Bad Advice on DDPs Shows That Importers Need to Up the Compliance Ante: Trade Expert

"There's a number of unscrupulous suppliers out of China that are proposing to their customers basically fraudulent transactions without really letting their customers know that the transactions that they're proposing can potentially get their customers here in the U.S. into a lot of trouble, and specifically I'm referring to DDP," Gould said.

During the webinar, Gould discussed how importers can beef up their import compliance regimen so that they can avoid paying higher costs.

While DDP can be a legitimate form of trade and transportation if used properly, it prevents the U.S. company from having access to all the information surrounding the import transaction, and it shifts the risks and costs of importing the goods to the seller.

"If it's too good to be true, it probably is too good to be true. But I've had multiple situations where companies have come to me and said their supplier is offering this new transaction, and they're willing to sell me the product," Gould said. "And I look at the numbers, and the cost plus the tariffs makes that an impossible transaction. And if that's the case, it probably is. And unfortunately, the Chinese factories know that they can simply disappear from U.S. Customs, and the only people that Customs can go after are the U.S. companies that were the ultimate buyers of the products."

To detect improper use of DDP, CBP officials may conduct a physical inspection, or they may look at import patterns via artificial intelligence to detect wrongdoing, Gould continued.

Importers also should be careful with the data they submit on importer security filings because CBP can feed that data and aggregate with other data to discover trends, Gould said.

"When it was originally implemented, it was technically not supposed to be used for compliance purposes. It was supposed to only be used for security purposes. But that's a little bit nebulous," Gould said. CBP can compare the data declared on the ISF with data received by the ocean carrier and from the entry documentation, he continued, and if CBP finds discrepancies, it can dig deeper to search for more inconsistencies.

"To me, ISF is simply one more piece of the puzzle. It's not like it's a silver bullet that's going to give them the heads up. It's just simply one more piece of information," Gould said.

While the increase in tariff rates in the first three months of President Donald Trump's second term is notable, what's also distinctive about these changes in trade policy compared with past presidential administrations is the "overall volatility and the quick, rapid changes," Gould said.

"One of the things that is a constant theme when I talk to executive C-suite people at companies that import is [that] the tariffs are a direct financial impact to the company. Those are quantifiable. The less quantifiable, and in many cases, more disruptive, result of the tariffs is really the quick turnaround time," Gould said.

Indeed, the C-suite needs to be more engaged in managing their company's response to tariffs and trade uncertainties because of those direct financial impacts, such as the impact that tariffs have on how companies pay taxes, according to Gould.

"Companies historically have focused on minimizing their tax exposure, and at a very high level, the way that companies reduce their tax exposure is by increasing the cost of their goods on paper, right? The higher your cost, the lower your margin, the lower your profit. The lower your profit, the lower your tax," Gould said. But "when you start looking at the tariff as a financial impact, what you realize is that the strategy that you used for lowering your taxes was in fact increasing your cost of tariffs, because if you throw more into your cost of goods sold, you're causing your basis for tariffs to go up, which means the tariff amount is going to go up."

He continued, "And so today, what senior executives and companies are having to do is they're having to weigh this: Do I forgo tax savings in favor of tariff savings? And it's a very difficult question, but it's the type of question that companies need to dive into."

Industries that have had an easier time coping with the swift changes are those who sourced from multiple suppliers and who also traded under free trade agreements, which call for greater familiarity and vetting of the supply chain, including knowing details about the components and raw materials that make up the product, he said.

"In today's environment, for example, with the steel or aluminum tariffs or the automotive tariffs, you need to know the value of the steel that went into making your product. Because if you don't know that, you have to pay more in duty. But if you can isolate the value of the steel that went into making your product, you can end up paying less in duty," Gould said.

On sourcing from multiple suppliers, Gould said: "I think that that concept of being tied to that one supplier becomes a great detriment in today's environment, whereas [during] pre-Trump, it was the standard business practice for many companies, but not for all companies. What I'm seeing is that the companies that really did have a diverse supply chain -- really did buy products from multiple suppliers in multiple countries, multiple regions -- are in a much better position to pivot away from a higher tariff rate and toward a lower tariff rate today."

Given volatile U.S. trade dynamics, partnerships can not only help importers realize cost savings, they can also help service providers bolster their position in the market, according to Gould. These partnerships may include educating customs brokers on how to correctly file claims within the various free trade agreements, as well as non-vessel operating common carriers that are strong in certain sets of trade lanes.

"If you're an NVOCC and you have a good, strong relationship on a few trade lanes, go out and build the relationships on the other trade lanes, because those other trade lanes might be able to provide you with services that your customers are going to be coming and asking for, and you don't want them to go to a different forwarder," Gould said. So, "have those relationships with those partners around the world. Build those relationships if you don't have them, because they are going to become more important in the future."