Seven Key Things to Consider When Outsourcing Customs Processing

7 Key Things to Consider When Outsourcing Customs Entry Processing

1 Introduction: Outsourcing for Customs Brokers and Freight Forwarders

2 Outsourcing Costs: The More You Outsource the More You Save

3 Flexible Pricing Models

4 Business Benefi ts Beyond Labour Costs Savings

5 Identifying Opportunities: What You Should and Shouldn’t Outsource

6 Service Levels: Speed and Accuracy

7 Eff ective Transition and Implementation

8 Communications Planning: The Importance of Talking to Your In-House Team

9 Choosing the Right Outsourcing Provider

10 About Portway

Contents

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Copyright © 2014 Portway Outsourced Processing Solutions – www.portwayintl.com

These results from the world’s most popular search engine highlight the signifi cant lack of information available to customs brokers and freight forwarders who are looking to outsource certain business functions. There is simply no credible guide to outsourcing for these companies, whose needs are very specifi c – and very complex.

This paper endeavors to outline what’s important for customs brokers to consider when outsourcing, selecting an outsourcing business partner and protecting your business from the risks associated with outsourcing.

As such, there are several critical topics to understand when you consider outsourcing.

7 Key Things to Consider When Outsourcing Customs Entry Processing

1. Cost and pricing: How do providers manage to deliver services at a lower cost than you can internally?

2. Objectives: Outsourcing will provide you with a number of benefi ts beyond simply reducing costs – are you prepared to capitalize?

3. Identifying opportunities: What internal functions should Customs Brokers target to outsource? More importantly, what functions should not be outsourced?

4. Service levels – speed and accuracy: How service levels are set, measured and achieved. Can an outsourcing service provider exceed your current service levels?

5. Transition and implementation: How will you and your service provider transition the functions being considered?

6. Communication and attrition: How much information should be shared and when? Poor communi cation leads to unwanted attrition. Attrition happens, how can you manage it?

7. Choosing the right provider: Your outsourcing service provider should become one of your most important business partners. How do you choose a partner?

Outsourcing may be one of the hottest topics in business today. A search on Google yields 77.5 million results for “outsourcing IT services.” “Business process outsourcing” yields a comparatively small 17.5 million results. But

“outsource customs brokerage?” 134 results. “Outsource customs brokerage service?” Eight.

Introduction: Outsourcing for Customs Brokers and Freight Forwarders

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1.

The most frequently asked question when discussing outsourcing is “how much money will we save if we outsource?” With respect to Canadian customs brokers, you should expect to reduce your direct labour costs by 40 to 60 per cent. When considering labour costs, you should look beyond the salaries of those team members who are preparing customs entries and consider what a reduction in head count will do to the number of managers you have on staff , the eff ect outsourcing will have on your IT costs, HR management costs, occupancy costs, severance costs and others.

When considering costs savings relative to outsourcing, the economies of scale are considerable. In other words, the more you outsource, the greater the cost savings.

It is important to note that there will be some costs associated with managing your vendor or service provider. Your vendor will need access to people in your company to deal with exceptions. In addition, you will need to measure your service provider’s performance on a daily, monthly and annual basis to ensure that service levels are being met.

Cost Savings in Relation to Increased Outsourcing

Moving work to lower cost labour sources like India, the Philippines and Costa Rica, (labour arbitrage) reduces cost. There is some cost to moving the work, including communication and transition costs, though overall, signifi cant cost savings are possible for work that can be done remotely.

Outsourcing Costs: The More You Outsource the More You Save

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Customs brokers typically choose one of the following two pricing models when engaging with an outsourcing service provider:

1. Fee per transaction: As customs brokers typically charge a fee per transaction to their clients (i.e., an entry fee), it makes sense to request that your service provider provide pricing in a similar manner. Transaction fees usually encom pass a transaction fee, plus a linage fee to cover the costs relative to large complex transactions.

This pricing model provides the benefi t of allowing your sales and marketing team and your operations team to effi ciently assess the profi tability of your existing client agreements. In addition, it gives you additional “levers” to pull when bidding on new business. Finally, as opposed to the “fee per agent” model described below, per employee productivity levels are the sole responsibility of the service provider.

