In a recent post we discussed the World Bank Logistics Performance Index (LPI) for 2018. Mexico ranks 51st overall with customs clearance as the lowest category. As Mexico is the US’s 3rd largest trading partner, this can cause delays and frustration for traders. Here are some takeaways from a US Commercial Service webinar that may be helpful in understanding the process.
Mexican Importer of Record (IOR)
very rare for foreign company to be MX IOR
MX IOR is always liable for duties/taxes and compliance with non tariff barriers
MX brokers have significant liability, explaining their caution and due diligence which can become red tape and delays for the US exporter
MX IOR must have tax registration number and be listed on importer registry
Classification and Valuation
HTS code up to 6 digits same as other countries but subject to customs verification
MX uses 8 digit codes so last 2 digits are unique to MX
MX broker verifies or determines correct code and non tariff barriers
Valuation determines duty/tax according to MX law based on WTO rules (TV- Transaction Value, etc)
Non tariff barriers are regs not related to taxation such as trade agreements, anti dumping, etc
Binding rulings can be requested for classification, valuation or NAFTA rules of origin
When Are Goods Seized?
unauthorized port of entry used…mostly contraband
failure to comply with non tariff barriers
goods not declared on entry docs including errors
false name/address of IOR or false invoice
undervalued goods
Frequent Issues for MX Customs
Origin verification for US and CA companies claiming NAFTA preference
Failure of exporters to respond to questionnaires from MX customs
Exporters address different from address on NAFTA cert
Exporters lack of knowledge about NAFTA rules of origin
Lack of original records
MX Customs Recommendations
Know your MX buyer and their customs broker
It is OK to contact MX customs for info…they will reply in English
Make sure NAFTA certificates of origin are accurate….many exporters simply guess
Keep original copies of documents….MX customs will only verify using original docs
Make sure to respond to questionnaires or requests from MX customs within 30 days
Communicate before goods are seized or litigation begins…best to use a MX attorney
Remember, prior notification to avoid liabilities does not exist in MX as it does in US
Surprised? Check out these logistics rankings… The World Bank has posted their Logistics Performance Index for 2018. The index benchmarks 6 areas of performance and gives nations a score from 1-5 for each area.
The benchmarks are 1) Efficiency of customs clearance process, 2) Quality of trade related infrastructure, 3) Ease of arranging competitive pricing for shipments, 4) Competence and quality of logistics services, 5) Ability to track and trace shipments, and 6) Timeliness of shipments in reaching destination within scheduled time of arrival.
For 2018 the US ranks 14th overall, down from 10th in 2016, with an average score of 3.89 for the 6 benchmarks. The highest US score is 4.09 for tracking and tracing, and the lowest is 3.51 for ease of arranging international shipments. This may be due to the wide variety of services available to US traders which can make comparisons more complex.
Mitch Kostoulakos, LCB YouLicensed Customs Broker, International Logistics Consultant
Hi Tony, these are good tips. I would add share your shipping profile (volume, frequencies, lanes, freight characteristics) with prospective carriers. Holding back this info won’t get you a better deal.
Most logistics service providers (LSPs) present clients with monthly reports touting their on time delivery percentage. It is easy to become complacent when LSPs routinely report 97-99% on time service after taking exceptions for weather and other factors.
Why not challenge them to measure absolute performance failures instead of percentages? In a high volume operation even a small percentage can mean a lot of late shipments and unhappy customers. In a smaller operation with fewer customers every shipment is critical. If LSPs can track and report percentages they should be able to do the same for absolute numbers of shipments.
Finally, if you are an LSP, remember that you have a client on both ends of the shipment so service failures have twice the impact. Different metrics are like fresh eyes on an operation.
INVENTORY AT MULTIPLE LOCATIONS: THE SQUARE ROOT RULE
This technique is useful in determining the effect on total inventory levels when adding or reducing distribution centers.
The analysis assumes that total demand remains unchanged. The goal of this analysis is to approximate the aggregate inventory at multiple facilities by multiplying the square root of the number of facilities by the inventory previously stored at a single facility. X2= (X1) (Square root of n2/n1) where n1= number of existing facilities n2= number of future facilities where n2>n1 X1= total inventory in existing facilities X2= total inventory in future facilities
Example: A company distributes product to its customers in the southeastern US from a single facility in Atlanta, GA. It is considering opening a second facility in Nashville, TN to help serve the same market. Assume that average inventory levels at the Atlanta facility are 10,000 units. n1= 1 existing facility n2= 2 future facilities X1= 10,000 total units in the existing facility X2= total inventory in future facilities = (10,000) (Sq root of 2/1) = (10,000) (1.4142) = 14,142 units
Whether your logistics provider is a motor carrier, freight forwarder, customs broker, or warehouse, good customer service is essential. While information is almost always available at your fingertips, action requiring human intervention can be elusive. Logistics managers deal with changing schedules, equipment failures, weather delays, regulatory issues, and miscommunication on a daily basis. Most problems, however, are not new. The same situations tend to repeat themselves so they can be anticipated. Developing a set of problem solving protocols for the most common issues in your supply chain will save you time since you will not be starting from scratch when a problem arises. It will also enable your colleagues to act in your absence. A basic protocol defines the problem and lists steps to be followed as well as the resources involved. Your logistics providers can help by providing relevant operations contact info for the identified problem areas. Your account rep should welcome the opportunity as it will save them time as well. Update protocols as needed and make them part of your account review meetings. Finally, if your account rep says “Just call me” don’t accept this response.
I came across the term “wicked problem” in the text for an International Supply Chain Management course. A wicked problem involves multiple stakeholders, each with different interests and values. As a result, there is no single common goal , no clear mission, and no universal solution. Any solution, after being implemented, will generate waves of consequences and can result in making the problem worse. A suggested framework for tackling a wicked problem consists of 4 levels of increasing complexity: Level 1- Process Engineering and inventory management. Level 2- Assets and Infrastructure. Level 3- Organizations and Inter-organizational networks. Level 4- the Macro Environment- PEST (Political, Economic, Social, and Tech). Fortunately, not all logistics problems are wicked problems. In most cases logistics problems are tactical and can be solved using Level 1 and 2 solutions. Supply chain issues are strategic and more complex so best suited to Levels 3 and 4. *Global Logistics & Supply Chain Management
Incoterms (continued)
Contrary to popular belief Incoterms do not cover title to goods, ownership, or invoice payment. They do cover obligations of buyer and seller for payment for insurance, transport, export and import clearance, and division of other costs of storage or delivery. Incoterms will be updated again in 2020 by the International Chamber of Commerce.
Senior Editor, Trucking and Domestic Transportation, The Journal of Commerce5d • EditedThe hashtag#bankruptcy of 101-year-old New England Motor Freight was a shock and a wake-up call for those who expected less volatility this year.
Mitch’s LinkedIn comment today:
Thoughtful analysis and right on target…traditional LTL carriers achieved efficiencies mostly thru managing labor costs…still important but real gains in efficiency will come via technology…
International Logistics Consulting; Licensed Customs Brokers
