COVID-19. April 1st Cash Crisis for Canadian Custom Brokers Averted.

Alarm bells have been sounding throughout the Canadian brokerage community as the due date (April 1st) for monthly K84 statements (covering duty and taxes, for imported goods) rapidly approaches.

If, either due to operational or financial reasons, importers can’t pay on time many of these settlements will be impacted. The under-lying concerns are based on standing regulations. In the event of non-payment, penalties can be assessed, bonds can be encumbered and importers or brokers can be put on a cash arrangement with customs. Cascading beyond these initially disruptive actions, bondholders can move to seek restitution and importers may loose their importing privileges. All of course represent potential pre-cursors to business failure.

A sigh of relief, was heard on Friday as payment extensions to June 30 were announced. Canada Border Services Agency (CBSA). Customs Notice 20-1l issued March 27th provides more detail.

The CBSA concession is a blanket deferment for Canadian importers and brokers as opposed to a case-by-case, approach requiring application, announced by U.S. Customs and Border Protection (CBP) earlier in March. Hopefully further clarity will follow from CBP, as on Friday the COVID-19 duty flexibility initiative appears to have been walked-back when it was announced they are no longer accepting applications. Current CBP regulations however do have language in place that provide for the granting of extensions. A large percentage of goods entering the US from Canada are eligible for duty free treatment consequently, as there is no GST equivalent in the US, the fiscal impact is not at great, on the Northern border, as it would be for goods entering the US from points off-shore.

One area this cash crunch could have been particularly acute is of course with the customs brokers, who generate their revenue primarily on a fee-per-transaction basis. What can come along with that is the requirement to fund large amounts of duty and taxes owing. Often these liabilities represent a figure that is many multiples of the fees earned. This situation applies in the case of any importer client, who does not have direct CBSA or CBP settlement arrangements in place. While industry practices have moved towards the direct settlement by importers (typically in the best interest of both parties) there remain many brokers, who for one reason or another, carry this liability on behalf of some of their clients.

A cash crisis and breakdown at the border could have had a ripple effect adversely impacting carriers and others. Brokers and importers are critical links in the supply chain. These arrangements to assist both are well timed and essential.

A positive step at a critical time!