The CEO is “committed to working with all our e-commerce customers and the government agencies to develop efficient and compliant trade flows in every way possible.”
FedEx Trade Networks has evolved over the past two decades into the largest customs broker in North America, with continuing growth as a global freight forwarder. As a subsidiary of FedEx, this global enterprise must maintain compliance with myriad cross-border trade compliance regulations on a daily basis. Overseeing this most important endeavor at FedEx Trade Networks is President and CEO Richard W. Smith, who joined FedEx in 2005. The Adam Smith Project recently sat down with Smith to gain an understanding of the breadth of compliance activities related to cross-border shipments at FedEx Trade Networks and where he sees the world of trade compliance headed.
Q: As head of a large customs brokerage and freight forwarding operation, how has this hyper-active era of tariffs and counter-tariffs on trade changed the way your company handles cross-border business transactions? Are shippers leaning more heavily on third-party logistics services to sweat the details?
A: First of all, we have very close relationships with our customers. Our FedEx sales and service networks have active conversations to assist our customers so that they understand the direct impact to them, and the commodities they ship. And we discuss all the options with them, strive to keep them abreast of everything that’s happening in the arena of global trade and ensure that they have the right solutions to meet their supply chain and shipping needs.
And of course, we’ll have customers that reach out directly to us with deeper, more detailed questions. We’ll assist them by discussing the best options to develop the most cost-effective, efficient and compliant shipping and sourcing solutions.
As an enterprise, FedEx has operations all over the world. We’re in 220 countries and territories. At [FedEx] Trade Networks, we provide freight forwarding and logistics services, but also have a huge customs brokerage operation. And we provide, through our WorldTariff group, trade services including product classification.
As the media has reported, because of new tariffs, some companies are considering shifting some production from China to places such as Hong Kong, Vietnam, Malaysia, the Philippines or Taiwan as well as near-shoring some of their supply chain. In addition, companies may ship product in advance of tariff implementation, trying to get ahead of them. And others may move from ocean to air shipping so product arrival is in advance of any new tariff implementation.
We have a presence in areas where there is significant production currently including the areas where we see production potentially shifting to. So we can seamlessly accommodate these transitions when customers change their supply chains.
Q: FedEx Trade Networks has a large North American presence through its parent corporation and the recently negotiated U.S.-Mexico-Canada agreement promises to update cross-border trading in the region. What measures is FedEx Trade Networks taking to prepare its operations for the new agreement? And are shippers experiencing any angst over the changes brought by NAFTA’s replacement?
A: Well, first I’d like to applaud the negotiators for reaching an agreement. This is a critical step in world trade and we are obviously ardent supporters of global trade. But we don’t see a lot of angst from customers around this and we don’t see, at first glance, any significant changes that FedEx Trade Networks will make. However, our regulatory and legal teams are reviewing the text of the agreement to make sure that we can assist our clients to meet any changes in a compliant fashion once it is fully enacted. We’ll continue to support our clients in understanding how the USMCA — assuming that’s the final name — will impact them.
While we don’t believe the USMCA is a wholesale departure from NAFTA, there are some notable differences, especially with respect to auto part content requirements, as well as opening new markets and trade lanes for dairy products, for example. We’re participating in a lot of discussions with the automotive sector and our customers there to determine the specific impacts to content changes, process, documentation requirements and the like.
Q: The much higher U.S. de minimis compared to other countries of the world has helped stimulate an increase in parcel-sized U.S. imports, particularly within the burgeoning global e-commerce sector. Customs and Border Protection is concerned that the rise in e-commerce shipments offers a conduit for illicit and dangerous products to slip into the U.S. In your view, what should the 3PL industry do, if anything, to ensure illegal products are kept out of the e-commerce stream? How important is it for 3PLs to partner with CBP and other regulatory agencies overseeing this trade?
A: I have been very vocal about the tremendous growth of e-commerce. Some studies suggest that e-commerce will become the largest retail channel in the world as early as 2021. And as that channel continues to grow worldwide, it’s reasonable to assume that a significant portion of that retail business will involve cross-border e-commerce transactions. With the U.S. being such a huge consumption market, we’ll see an inordinate share of that traffic.
We know that government agencies are hard at work to address the tremendous increase in cross-border e-commerce shipments, including the impact of shipments that are often below de minimis ($800 per shipment value in the case of the U.S.).
The other thing I’d like to point out is that the express industry overall files more data than a normal 3PL. FedEx Express files ACAS (Air Cargo Advanced Screening), manifest and entry data and CBP officers have access to shipment systems to ensure that we assist the government in its enforcement mission. And we would like to see parity in this information filing as we believe, and it has been demonstrated, this helps CBP identify bad actors to a greater degree.
Through our participation in COAC (Commercial Customs Operations Advisory Committee) and through other associations and working groups, we’ve supported additional automated means to file de minimis Section 321 information with CBP. The type 86 release that CBP has announced will assist us and our clients in filing the Section 321 information and obtaining release in a timelier manner. It also allows CBP to receive information to assist it in its enforcement efforts.
