Novozymes: Customs Compliance and Leading Practices

Novozymes:  Customs  Compliance  and  Leading  Prac9ces  

2.  Cost  Drivers  

3a.  Leading  Prac9ces  

3b.  Areas  of  Opportuni9es  

v Contacted  and  interviewed  SCRC  companies  

v Analyzed  raw  data  

Valida&on  &  Feedback    

v  Foreign  Trade  Zones    are  recommended  for  further  inves9ga9on  by    NZ  or  future  SCRC  projects    

NZ  Sponsor:  Jack  Haller          NCSU  Faculty  Advisor:  Tracy  Freeman          NCSU  Student  Team:  AnneMe  Gustafson,  Katharina  Peter  

Leading  Prac9ces  

Custom

s  Com

pliance  

Project  

Par&cipants  v  Hanesbrands  Inc.  v  John  Deere  v  Caterpillar  v  Lenovo  v  GlaxoSmithKline  v  Bayer  CropScience  v  NAACO  

Educa&on  v  C-­‐TPAT  and  ISA  Cer9fica9on  v  Webinars,  seminars,    

annual  conferences  and  professional  associa9ons  

v  Exper9se  from  in-­‐house  legal    department  and  customs  brokers  

v  Intensive  training  programs  v  Hire  outside  consultants  

Resources    v  Internally,  par9cipants  employ  an  average  of  8    

persons  that  are  solely  dedicated  to  the  customs  compliance  process    

v  Addi9onally,  71.4%  of  companies  employ  in-­‐house  customs  brokers  

v  Externally,    100%    of    respondents  u9lize    an  average  of  3  outside  customs  brokers      

Metrics  Management  v  85.7%  of  have  metrics  in  place  v  50.0%  of  companies  with  metrics  

admit  that  they  need  more  and  are  in  the  process  of  inves9ga9ng    

v  The  remaining  50.0%  have  26+  metrics  that  they  use  only  for  the  customs  process    

v  Examples:  

v  85.7%  outsource  the  calcula9on    of  du9es  

v  57.1%  outsource  the  payment  of  du9es  v  100%    classify  their  own  products;  

however,  28.6%  of  companies  outsource  this  func9on  because  they  have  created  and  implemented  a  classifica9on  database  system  

v  A  combina9on  of  methods  is  used  to  monitor  the  process.  The  most  popular:    in-­‐house  legacy  system,  customs  broker  interface,  GT  Nexus,  and  manual  entry  

v  100%  of  companies  reported  great  visibility  of  the  customs  process  

v  100%  outsource  customs  filings      

Area  of  Opportunity  Foreign  Trade  Zones  (FTZs)  were  a  consistent  topic  that  came  up  during  the  interviews.    71.4%    of  companies  operate  FTZs.  The  remaining  companies  reported  FTZs  as  a  poten9al  area    of  opportunity.  Foreign  Trade  Zones  are  recommended  for  further  inves9ga9on  by  NZ  or  future  SCRC  projects.      What  is  a  FTZ?  According  to  the  Na9onal  Associa9on  of  Foreign  Trade  Zones  (NAFTZ),      “A  FTZ  is  an  area  within  the  United  States,  in  or  near  a  U.S.  Customs  port  of  entry,  where  foreign  and  domes>c  merchandise  is  considered  to  be  outside  the  country,  or  at  least,  outside  of    U.S.  Customs  territory.  Certain  types  of  merchandise  can  be  imported  into  a  Zone  without  going  through  formal  Customs  entry  procedures  or  paying  import  du>es.  Customs  du>es  and  excise  taxes  are  due  only  at  the  >me  of  transfer  from  the  FTZ  for  U.S.  consump>on.  If  the  merchandise  never  enters  the  U.S.  commerce,  then  no  du>es  or  taxes  are  paid  on  those  items.”    Ac&vi&es  permiEed  in  FTZ  Assembled                              Tested                                                  Sampled                      Relabeled                                  Manufactured*                  Stored  Salvaged                                      Processed                                      Repackaged  Destroyed                                  Mixed                                                  Manipulated  *must  get  special  permission  from  FTZ  board  for  manufacturing    Benefits  of  FTZs    v  Deferral,  reduc9on  and  possible  elimina9on  of  du9es  v  Tighter  inventory  control  that  may  virtually  eliminate  year-­‐end  inventory  loss  adjustments  v  Poten9al  direct  delivery  benefit  reduces  long  hold  9mes  at  crowded  ports  of  entry      

