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Duty Drawback: Do You Have Money Waiting To Be Claimed?

Duty Drawback: Do You Have Money Waiting To Be Claimed?

Tim Vorderstrasse: Hello everyone and thank you for attending today's webinar Duty Drawback: Do You Have Money Waiting To Be Claimed? My name is Tim Vorderstrasse, the Director Head of Drawback here at Flexport and I will be joined by two amazing guests from Ministry of Supply and K&N Engineering.

We’ll be hitting all of the most important topics. What is drawback, how to set up a drawback program and how to calculate your largest refund.

Before we begin, let's cover a few housekeeping items. On your screen you will see a sidebar to the right of the main stage. If at any time you need assistance during the live webinar, please message us in the help chat located on the sidebar. You can also ask questions via the Q&A tab on the sidebar. We will be answering questions in written form throughout the webinar in lieu of doing a live Q&A at the end.

A copy of the presentation slides will be dropped into the chat at the end of the webinar. And lastly, an on-demand version of this webinar will be available shortly after the webinar concludes and can be accessed using the same link you are using now.

A brief legal note please keep in mind that all information provided in this session is based on the situation at this current time and may not be customized to your specific business requirements. We always recommend reaching out to a Flexport expert to discuss your particular situation. And with that, I would like to welcome our two guests. Aman Advani, CEO and Co-founder of Ministry of Supply, and Dan Strick, Manager of Trade Compliance at K&N Engineering.

Aman, I'd like to start with you. Could you introduce yourself and who Ministry Supply is and your role at the company?

Aman Advani: Yeah, wonderful. First and foremost, thanks to Tim and the entire Flexport team for having us. We've been long and loyal partners of yours. So we're excited to be here and share our story. My name is Aman Advani, CEO and Co-founder of Ministry of Supply. We're a Boston based clothing company founded out of MIT, so maybe naturally using technology to make the most comfortable clothing on and for the planet.

Tim Vorderstrasse: Great. And in your position at the Ministry of Supply, I'm curious, what are some of the top challenges your company is facing in this trade climate?

Aman Advani: Yes, I mean, as you would know, of course, they ebb and flow, right? There's that flavor of the quarter, I would say at that rate at that pace, they tend not to change too quickly. But if we look at today's specifically, we're dealing with a very dynamic landscape when it comes to looking at force duties in the regulations and potential legislation around the future of duties assessments, along with of course, like everybody else in the planet supply chain delays.

Tim Vorderstrasse: Yeah, no, that's I don't think something that's particularly unique to your situation. There's a lot of challenges out there. And you know, how did you first hear about Flexport, and how's our partnership benefited your business?

Aman Advani: Our Flexport story is a good one. For years, we were going the traditional route, and we import clothing, you know, we have a full line of men's women's clothing. And so you can imagine that requires quite a few factories around the world. And we were importing for years using more traditional kind of paper and pen methods, and started to hear things about Flexport and say, well, let's give it a shot. We tend to have a kind of test iterate and see what happens mindset. So we'll give anything kind of a shot once and started to price compare just sheer tactics, we were looking at ease of use.

We weren't looking at user experience, just can these folks get the job done for cheaper than we're doing it today. And of course with with a quality bar in place. And so over time, we said okay, well, they beat it out. Let's see what happens next time.

So I think it was probably 10 or 15 shipments and that we finally said, Well, I think they're batting 1000 at this point, maybe we just flipped over. And it was only that I think we took advantage of the full suite of services which have since you know in the last five years grown dramatically.

But went 100% all in and stopped price comparing I trust that it's still a good decision, although we haven't checked it in a while and went all in and beat when you go all in with Flexport, I think we found that the there's a bit of a multiplier effect right now, you can see all of your shipments in one place, you can get a better sense of macro conditions, you can combine shipments, you can speak to one agent about multiple challenges or opportunities. So yeah, it was probably four or five years ago, I'd have to look back and see but it's been quite a while now and we haven't looked back.

