Business Implementation with your LSP (Logistics Service Provider)

          Most Traders use one LSP (Logistics Service Provider) for both the Freight Forwarding and Customs Clearing components of their business. Some use separate LSP, one for Freight Forwarding and another for the Customs Clearing. The reasons for the latter may be for cost benefits, to meet buyer or supplier requirements or because of the Incoterms (International Commercial Terms) agreed. There may be more reasons for this but, whichever the case, there will need to be a full implementation of both your Freight Forwarding and Customs Clearing requirements with your LSP.

          Most LSP companies have specific implementation procedures. These may take different forms of SOP (Standard Operating Procedures). Documented procedures will be used to implement your specific requirements for customs and logistical processes. Some information will also be pre-captured onto the LSP internal IT systems.

          As mentioned in previous blogs, the more your LSP knows about your business, the better off you are. In fact, why not invite some of the staff from your service provider to your premises for a guided tour. Take them though your business processes and production line. Show them the product/s you import, produce, process, sell or export. This will help freight forwarding personnel to gain a better understanding of your requirements and unique logistical challenges, i.e. packing space, loading bay restrictions, temperature control, delivery time frames, etc. It will also help the forwarding personnel to guide the Customs Clearing procedures within their own (LSP) organisation.

          Personnel involved in Customs clearing who visit your premises will gain a better understanding of the unique characteristics, features and design aspects of your import or export products. This will help for tariff classification issues which affect the rates of duty and the OGA (Other Government Authority) requirements, i.e. for certificates and permits.

          Any LSP which conducts both of the freight forwarding and Customs Clearing components of your business will generally have a well-integrated communications and document control system to manage your work. A seamless integration of all procedures is achieved. Using different LSPs for the Forwarding and the Customs Clearing components may occasionally have its challenges, especially with regards to document handover procedures.

          The consequences of getting this wrong may impact on your business negatively regardless of who is responsible for errors in the process.

          You will want to ensure that all procedures and requirements are well communicated and implemented with all parties at all times.

Knowledge of Customs Affairs

          I was asked at a conference in Durban in recently whether Customs clients will in the future have to write a Customs exam as proof of knowledge. While this is true for clients wanting to attain the SARS Customs PTA (Preferred Trader Accreditation), it is not true for all Customs clients. Well, not at this stage anyway.

          But it does not mean that if you are not participating in the SARS PTA that you do not need to know more. SARS is increasingly contacting traders, importers and exporters directly. This may be part of a concept known as the Customs-to-Business Partnership. More about this can be found on the WCO (World Customs Organisation) website The concept requires a lot more interaction between Customs and business going forward. It may also have to do with the greater level of accountability that the new Customs legislation places onto traders.

          When Customs do contact you directly, officials expect you to have an understanding of what they are talking about. The Customs Clearing Agent is no longer the sole provider of information to the authorities. This is most prevalent when SARS conducts post-clearance inspections of your books. SARS generally goes two years back in your records. However, in the new Customs legislation SARS audits will go back three years.

          The consequences of not having Customs knowledge may result into incorrect duty assessments. It can cause a lot of pain and financial heartache to resolve issues which arise. A lack of knowledge also causes frustration on the part of Customs officials who find themselves going in circles between the Trader and the Customs Clearing Agent. By the time payment is demanded, very short lead times are provided. Leniency in this regard is also harder to come by.

          So, what do you need to know and where will you find the information? We can take a leaf from the SARS Customs External Guide on Accreditation (SC-CF-07 dated 22 November 2012, which can be found at under “Find Publication”, section 7.3 of the document). SARS requires Traders to have knowledge in the following areas of business:

1)      General issues;

2)      Accreditation legislation and audit (for PT clients);

3)      Tariff Classification;

4)      Valuation;

5)      Rules of Origin;

6)      Prohibited and Restricted Goods and Import Control;

7)      Penalty Provisions and Risk;

8)      Appeals process;

9)      Internal Controls; and

10)    Integrity (also covered);

These are the minimum areas of Customs knowledge that you should have today. The 9 or 10 pages of summaries are a good start to increase your Customs knowledge. We will in any event be discussing these in the blogs which follow.

            Finally, there are a number of Customs Training Providers which offer various forms of Customs training to Traders and Clearing Agents alike.