Background  Novozymes  (NZ)  is  a  biotechnology  company  with  a  global  supply  base.    NZ  currently  has  major  trade  rela9ons  with  Denmark,  China,  and  Brazil;  to  name  few.  Jack  Haller,  Logis9cs  Manager,  outsources  the  import  process  to  logis9c  service  providers  (LSPs).  Past:  NZ’s  former  global  freight  forwarder  acted  as  customs  broker  for  NZ’s  LSPs.    Changes  in    the  global  freight  forwarder’s  business  model  lead  to  difficul9es  in  the  import  process,    including  delays  and  increased  costs;  therefore,  NZ  terminated  the  contract.    Present:  NZ  collaborates  with  three  LSP’s,  which  are  responsible  for  clearing  their  own  freight  through  customs.  This  has  prompted  Jack  Haller  to  request  informa9on  on  customs  compliance  and  leading  prac9ces  among  various  industries.    

Costs  in  the  Customs  Compliance  Process  Charged  by    the  U.S.  Customs  and  Border  Protec&on  (CBP)  

Type  of  Cost     Defini&on  of  Cost     Freight     Cost  Base     Cost  Calcula&on    Harbor  Maintenance  Fee  (HMF)    

Commercial  cargo  from  a  commercial  vessel  is  charged  a  port  use  fee  when  shipped  through  iden9fied  port    

Ocean  freight    

According    to  value,    without  maximum  fee    

-­‐  0.125%  of  the  entered  value    

Merchandise  Processing  Fee  (MPF)    

Fee  charged  to  process  merchandise  entering  and  ensure  compliance  with  customs  and  trade  regula9ons    

Ocean  &    Air  freight    

According    to  value,    with  maximum  fee    

-­‐  0.3464%  of  the  entered  value  

Import  Duty  Rate    

Taxes  collected  on  imported  goods    

Ocean  &    Air  freight    

According    to  value,    without  maximum  fee    

-­‐ Percentage  of  the  entered  value  based  on  duty  rates  as  classified  in  the  Harmonized  Tariff  System  (HTS)      

-­‐ Most  of  NZ’s  products  fall  under  Chapter  35  of  HTS  (Albuminoidal  substances;  modified  starches;  glues;  enzymes),  which  are  free  of  charge  

Payment  Procedures    The  customs  broker  pays  all  the  fees  and  du9es  on  behalf  on  NZ.  The  fees  need  to  be  paid  within  a  10-­‐day  9meframe  upon  the  entry  of  the  goods.  If  the  10-­‐day  statement  is  exceeded,  customs  will  charge  penal9es  ranging  from  $100  -­‐  $200.      

1.  Process  Map   2.  Cost  Drivers   3.  Leading  Prac9ces  

4.  Area  of  Opportunity  

v  Interviewed  v External  research  v  Interviewed  

v LSP  1  v LSP  2  v LSP  3  

v LSP  1  v LSP  2  v LSP  3  

Objec&ves  1.  Develop  a  standardized  process  map  to  increase  visibility  of  import  process      2.  Create  a  guide  to  cost  drivers  to  enhance  cost  transparency  3.  Conduct  interviews    with  SCRC  companies  to    understand  current  leading  prac;ces  4.  Provide  areas  of  opportuni;es  to  improve  current  customs  compliance  process      

Process  Map  for  Air  Freight:  Mapping  Symbols  Step  or  ac9vity  

Input  or  output  

Transporta9on  ac9vity  

Decision  point:  “yes”  or  “no”  

Inspec9on/Examina9on  

Outcome  for  faster  path  

Outcome  for  slower  path  

Manual  flow  Electronic  flow  Risks  &  Delays  Red  Required  documents  Purple  

Leading  Prac&ces  Report  Our  team  was  tasked  with  inves9ga9ng  the  leading  prac9ces  of  customs  compliance  among  several  SCRC  companies.    The  main  areas  of  focus  were    

v  Accurate  data  sent  to  customs    

v  Pre-­‐clearance  of  cargo  v  Post-­‐entry  audits  v  Entry  volumes  v  ISF  performance  v  Track  entry  by  filer      

Methodology  of  the  Process  

Findings  

 v  What  resources  do  companies  require  to  manage  the  customs  

compliance  process,  both  internally  and  externally?  v  How  do  companies  manage  the  customs  compliance  process?  v  What  metrics  do  companies  use  to  measure  the  customs    

compliance  process?  v  How  do  companies  stay  knowledgeable  about  the  customs  

compliance  process?