Tim Vorderstrasse: Great and we'll dig into a lot more of that in a little bit. But before we do, Dan, I want to turn it over to you. Could you let us know who K&N Engineering is and your role within the company.

Dan Strick: Sure, thanks Tim. K&N Engineering provides the finest automotive, home and industrial air filters, the reusable. We also service intake kits, as well and several brands for aftermarket autoparts. Me, personally, I oversee the compliance realm at K&N, originally brought in for trade compliance, but since then I've taken on some other compliance type roles. But my baby is always going to be trade compliance.

Tim Vorderstrasse: Yeah. And right now, it's a fun time for trade compliance, as Aman also alluded to, there's a lot going on, changes in regulation and all that stuff. So, you know, what are some of the challenges that, you know, we heard from Aman as well, you know, but from the K&N side that you're facing in global trade right now?

Dan Strick: Yeah. So our entry, our entry point, brand is sourced mainly from China. And so a lot of the 301 duties have really really hit us pretty hard. You know, just obtaining product on time and cost effectively, is always a challenge, and then trying to foresee these 1000 year events that happen every six weeks. That's been fun.

Tim Vorderstrasse: Yeah, absolutely. So what attracted you to Flexport? And what are some ways we've been able to add value to your company?

Dan Strick: Sure. So I actually used to work for US Customs, and back in 2014, I was in San Francisco. And I met Ryan, or Ryan was speaking at a conference, Ryan Peterson. And so he was speaking at a conference. And I thought that is a really cool way of going about things. And so ever since then, I've been personally following Flexport, I get to K&N and we wanted to look into better visibility, better business partnership with our customers broker. And I thought, hey, I know exactly who to go to for this. So reach out to Flexport reach out to a few other companies as well. And Flexport you guys shine through as you guys have, since we've been with you guys. So you know, our entire team here loves the visibility, loves the professionalism. That comes from our account management team.

Tim Vorderstrasse: Yeah, we appreciate the partnership with both your companies for sure. And Aman, you know, Dan has experience in customs before even coming on with K&N. You know, I'm really really curious, how did you first learn that Drawback was, you know, what it is? And about it being a potential opportunity for your company?

Aman Advani: Yeah, it's such a good question. I have to think back a while now. Dan, I'll have to connect with you separately, I bet a lot of questions for you. I remember just scattered his rumor flooding around, you know, hearing this idea that kind of conceptually speaking, a drawback makes a ton of sense, you know, legally, ethically and from what I understand about, you know, about global trade, it makes logical sense.

So we've heard this concept and said, we, you know, 15% of our sales are international, this should be great. This was well before we thought about offshoring any fulfillment and think about kind of larger drawback opportunities there. But it was, you know, for us, it was just this, you know star in the sky, you know, it was what is this? Can it affect us. And I'd say we probably had three or four false starts with kind of drawback specialists, you know, folks that were independent consultants or other partners who had worked with in the past that kind of said, let's give this a shot. And then we would hit a, you know, a paperwork wall, and kind of decided the juice wasn't worth the squeeze. And so fortunately, that you know, by how drawbacks work, you can go back quite a ways. And so we didn't miss out on two too much. But I think when we finally engaged with we did a small consulting project, one of those false starts,

They said, there's absolutely opportunity here and bid on the work themselves. It was kind of a big four consulting firm. And we called up our Flexport team, and they said, we can do this too. And so we pulled the trigger, and that was probably less than a year ago, after probably two years of false starts. And since then, I think we've had maybe a half dozen or more successful claims.

Tim Vorderstrasse: Yeah, it was very interesting at the onset because, generally, when you start a drawback program, the first step really is that paperwork, putting together the privilege application, then that takes a little while. It doesn't take long to complete, but it takes a while once it's at customs, right. And then you kind of turn your attention to the data from your standpoint, your focus at the onset of your drawback program was much more narrow than what your continuous drawback program would look like. Could you describe a little bit about how that came to be? What your focus was at the onset? And kind of your, how your team approached the data for that?

