Yeah, I oversee the systems for all of our locations around the world, the process, as well as implementing our sales and our marketing strategy for the product.
Chris Parker: All right. Let's go ahead and get started with our topic. I wanted to get an understanding of what customs is, what's the customs process, how it works, and why it's important for trade.
Nanoh Park: Yeah, you can think of the customs process as the final presentation of information prior to goods crossing the border. Historically, it's been the final step, the last milestone of presentation of information and data that's collected and provided to customs. And what customs does with that information is they do two determinations, two major functions, if you will. One is admissibility. Are the goods safe, able to come into a country? And two, collecting duties and taxes.
Chris Parker: And so lately, within the last five years, I feel like I've been hearing a lot of trade wars and things like that. How has the level of visibility for the customs community or the customs industry and the influence that it has changed over the last five years?
Nanoh Park: I would say the biggest change that we have seen is the customs broker has historically been a back office function because it is that final milestone prior to goods entering. It was seen as either pushing paper or, later on, pushing data from one source to another and facilitating the movement of data, if you will. And I would say back in 2005 even, we saw the movement in the trade to really facilitate the entry process through data. Meaning many folks in the trade were sending their brokers information and because at that time, the market, as well as just common practice was, it wasn't a concern on duty and those practices; it was a matter of quickly facilitating information and then delivering the cargo. That certainly has changed in recent years of the role of a broker and what functions we play in logistics.
Chris Parker: And data has become such a powerful thing. If this is the final presentation of data that you said, it makes a lot of sense that it has just gotten a huge spotlight on it. It may not have been as flashy as moving planes or big ships, but it's very important stuff.
Nanoh Park: Oh yes. And data transforms multiple times within a typical shipment from A to B. It goes from an order to an invoice to a shipment. And then in addition to that, it attaches customs formalities as well as customs attributes that get grouped together to form a declaration. The importance of data throughout, as well as understanding opportunities for either cost reduction or improvements in the process, really does present itself with a customs broker in that entry process.
Chris Parker: With customs, I know that a lot of classification is needed to make sure that everything is properly labeled so that when it does arrive, the proper duties and taxes are paid and such. Delays can happen if they're not properly conducted or the process isn't probably completed, and that can affect the pricing and availability of goods for consumers, but what else does it impact?
Nanoh Park: Yeah, that's an interesting question, especially now, when we look at the understanding or the evaluation of duties. And I would say in the last four years, the fact that we have friends and family who understand what a customs broker does, tells you the importance of classification and duty rates in the total price that ultimately the consumer will pay and bear. I think what's been fascinating to see is the calculation of that duty or the amount due to a government. It varies widely based on policies, trade policies, and the political stance of local government.
Chris Parker: Yeah. Actually, that segues right into the next point, because I wanted to talk about before we get to Brexit, is just to get a better understanding of trade agreements and barriers. And I was going to say that it goes without saying that these agreements and barriers are used to make a political stance, whether it's pressuring the government or kind of working towards a common goal. In the news, they sound pretty straightforward. You just hear this passing line that, "Oh, the price of aluminum or it's been taxed a lot, and that will affect jobs." But at the desk level for you and others in customs, how do you handle these changes whenever they come about?
Nanoh Park: One thing that we have seen and noticed in the past is the West, if we consider the West kind of Europe and America, largely used trade policies and trade agreements as carrot. Using that carrot and stick analogy where these trade agreements were set to increase market access and IPR, intellectual property rights. And for the most part, I would say trade agreements are still used in this way. What we have not seen is trade policies, as you stated, as a political stance and a response. And to answer your question on the operational impact, it really brings about both from the importing community as well the brokerage community, a lot of uncertainty, a lot of need to react quickly and to have a solid people, process, and system in place to be able to quickly react to these volatile times and changes.
Chris Parker: Well, we've talked about this enough. I want to actually get to the really crazy stuff that you've been dealing with lately. Brexit, how is this different from the trade barriers and agreements that you've seen rolled out in the past? I know that's a loaded question, but let's start from the top and let's kind of work through it. How has this been different?