Elements of Self-Compliance

            Compliance is not about one or two things which if done correctly, assure you a pass. It is also not something that you do in isolation from your LSP (Logistics Service Provider). It is also not something that is simply passed onto a third party LSP believing that they are the sole providers of the respective legislative compliances.

            One of my former colleagues in SARS Customs, a National Customs Consultant would ask me a very basic question time and again. He would ask… “Who is the only person who knows exactly what is in the container at time of arrival in South Africa?” My initial response was… “The importer”. He always clarified the question with another… “Who actually saw the goods being packed?” He explained… “Not the transporter, not the clearing agent, not Customs and not even the importer. It is the supplier”. To add, even if the transporter packed the goods, only the supplier will know the exact nature and characteristics of the goods which were packed.

The importer has a material interest in knowing exactly what is being received for a multitude of reasons. Core to these reasons is so that all parties can be advised on how to meet various commercial and legislative requirements. This makes compliance a joint effort between you and your Logistics Service Providers. The more they know about your product, the better off you are.

            There are a number of elements, or layers if you like, which may be applied to ensure that you consistently achieve the highest level of compliance. While the following is a non-exhaustive list, they include:

1)      Knowledge of Customs affairs.

2)      Advance research of import & export requirements.

3)      Business implementation with your LSP.

4)      Product implementation with your LSP.

5)      Customs Clearance Instructions.

6)      Supporting documents.

7)      Customs licenses, registrations and rulings.

8)      Post audits and re-alignment.

9)      Knowing your rights.

These elements will be discussed in the blogs which follow.

Compliance Economics: 80/20 or 100%?

          Most business people today know about the Pareto principle, commonly referred to as the 80/20 Rule. It was named after the Italian economist Vilfredo Pareto. Pareto discovered that 80% of the land was owned by 20% of the population. He also observed that 20% of the pea pods in his garden contained 80% of the peas.

          The principle is relevant to many aspects of our modern business world today. For example: 80% of sales come from 20% of the customers; 80% of the customer complaints come from 20% of the customers; and so forth.

          The principle also applies to risk management. For example: 80% of the crime comes from 20% of the criminals; and 80% of Customs non-compliance comes from 20% of the Customs client base.

          Most Customs compliance efforts by the authorities today are geared toward the 80/20 Rule. The concept, also spurred on by WCO (World Customs Organisation) is geared ‘in part’ toward trade facilitation.

          In the Customs environment, identifying risk requires pre-and post-audit data, knowledge of one’s client base, a study of market trends combined with current legislative mechanisms and, of-course, a bit of sixth sense. Once validated, place the information into a database containing a series of formulae. What do you have? A Customs risk engine. The objective is to comply with the 80/20 Rule and to facilitate trade. It also allows Customs authorities to utilise resources more efficiently.

          One industry expert explains this with an example. If a hundred fish swam toward a shark, the shark could not possibly eat all the fish at once. The shark will need a system to help it decide which ‘non-compliant’ fish to bite. The balance of the ‘compliant’ fish are allowed to swim past, un-affected.

          Also applicable to this discussion is the concept of non-intrusive interventions. The UNECE (United Nations Economic Commission for Europe) goes into more detail about this. The document can be found at the following link: .

            So, what does this mean for the average trader, importer and exporter? Do you apply the 80/20 Rule when conducting annual self-compliance audits, or do you aim for a 100% coverage? Do you audit every single document passed throughout the year?

          Well firstly, understand that any contravention found by the authorities immediately becomes part of the assessment criteria which gets built into the Customs risk engine. Once you are on the Customs radar it is difficult to escape it. Secondly, understand the industry that you are in. If you are in the clothing and textile industry you should know by now that Customs interventions (at present) are at an all-time high. Expect to be targeted for possible undervalued foreign purchases. Thirdly understand the relative size of your company and the volume of trade you are involved in, in relation to the market. If you are a smaller operator, then expect to attract more attention relative to the size of your operation. If for example you trade in 10 x shipments per annum and 1 x shipment gets stopped by Customs, it will equate to 10% of your trade. You are generally advised to conduct 100% compliance audits. Larger operators who for example trade in several thousand shipments annually may, relative to their size and particular industry be less severely affected.

          With the new Customs legislation it is becoming more apparent that an approach by the authorities toward zero defects is the desired outcome.

          While there is no one size that fits all to the 80/20 question, the answer may depend on how smartly you conduct your compliance approach.