Aman Advani: Yeah. Yeah, I mean, so at the time we approached, we were at kind of a bigger point where it wasn't routine drawbacks that we were missing out on those as well. But it was going to be a larger export that we were doing to bifurcate our warehouse, warehousing strategy and move some stuff offshore. And so we had a big claim on our hands, right. And, of course, a lot of small claims that we hadn't taken advantage of in the years prior.

So there was one big reason and maybe, you know, 50 small reasons to push this conversation for, but I think this is what I was alluding to earlier, or an example of the multiplier effect. Because we've been nearly exclusively with Flexport for years now. You have the data, right? So you had the paperwork. So you know, it's almost on our team, just connecting the two right people on the Flexport side and letting the magic happen which is not to say that it's easy, or quick or painless, it does have challenges. But I do think that a lot of those walls were taken down by the fact that it's all in one place. That certainly made it easier.

Tim Vorderstrasse: Yeah. And Dan, you've had exposure to drawback in the past, like either with customs and also in your other, you know, roles in the past. And so, could you tell us a little bit more about sort of your history with Drawback and how, possibly the experience with with Flexport may have been different?

Dan Strick: Yeah. So I mean, yeah, I used to work right above the Drawback team, and so I'd go down there, and there's a lot of paperwork down there, it's pretty insane. Luckily, probably the reason that we enjoy working with Flexport so much, is there's very little paperwork from now on electronic records rule everything, which has been fantastic.

Additionally, just as Flexport is our customs broker, what Aman was mentioning was, it's very easy to file a claim, because you guys already have all of our import information. We have to produce a few export items, but that's it. 50% of the work is already done for us before we even get started. And so just based on previous jobs, where drawback would be an all day project, drawback now is a few minutes, few hours, mainly all due diligence, more than preparing information.

Tim Vorderstrasse: Yeah, I think, you know, Dan, a common complaint with drawback is often that it takes a lot of time. It's confusing, the regulations are complicated, the, you know, potentially it's expensive, right? And you have, generally you're working with data that's not designed for that purpose in multiple areas to try to make a drawback program work. I'm curious, you know, you talked about it being a simpler process. How much effort would you say you really put into a drawback program now?

Dan Strick: Yeah, so I had mentioned the effort is all in due diligence now. It's in making sure that what we're filing is actually accurate. Making sure that what we're providing is accurate as well. Our IT team and I have worked together and we've automated for the most part of the report that needs to be sent to Flexport and then I'll go through and I just audit the report that we're sending over and making sure we have the paperwork making sure that what's being represented is actually what we're filing that's where almost 100% of the effort lies now.

Tim Vorderstrasse: Yeah, and Aman, I’m curious, you know, before doing drawback with Flexport, you said you had a couple false starts, you know, obviously drawback can have a pretty significant impact, well I would hope can have a pretty significant impact on a company. What has this, you know, essentially found money meant for your company and for your team?

Aman Advani: Yeah, it's such a good question. We had actually just, last week what we referred to as a bonus drawback, meaning a drawback that we didn't even see coming. We heard from your team, and it was, hey, we're getting this filed the next week I got one gap here. So like we didn't even know that was to be done, so it was like, wait, that's found money right? That's money that we had kind of already assumed was gone. And there have been several such moments that the risk of us sounding unorganized. Where we are pleasantly surprised by drawbacks.

It again, it is still a challenging program to understand and wade through and it almost sometimes seems to be true, which is probably why we had a lot of those false starts and thinking, we can't possibly qualify right? This doesn't happen to us. So Dan, I suspect or hope you avoided that, you know, skepticism given that your background, you probably knew it was real.

Dan Strick: It was.