2. Fee per agent or (FTE): Most industries that leverage outsourcing models, like banks and insurance companies, are charged on a per full time equivalent (FTE) basis. It is a very simple model that assigns a price to the various FTEs required to perform the work. Typically, the service provider will charge one fee for a rater or entry processor, another fee for a supervisor, a separate fee for managers, etc. In these cases, it is extremely important to consider per employee productivity levels and make sure that your service level agreements with your selected vendor establishes productivity targets.

Other models are available. Some contracts consider a cost plus business model, while others include bonuses when certain key metrics are achieved. The bottom line is that your pricing agreement should be consistent with the way your business operates. It should be simple to calculate the cost eff ectiveness of your outsourcing initiatives.

Customs brokers grow profi ts by driving per employee productivity. The number of entries processed per employee is probably the most signifi cant metric aff ecting profi ts outside of the price you charge your clients. Do you know what productivity levels your fi rm is currently achieving and are you familiar with your competition’s cost model?

Flexible Pricing Models

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2.

1. Flexibility: Outsourcing will provide your management team with a greater degree of fl exibility that will encourage a new way of thinking relative to how you manage and grow your business. Through outsourcing you will be able to re-deploy a portion of your labour budget to execute on those “great ideas” that often don’t get off the drawing board due to the cost of labour.

2. Increased customer service: Customs brokerage employees are highly skilled people that can provide your clients with great value provided they have the time to develop relationships with their clients. In addition to typing customs entries, most employees are required to fi eld client inquiries and provide technical assistance. By virtually eliminating time consuming entry typing, your employees will become more focused on customer service and quality. This will lead to increased employee satisfaction, increased client satisfaction and most importantly it will lead to increased market share.

3. Non-salary HR costs: Recruiting, training, maternity leaves, disability claims, vacation time, employee grievances, weather related events and sick days all contribute to increased costs. As our labour forces age, some of these issues will become more signifi cant. When you outsource a portion of your labour force, many of these issues are signifi cantly mitigated as they become the responsibility of the service provider.

4. Cultural benefi ts: Many in North America and Europe don’t consider “entry level” positions such as typing customs entries as an attractive career option, while a university graduate in India takes a very diff erent view. They see such positions as a long term career opportunities that they and their families can be proud of. As such, employees in emerging markets are more likely to volunteer their time for additional training and overtime.

5. Time zone advantages: In the case of outsourcing destinations outside of the Americas, there is a signifi -cant time zone advantage. Much of the customs work processed overseas is completed during their daylight hours. Work that is distributed to your provider at the close of business today can be completed by the time your staff comes to work the next morning. In addition, processes such as after-hours shipments are largely handled during your service providers’ daylight hours, making employee recruitment and retention much easier.

6. Improved cash fl ow: Developing a Service Level Agreement (SLA) with your provider that requires your customs entries (HVS and CLVS) to be processed within certain time frames will allow you to invoice your clients faster than you do today.

Labour arbitrage typically represents the most signifi cant cost savings, however there are collateral opportunities that arise by outsourcing a portion or all of your entry processing functions:

Business Benefits Beyond Labour Costs Savings

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3.

Customer service should never be outsourced. Customs brokers are service based businesses. The service you provide your clients represents your brand – much more so than your company name, the size of your fi rm, or the resources you can bring to bear to develop new products or tackle emerging issues. In addition to customer service, any function that has a direct effect on your intellectual property, product development, sales and marketing, etc. should be kept in house.

Customs brokers, like any other industry, should target functions that are:

· Rule based and repeatable

· Consume a signifi cant portion of your labour expense

· Consume a disproportionate of your recruiting and training resources

· Going to be most aff ected by a shrinking labour market

· Reside in geographies that are experiencing tightening labour markets (e.g., Quebec, Ontario, Saskatchewan, Alberta, British Columbia)

While there are many functions within the customs brokerage industry that meet the criteria listed above, there are a few functions that make up the lion’s share of the work that is being out -sourced today:

· Courier Low Value Shipments (CLVS): Repeatable, low risk, cash fl ow intensive and cumbersome to manage, CLVS often represents the starting point when considering outsourcing.