Nanoh Park: Brexit really had something that intrinsically from the start, from the referendum when that vote passed on June 2016, when the people of UK said, "We are going to take control of, in part, our trade policy, and trading relations, as well as our borders," that referendum really changed the dynamics of how UK would function. Granted, it took four plus years to get there; we're just starting January 1st of 2021, we're submitting declarations, but in those four years of kind of wait and see, there was lots of conversation around, well, what would this now independent, essentially, country look like? What would its trading relations look like? And that has been probably the biggest challenge. In addition to that, understanding the systems as well as the infrastructure, as well as just what's required in the new tariff, in the new declaration systems? Those are some of the real practical things that we're still working through.
Chris Parker: You mentioned earlier organizations, some organizations took the wait and see approach. Others, I'm assuming then, have prepared. What's been the response overall from organizations in general to handle this abrupt change?
Nanoh Park: The past year, I would say, 2020, for many reasons, have been challenging for the trade community, but especially for our folks in the general EU, UK, Europe. The challenge there has been, is this actually going to happen? And that's been the wait and see for the past four years.
Chris Parker: Yeah, totally.
Nanoh Park: When January 1st of 2020, there was an understanding that in that year of trade negotiation, that was the big thing. Negotiating how these two new entities would work together from a trade perspective. In that year timeframe, what we knew going into 2020 was by the end of 2020, a declaration would be required. And that really became solidified kind of in the June, July timeframe. As entities were preparing for both the separation, as well as the trade, how the two would now trade, lots of changes were made, including forming new entities in the UK, shifting the way that distribution and warehouse functions happened throughout Europe.
Nanoh Park: They may have had a specific Europe channel that sourced everything or distributed everything from London or the UK. Now they had to move that and have a parallel channel of sourcing or distributing Europe/EU versus the UK as an example. The other way that they had to look at it is understanding from a tax liability standpoint of how to operate separately in the UK. And so a lot of preparation has been done from an importing community and an exporting trade community. Then from a brokerage, from our world, we've done significant work in the trade halves to understand the data requirement. To separate out the two systems. To lay out the foundation work of what's required and when is that required, and how will freight movement dictate the customs filing and customs formalities? All of that really had to be studied as to what's happening today and how will it change when there's a new border that's introduced?
Chris Parker: Looking at the organizations that took the wait and see approach or even the UK and the EU and whether it's the clarity or the detail of these new processes and requirements, there's organizations that have taken on the brunt of the stress and the impact. What do the front lines look like really when it comes to brokerage?
Nanoh Park: As an analogy, if our Seattle airport if all at one time domestic flights became international flights.
Chris Parker: Overnight.
Nanoh Park: All of a sudden, Washington became an independent country, and overnight, all flights into Seattle required the infrastructure as well as process to be an international terminal. Every single one. I think it would have significant impact, mostly on certainly the passengers themselves for waiting in queue, queuing up, if you will. But in the processing of how do you vet and declare all the folks who are coming in? You would need passports; you would need- meaning proper authorization and permission, to come and the vetting. Well, if we translate that into what's happening in Brexit, it is similar to that in terms of the need for a proper presentation of an export declaration, as well and equally as important, as an import declaration. And these two things, unlike before, these two things need to oftentimes happen simultaneously because these borders, as you know, the channel there it's so thin.
Nanoh Park: It's just a few hours, and you're in the UK and vice versa. I think that's been certainly a challenge on the ground from a broker standpoint. And a lot of the terminals that were moving and handling cargo, that was once considered EU traffic, did not require an international customs house or government customs official to be present in those locations. Now all of that infrastructure has also changed. What's happening today, if we look at how freight is now moving across the channel, is a lot more communication than ever before. Prior to Brexit, a trucker or a haulier could simply load their cargo and drive, and they could pick any channel that they wanted to go through.
Chris Parker: Because it was all domestic in some regards, right?
Nanoh Park: Exactly. Exactly. They didn't have to present documents anywhere or to get an authorization number to go through, nor do they have the need to actually go through the customs formalities as well. And the truckers overnight are going from a domestic carrier to an international carrier. It was a lot burden is certainly on the hauliers there. I think from a brokerage standpoint, yes, it is the strain of a lot more communication and work that's required. One because it's new and two, because it is still unknown as to exactly what and where and how things need to happen. And all of this will get fleshed out in the next few weeks.
Chris Parker: I joked about it at the very beginning with the ham sandwich. It's going to be little things like that where there's a story of the trucker, the domestic trucker, who came across, who I think they're crossing into, I think it was Amsterdam, or I think it was Denmark.
Nanoh Park: Yeah, it was to Netherlands.