We do not want to facilitate the shipment of unsafe or altered goods, which is why our partnership with CBP is so critical. We’re a very trusted partner with CBP and we would like to explore ways that CBP can share information with us in that capacity to work together to prevent bad actors from introducing products into the market. To date, information has not been shared between the public and private to the degree it could be due to privacy and other concerns. But we think that you need a trusted partner program. We’re trusted partners with many government agencies, and we think you need a program which could be developed to assist agencies in meeting their mission to protect the health and safety of American consumers.
Again, with this rise of e-commerce and the flood of volume that’s going to continue to cross the borders, because of the innate desire of humankind to travel and trade, and because the internet as a medium of exchange connects people and buyers and sellers in ways heretofore unimaginable in human history, it’s just going to continue to grow and grow and grow.
I think Global Entry’s one of the greatest things ever invented, where you can just zip right through Customs and Immigration. I think you need something like that for global entry of packages, because the only way we’re going to keep up is if we’re able to collaborate and share information and work together to target the bad actors, while not slowing down the facilitation of legitimate trade.
So we’re very committed to working with all our e-commerce customers and the government agencies to develop efficient and compliant trade flows in every way possible. It is a key focus for us at FedEx.
Q: With the increasing number of sanctioned individuals and entities across the globe, U.S. companies must ensure their exports are compliant with current and future regulations or risk significant penalties. How important is it for 3PLs to provide export compliance assistance to their customers? Is there a shared responsibility between 3PLs and exporters when it comes to export compliance?
A: Well, we feel export compliance is critically important. So as a significant customs broker and freight forwarder, we deal with customers that run the full spectrum in terms of scale and sophistication. It is very important for us to help our customers, to provide the necessary support to them, and particularly to assist smaller clients who don’t have the benefit of robust internal export compliance programs or the in-house expertise to help themselves avoid export violations. We can be a key partner and resource to those customers on how to navigate the intricacies of global trade.
Our systems and compliant processes support our clients in meeting that obligation as well as ensuring we support the [U.S.] government’s critical effort in this area. FedEx, obviously being founded by [Frederick W. Smith,] a Marine and veteran of two tours in the Vietnam War, is a huge supporter of our nation’s veterans. We hire these individuals as a critical part of our company and we’re very supportive of our military, and certainly compliance is absolutely a key focus for us. FedEx moves critical military equipment and technology. We work very hard to ensure that those shipments are secure and stay in the right hands to protect our country and its people.
Q: Hazardous materials shipments are a fact of life and must be routinely moved across borders as part of myriad global manufacturing processes. With shippers being torn in so many directions lately with regards to regulatory compliance, are you concerned that emphasis on compliance with hazmat transportation regulations might suffer?
A: Safety’s a top priority across all the FedEx companies, and certainly that’s no different at FedEx Trade Networks. It is a key priority of ours together with trade compliance. So we’re very committed to supporting regulations that are developed to meet the goals of safe and free commerce.
We recognize the importance of public/private relationships, however, to set the rules and guidelines of the movement of hazardous goods. I think this is such an important issue for those of us in transportation and it remains a focus for 3PLs still. All transportation providers and shippers are focused on it. We want to ensure the safety and well-being of our team members, and the correct handling of hazmat is just part and parcel of that. And that’s why I go back to the need for that partnership between the agencies and the customers themselves. It is key to work with customers and governmental agencies to enhance safety and security in the transportation network and we have robust safety and security protocols in place.
Q: CBP’s Air Cargo Advanced Screening (ACAS) has been in place as a pilot program since 2010, and with the agency’s interim final rule published earlier this summer, the program is finally nearing prime time. What is your overall assessment of ACAS? Do you feel that it will achieve the goals of the government, as well as industry, to enhance air cargo security?
A: Well, you know ACAS was developed by CBP and the private sector to address aviation security threats and to enhance supply chain security. It was developed out of necessity and it was a very strong collaboration and partnership.
So together with CBP, we looked at what was required to provide the necessary information electronically, and in advance, on cargo destined for import into the U.S. to allow CBP a better way to identify suspect shipments.
Obviously, we’re very supportive of CBP’s efforts, as I’ve mentioned, on this front and to help ensure cargo security and safety and protect the American public. And we voluntarily participated in the ACAS pilot program. We applaud the regulations which are finally being issued and working with our government agency partners to expand this program across all carriers and entities in the air environment.
Will it achieve the goals of the government, as well as the industry, to enhance air cargo security? It will certainly improve the situation and make it a lot better for the safety and security of our team members, and by extension, their families and communities, which are vitally important to us.
Filing data that we already have earlier in the supply chain to CBP helps us proactively do our part in ensuring safety and security. And, of course, I think advance cargo screening programs, such as ACAS, are going to be very significant when taken in conjunction with the STOP Act (recently passed U.S. legislation which aims to stop illicit global trafficking in deadly opioids).
