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Feb. 17, 2014

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SUPPLY CHAIN LINKS 20 THE JOURNAL OF COMMERCE www.joc.com Jerry Peck FEBRUARY 17.2014 THE REAL VALUE OF ADDED VALUE O N E O F M Y fondest memor ies a ssociated w it h inter nat iona l business was me, as a young boy, seeing my father off at the airport. I vividly recall the amazing sights and sounds and how the energ y and excitement in the terminals was nearly palpable. Air travel then was truly a special event, and it showed. For instance, I'll never forget how t he pa ssengers dressed — my father in his best double-breasted suit, the women in dresses com - plete with hats and gloves — and the flight crews in their sharp suits and uniforms. It was an incredible experience just to accompany him to his gate. Fast-forward to today's com- mercial air travel experience and you'll find little distinction from that of taking a bus, as passengers' manners, courtesy and even appro- priate dress codes seem to have diminished in direct proportion to falling ticket prices. Aside from first-class amenities, value-added differentiators are nonexistent or presented in ludicrous offerings such as fee-based "upgrades" to get normal leg room, thus reducing air- lines to largely compete on pricing alone. As a result, air travel is widely viewed to be a victim of "commod- itization," where a good or service loses differentiation across its mar- ket base and is no longer able to generate premium margins for mar- ket participants. One trade-related service I feel has moved precariously close to the commoditization cliff is the customs brokerage industry, where I began my trade career more than 30 years ago. It was a time when customs brokers were typically "pure plays" that offered a narrow band of ser- vices but with strong value-added dif ferent iators t hat genera lly equated to being highly specialized within a specific product line or industry, and having strategic con- nections to key Customs officials or logistics-related service providers. I remember the new-client meetings I sat in on and the excru- ciating amount of time and level of detail our company's officers would require to ensure all product costs were identified and prop- erly accounted for, or to carefully understand all of the materials and production steps involved in a new garment a client soon would be importing. A company officer reviewed entry declarations, hand- signing each "CF7501." That's not to say these attributes can't be found today, but I've nonetheless seen a change that I feel has been influ - enced largely by two key events. The first was the start of the new outsourcing trend called "third- party logistics," where traditional transportation, warehousing and other logistics companies began adding multiple services, includ - ing customs brokerage, as a means of creating a competitive one-stop- shopping solution to prospective customers. Wh ile a Sw iss a r my k n ife approach can offer a number of conveniences to a customer, the downside can be a company strong in certain core services but glar- ingly weak in others. With regard to brokerage, I've experienced some 3PL operations that were so poorly staffed and managed that I could only think of them as being a liability to the company, not an asset. The second influencer has been the steady rise of enabling tech- nolog y. Dating back to Customs Commissioner William Von Raab's famous "automate or perish" ulti- matum to the brokerage industry in the 1980s, today's sophisticated filing systems are capable of pro - cessing an unprecedented number of transactions. But the danger is that this level of automation can turn traditional brokerage into little more than a clerical data-input function where value-added revenue is replaced by transactional volume, and employee performance metrics are no longer compliance-based but tied to the number of entries that he or she can push through the pipeline. With the absence of any added value, accept- ing importers can demand pricing based on lower clerical rates — and so begins the downward spiral. Volume-related compliance con- cerns run especially high within the express package industry, where placing a shipment on hold for any reason runs inherently counter to the very essence of the express busi- ness. Unacceptable error rates have prompted some importers to make their express carriers implement strict compliance-related operating procedures in addition to acting as the importer of record as an addi- tional risk mitigation measure. At the end of the day, every bro- ker should continuously evaluate the value proposition they project onto the market and ask themselves basic questions: If every broker can file an entry, what makes me different? Do I know what added value I bring to my customer (have I ever even asked)? How do I measure my value as a competitive differentiator? JOC Jerry Peck is a licensed customs broker and Global Trade Management expert with more than 30 years experience in regulatory compliance and GTM optimization solutions. Contact him at 469-235-5229, or at wmjerrypeck@gmail.com.

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