Chris Parker: Or something like that. To the Netherlands. They brought in a ham sandwich with them, and then they were held at the border, or it was confiscated or something. It's little things like that, even of just, it's not even so much the freight that you're bringing with you, it's what you've gotten your lunch bag can I have some serious impact. How do you see this changing the way that trade agreements are negotiated in the future? Is there something that we can look back on this and say, "Well, we're not doing that again," that will kind of influence the way new agreements happen?
Nanoh Park: Yeah. If we look at the EU UK trade agreement, that is unprecedented of how quickly, although all the foundational work was done prior to December 24th. The Christmas Eve agreement was agreed upon and then went into effect eight days later. That timeframe is unprecedented.
Chris Parker: Yeah, absolutely.
Nanoh Park: Typically trade negotiations and agreements go through a much lengthier process, years if you will. I don't know if that is going to set a precedent of how trade negotiations would happen.
Chris Parker: It definitely can be done; whether it should be done is a whole other story.
Nanoh Park: Right. I think what will happen is we will see more multilateral trade agreements. And that has been the trend for the last few years, and we'll continue to see that.
Chris Parker: What do you mean by that multilateral?
Nanoh Park: Multiple countries coming together. Remember five years back, TPP, does that ring a bell?
Chris Parker: Yeah, yeah, absolutely. Yeah.
Nanoh Park: Yeah. The Trans-Pacific Partnership, those multilateral, multi-country agreements, we're going to see much more of that. And UK will also be very active in their trade negotiations, and they already are because they no longer are a part of that EU importing or the EU membership community. A lot more activity there. I think what we have learned as we watched, as we're still experiencing the post-Brexit, if you will, the post-Brexit world is that you have to give yourself time and rely on the data itself.
Nanoh Park: And what I mean by that is before, the lack of border facilitated trades that overnight you could have freight going in and out hours even, going in and out of and between the UK and Europe. But now, it does require these type of formalities to occur and multiple formality. It's not just customs who needs to give you the green light if you will, but you need other government agencies to approve. And different types of quality checks and documentations that may be required. All of which never existed. And we haven't even talked about Northern Ireland.
Nanoh Park: What we know is you have to come prepared, and you have to have people, and system and processes that are flexible to be able to adjust to and respond to this. Brexit we had before January of this year, two other trial runs of this where we thought a hard Brexit was going to happen. And we deployed systems and processes as well as moved resources to prepare for a potential hard Brexit. And we believe not just in the case of what's happening in Europe, but as we look at the trade overall and the direction that it's going, that flexibility and working with a broker community that can understand how to move these moving pieces or how to move these pieces around is going to be critical in your success.
Chris Parker: From the top, it sounds, at the national, the governmental level, politics can definitely speed up the timeline. You said, traditionally and these take years to or can take years, these changes happened over a matter of eight days. That's a lot to anticipate, and a lot of mistakes can happen. And we're seeing that right now. Is the customs community and the brokerage community able to protect itself to get ahead of these hasty decisions and changes?
Nanoh Park: That has been a challenge overall, not just in the Brexit scenario of on Christmas Eve, when we received a copy of the free trade agreement versus eight days later, implementing that free trade agreement. Certainly, there are data elements, as well as reaching out to the importing exporting community on qualifications. Does your product qualify? Does it meet the requirements to take advantage of this free trade? And so that conversation had to happen during the Christmas break. Certainly, I don't foresee that repeating in any other free trade agreement. What we do see happening, which is just as fast and sometimes disruptive, is what has happened in the US and China, as well as US and other governments in this trade war or this trade remedies in terms of responding to the political actions through trade tariff increases. And that has been very disruptive in our world and the retaliatory tariffs along with, and it continues to expand and grow.
Nanoh Park: In the last four years, in fact, the number of lines in the declaration from a US perspective, the number of lines in the declaration has significantly increased because that is how we report or how the government collects additional duties on items that have been levied taxes based on what we call these trade wars. It puts a lot of pressure on the brokers to one update their systems almost overnight in response. And then two, to disseminate the analysis out to our customers on their total impact. And the customers, or in this case, the importing community, has to take action on that. One, they either have to shore up their surety and bond, make sure that they're covered there, that they can cover the additional taxes and duties that are going to be owed. They may make some long term strategies of sourcing, as well as manufacturing response to some of this.
