June 2014, Vol. 241, No. 6

Features

Managing Costs, Regulations Across International Borders

The demand for energy is high and projected to increase steadily by at least 2% per year, according to the International Energy Agency (IEA). As a result, oil and gas products are being shipped at a faster rate than ever before, increasingly making their way across international borders to meet demand.

As these overseas shipments of product and equipment rapidly increase and become more sophisticated, customs regulations have been slow to keep up, causing many companies to struggle to understand them. Without a proactive approach to customs compliance, the risk of delays at the border, fines caused by improper classification or an unexpected duties increase, can threaten profits.

Customs Compliance
Taking a proactive approach to customs compliance is the key to preventing potential trade snafus. A professional who has a thorough knowledge of the customs process, a customs broker for example, can help a company navigate and interpret current regulations and ensure a smooth border crossing.

However, in addition to overall customs compliance, there are other industry-specific regulations that oil and gas professionals need to be aware of. These include:

• Continuous transmission commodity (CTC) – Although truck and rail remain the most common mode of transporting oil and gas products, some companies are using pipelines. Companies that choose a pipeline to transport product can take advantage of CTC, which allows companies a grace period for submitting the required forms to customs officials.
• OPIS pricing – This is the estimated value of the shipment for the month and is updated at the end of every month. This allows companies 90 days after a border crossing to assess whether the estimated value has changed. Companies can either amend the value of the shipment to realize cost savings or pay more to make up the difference and avoid customs fines at a later date.

Classification Matters
Correctly classifying the contents of a shipment ensures the products and equipment comply with all U.S. government regulations. Managing this process can be complex, but being aware of industry trends and the effect on customs helps to maintain profit margins.

One emerging trend involves oil sent across the border and mixed with domestic oil from that country, which is then sent back to the original country as a newly created mix. Because the mix returns with a different composition, its classification and tariffs change. A customs broker can correctly classify the oil as it changes across borders, avoiding fines and delays.

Another increasingly common industry trend is leasing instead of purchasing equipment. Although the ownership doesn’t change, companies still must prove the equipment’s point of origin. If there is a problem with the shipment, both the lessee and the lessor can be responsible for resulting fines, so ensuring correct classification and the proper paperwork is essential.

Country Of Origin
At first, determining a product’s country of origin may seem simple. However, due to the increasing globalization of oil and gas equipment manufacturing, identifying the true country of origin has become more difficult.

Gone are the days of managing the equipment creation process domestically – it is assembled around the world. Unfortunately, this makes it difficult to prove where the equipment came from. This is particularly true of oil and gas equipment, which moves frequently between borders, often several times between the same two or three countries.

To overcome this complex issue, companies need to do an in-depth analysis of the value of product materials and processes, coupled with developing a deep understanding of the rules of origin to correctly assign the country of origin.

This insight came in handy when a prominent oil company had a spill in a body of water and realized it needed a special valve from overseas to help stop the leak. Due to the urgency of the situation, the company enlisted the help of a customs broker to ship the product as quickly as possible.

Because of the broker’s understanding of the country of origin’s laws and customs regulations, the critical valve was successfully navigated across four countries in just seven days. If the oil company had attempted to ship the valve on its own, the process would have taken longer, leading to additional delays and costs – not to mention increased environmental damage.

To keep business running smoothly across borders, companies need a detailed audit trail to substantiate a claim of origin. If the company doesn’t keep a close eye on the entire manufacturing process from beginning to end, it is difficult to identify where the product originated from, which can lead to decreased cost advantages at the border.

Partnering With Customs Experts
As the oil and gas industry grows on a global scale, companies must be prepared to effectively handle international border crossings to take advantage of new profit opportunities. A customs compliance expert who is well-versed in this complex and ever-evolving process can make this daunting process manageable – and profitable.

When delving into new global markets, consider collaborating with a partner with the knowledge and resources to navigate this complicated process. A customs broker who specializes in global trade management can clear the way for international trade so your company can concentrate on meeting increased demand.

Author: Stephane Ethier is the vice president of Customs Brokerage U.S.A., for Livingston International, which focuses on customs brokerage and trade compliance.