· High Value Shipments (HVS): The “big hairy entries” with multiple lines and multiple invoices are time consuming and cash fl ow intensive. Often brokers don’t get the fees required to process these types of entries at a margin that is equivalent to “one-line” transactions.

· After Hours Transactions (AHS): Providing your clients with 24 / 7 service coverage is essential but costly. In addition, managing employees in the wee hours of the morning and on weekends and holidays is cumbersome.

· PARS and PAPS Call Centres: In a post 9 / 11 environment, fi elding driver inquiry calls for PARS and PAPS shipments on a 24 / 7 basis has become increasingly costly.

There are certain customs brokerage functions that lend themselves to outsourcing more easily than others. With this in mind, it may be more important to identify which functions should not be considered for outsourcing.

Identifying Opportunities: What You Should and Shouldn’t Outsource

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4.

You should understand the diff er ences in services. While response and reso lution times for high severity issues are usually faster than legacy environments, low severity issues are often slower. Examples of a high severity error would be any failure that keeps employees from doing their job.

Some examples of service levels relative to the customs brokerage industry are:

· That all CLVS transaction to be completed within 48 hours of receipt

· That a percentage of all CLVS transactions to be audited by vendor and audit results to be shared with client

· That all PARS shipments to be completed within 2 hours of receipt unless ETA dictates it needs to happen immediately.

The list can go on and on. Remember that service levels are not free. Raising the bar on any service level may result in a higher cost. Raising the bar during transition will likely result in a change order, revised pricing and can potentially impact your business case. Working with a vendor that knows your business and has real life customs brokerage experience will help avoid any issues when establishing appropriate service levels.

Service levels in an outsourced environment are often more rigorous than in-house delivery. Because an outsourced environment is driven by contracts and outside staffi ng, it will likely be more tightly controlled than your previous in-house staffi ng.

Service Levels: Speed and Accuracy

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5.It is important, from the beginning, to understand how long a transition you should expect for your unique program. It will likely take a couple of months, and possibly longer.

Your outsourcing partner should be able to provide guidance; most will be able to provide a tried-and-true plan outlining a simple transition program that covers every stage from planning through to the fi nal program handoff . However, your partner will not have the detailed knowledge of your organization and its culture, so it will be up to you to map out a more detailed plan that is specifi cally tailored to your team’s needs. That plan should include training, some knowledge transfer and testing, and the updated or new processes to support them.

Knowledge transfer will be one of the more challenging aspects of the transition, particularly if there is an incumbent service provider. However, even if the outsourced functions are currently performed in-house, there are challenges. Employees may be required to facilitate the transfer of knowledge even as they are carrying out other day-to-day responsibilities, so planning is key to ensure quality and service aren’t compromised during this time. Partnering with a provider who specializes in customs brokerage and freight forwarding services is a tremendous benefi t. By choosing a provider with customs brokerage experience your fi rm will not be required to transfer customs knowledge. Eg. NAFTA, tariff treatment, classifi cation etc.

Effective Transition and Implementation

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6.

Transparency is one of the keys to communications success, so the earlier you can communicate to employees that an outsourcing arrangement is in consideration, the better. While this level of transparency may be new to some organizations, it is a recommended practice. Employees in the know feel safer, more empowered, and more valued overall. Beyond that, this is news your employees should hear from their management team. Not sharing the information early on could mean that someone else will “leak” the news to your staff , and probably not with the tact or accuracy you’d like.

Developing an early communications plan is a smart move that will payoff in the long term. Don’t wait until all your “i’s are dotted and t’s are crossed.” Start early and be honest about where things stand. Let employees know that you’re considering outsourcing, which functions are being considered for this role, and the status of any contracts. Keep them apprised of updates on a regular basis. Here are some suggestions to ensure you’ve got a good fl ow of information internally:

• Defi ne the key messages you’ll need to deliver to staff . Work with human resources and internal communications teams to develop the best language to frame these messages.

• Working with your contacts from human resources and/or internal communications, develop a communications calendar keep in regular contact with your teams.