Nanoh Park: Very disruptive. And we've learned a lot. The trade has learned a lot from this uncertainty. And going back to the very first question about the role of the customs broker, it certainly puts an importance of having someone working with a partner who is much more consultative in nature and is looking at trade as a whole and producing data as well as adding value and offsetting perhaps some of these costs with some other avenues of mitigation.
Chris Parker: Having a partner, that consultative partner, I kind of put that into the strategic level of achieving success or considerations for a company. What can customers be doing at the operational level to prevent those delays and confusion at the border?
Nanoh Park: I think a sound communication strategy is important. How is your freight forwarder and your broker going to communicate to one another? And how is the final trucker going to know the freight availability? Certainly in the communication of the various entities is important. And then the second is just in simple good practice of solid documents. Have information readily available and that be passed to whomever needs that information. We took a lot in our own organization about, get the best data from its source. And this concept really carries through when we talk to our importing community about leverage the information where it's best. And whether that be in a piece of paper, whether that be in your internal systems, whether that be held with your 4PL or your consolidator, is to leverage that information, harness that information as early as possible. Because you'll be surprised how the brokerage community's able to key in and prepare the declaration even prior to freight arrival. One of the best practices that we see in the trade is to prep things early. Be prepared. Get things validated and in place before the freight arrives so that you're not reacting.
Chris Parker: Just a courteous heads up. That's all you ask for.
Nanoh Park: Getting the documentation in order certainly is key because one function that people forget is customs. And I'm talking about the government official customs, requires and maybe the only government that requires or only government entity that requires the commercial invoice. The commercial invoice in the world of trade is important because customs wants to see documentation to support valuation, as well as other information about who is the buyer and the seller. And so having documentation from its source gathered as early as is possible and leveraging that against maybe your item classification, product level, leveraging your item catalog, or leveraging your partner catalog, is going to be critical to facilitate a quicker and faster entry process.
Chris Parker: Okay, before we wrap up, let's think about the consumer now. Aside from availability, because things have been turned away or locked up at the border or the price of things to account for taxes and duties that have to be paid, why should consumers be caring or pay attention to these kinds of things?
Nanoh Park: On a personal level, I would say that this has a direct impact on my wallet. When we look at how tariffs are used today in response or to mitigate, we see it certainly impact the way that I purchase. A good example of this is the digital service tax. And more and more, the US government is looking to tax imports from certain countries which have implemented or threatened to implement a digital service tax. And France, one I'm following very closely - although as of January, they have not gone into effect - but as part of the import lists that are going to be targeted, French handbags and French makeup is on that list, which has a potential increase of 25% additional duties.
Chris Parker: This sounds very personal.
Nanoh Park: It is very personal. But overall, as a consumer, it is important to understand how trade negotiations and trade policies really do affect your purchasing power, as well as the relationship that we have with other countries. And I talk about this now with my children or with my parents, who now know what I do for a living, and we have great conversations on why this is important.
Chris Parker: Does it make sense then for consumers to really get to know the brokerage world or what's happening in customs, to have a deeper knowledge? Or I guess, how does this, when you say these conversations are happening even with your own family, what makes sense for the consumer to pay attention to? Should they just be aware of the headlines as they come? Would it behoove us to actively look more deeply into these things?
Nanoh Park: The pendulum swings from enforcement heavy to trade facilitation. And as we look at what's happening in one country, we know that it impacts so many more. A country does not operate singularly. Globalization is certainly the case. And we look at it from a trade perspective of how sourcing and logistics have really become much more complex. But from talking to our families and friends about this impact, it really shows you that no country stands alone. There is this interdependency on how products move and how products support a community. And I think when we say products, it's goods, things that we consume, things that we wear, things that we build all interweave in this magical world of international trade. And I love having the conversation with my own family of textiles. Textile or apparel classification is one of the most challenging. I would say footwear is the most challenging. And I love just breaking them, breaking those tough things down to help people understand historically, why and how, and the impact that it could have. To help everyone think beyond just this is a shoe, but its impact globally.
Chris Parker: If people wanted to learn more and reach out to you, where can folks find you?
Nanoh Park: You can find me on LinkedIn at Nanoh Park or email me at firstname.lastname@example.org.
Chris Parker: Excellent. Well, Nanoh, thank you so much for your time. I really appreciate it. And yeah, take care.
Nanoh Park: Thank you. It was fun.
Chris Parker: I think so, too.
Chris Parker: Thanks for listening to today's episode. If you've got questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed on whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.