• Continue to partner with HR and communications teams to determine the best channels to reach your staff . You may need to combine email with various onsite and off site meetings.

• Tap your best communicators across teams at all levels, and nurture them as communications ambassadors. By keeping these key team members well-informed, you’re ensuring that everyone on your team has access to someone who knows that status of any outsourcing projects – and that your organization remains transparent and consistent in its message.

Failure to communicate well can lead to an uptick in attrition. Attrition is always inevitable, but poor communication, particularly regarding outsourcing agreements, can cause unnecessary attrition. It’s likely that your employees see competitor roles open on LinkedIn every day, and are aware of the opportunities available to them. It’s a sign of your organization’s strength that you’ve been able to retain them. However, at the fi rst whisper of outsourcing, your competitors will be swooping in to court your best and brightest.

That’s why it’s smart to have a plan in place to keep your most valued employees feeling happy and secure. A good fi rst step is to inform employees whose roles will not be aff ected by outsourcing that their positions are safe, and that opportunities to advance are on the horizon for them. It’s equally important to develop programs to identify the valuable employees within your staff who are essential to operations – those who keep equipment and processes running. (Be certain that any such programs conform to both internal human resources rules and those of any labor organizations that aff ect your industry.)

Well thought-out and well executed communications and attrition plans are critical to the success of your outsourcing programs. These components cannot wait until outsourcing is underway – the gears for these plans must start turning as soon as the fi rst steps toward outsourcing are taken. Keeping employees informed and feeling valued is key not only t o the culture of your company, but to the operations as well. Losing key team members can issue a blow that can impact everything from customer service to production – but be easily avoided with a solid plan.

Communication and attrition go hand-in-hand. Poor communication will inevitably lead to a rise in employee attrition; excellent communication can keep attrition in check.

Communications Planning: The Importance of Talking to Your In-House Team

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· Does your service provider have customs brokerage experience? How many transactions and clients do they work with today?

· Are their offi ces located in geographies where employees can be easily recruited?

· Do they have the capacity and resources to expand?

· Do they have customs brokerage experience at an executive level? (Don’t expect the senior executives to take the time to learn how NAFTA applies to a particular scenario unless they have lived it)

· Do they understand the sensitivity around information and process security?

Most Business Process Outsourcing (BPO) companies have banking, insurance, IT, fi nance, travel, utilities and HR expertise. Very few have committed to or are completely dedicated to the customs brokerage industry.

The key to choosing the right service provider can be summed up in one word: experience. There are as many service providers as there are companies looking to outsource. Customs brokerage is a very unique environment. Speed of release is always key but accuracy is also critical. Some questions for you to consider:

Choosing the Right Outsourcing Provider

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About Jonathan Robinson

Jonathan Robinson co-founded Portway to help companies reduce operating costs and address capacity issues within the context of today’s challenging labour market. Prior to founding Portway, Jonathan was Vice President and General Manager of Consultrans, Livingston International’s North American Freight and Logistics division. Livingston International is Canada’s largest customs broker and international freight forwarder.

Jonathan has extensive experience in international logistics, and has worked closely with many of the world’s largest companies to re-engineer their trade processes and to develop compliant and cost-eff ective trade strategies. He has toured North America, delivering seminars and keynote presentations to international shippers, associations and clients. Jonathan is a member of the International Association of Outsource Professionals.

About Portway International

Portway International is a leading global Business Process Outsourcing (BPO) provider specializing in the logistics and customs brokerage industries. The company manages some of Canada’s largest customs and logistics services and has earned a reputation for exactitude by maintaining a 99 percent process accuracy rate.

Headquartered in Mississauga, Ontario, Portway has over 50 years of experience, and delivers scalable, reliable and innovative outsourcing solutions that drive profi tability for companies worldwide. For more information and to register for a complimentary 30-day trial, please visit www.portwayintl.com.

For more information about this whitepaper, contact:

Jonathan RobinsonPresident and CEOPortway International

E-mail: [email protected]: 905-486-0196

Portway International2126 Burnhamthorpe Rd WPO Box 67065Mississauga, Ontario L5L 5V4

About Portway