Aman Advani: But for us it was, we didn't know. So I think even now as a lot of that has come through in the last six months, our first move with any incoming money, whether it be from debt equity or the government, is to wait and not have a knee jerk reaction and to build an insurance policy for, you know, another pandemic, or God knows what comes down the road. So I think in some ways, our first and primary reaction, you know, we're lucky to be a profitable company, running on our own engine. So that inbound money is wonderful for investing in big strategic initiatives, inventory or, frankly, insurance and we will hold things in the third bucket until the first two call.

Tim Vorderstrasse: Absolutely. Dan, I, you know, I heard a interesting story about kind of what happened in your office when you got your refund, could you tell me a little bit about that story? And also, you know, from your perspective, you know, Aman's that a different has a different responsibility within his company. But I'm curious from your perspective, what is it like? What was like getting the refunds and how does that help your company?

Dan Strick: Yeah. So I did a, I thought I did a pretty good job of communicating, hey guys, we're getting a, we're gonna have a rather large refund in the near future on our initial five year drawback filing, I forgot to include our accounts payable manager who actually receives the checks. And so he got to work one day, and I get a frantic phone call from them and he's in California, I'm in Texas. So I get a phone call at 6am California time, saying, Dan, why is there a huge check from customs here? Oh, by the way, happy happy Friday Ryan. So that was that was a lot of fun.

And I mean, really, the money itself was just a huge shot in the arm for us. It was a great cash infusion, you know, just the way the economy was working right now. Every little bit helps, right? And so, like Aman said, we put it aside for insurance, we're putting aside hopefully to invest in the future. But know that right now we can hold on to it for as long as we need to.

Tim Vorderstrasse: Great. Yeah, and you know, when we first started the drawback program, Dan, I think we had just based on, you know, the rough numbers and estimate of what your drawback opportunity was, you know, how did sort of what you ultimately realize differ from what we were able to, what we had estimated at the front end?

Dan Strick: Sure. So I've mentioned the beginning that 301 tariffs are our biggest challenge. And I, for whatever reason, did not realize that 301 duties are eligible for drawback. And so when I was doing my initial calculations and everything else, I came out with a pretty decent number, but it wasn't anything to you know, make people's jaws drop or anything else like that.

So when we send it over to you guys, you guys sent us back a number that was literally seven times higher than what I had originally expected. That made a lot of people really happy, really fast. And I remember those first few phone calls where you and I were both pouring through as many records as we could just to make sure we didn't repeat anything, we didn't do it like everything was fully aboveboard, everything was fully accurate. And that was a fun couple days, my favorite audit I've ever done.

Tim Vorderstrasse: Yeah. Aman, I'm curious, you know, we did two different types of drawback for you all and how did your team manage the two different intricacies of the two different requirements? You know, hopefully it wasn't easy effort in general, but I know that the first main focus was a little bit more tedious. Can you describe that a little bit?

Aman Advani: Yeah, well, I can describe it only a little bit. In that this is probably the perfect time to introduce our secret weapon, Tessa who's our head of supply chain operations and as calmly and methodically tackled and peel back every layer of this onion, and she's done a wonderful job at handling all of this, in addition to running a fairly complex supply chain, but I think it's a testament to both her and the Flexport team for making this kind of a conversational process that isn't so spiky and requiring of, you know, weeks or months of dedicated time but rather an ongoing discussion and peeling back that onion again methodically, which of course I would give Flexport and a huge amount of gratitude to Tessa and our team for pulling that through and doing it again, patiently and thoughtfully instead of, you know, painfully and all at once.

Tim Vorderstrasse: Yeah, Tessa has been great to work with from the start, your whole team has, it's been, you know, with drawback I think one of the great things about drawback is that we really get to know the supply chain, we really get to dig into you know, it's got to be perfect data, it's got to be perfect information, you have to have a really good understanding of the end to end supply chain, even domestic. And so that's a great way for us to really get familiar with you as people, but also as a business and find the right solutions to maximize your opportunity, compliance and all those things.

Are You Leaving Money on the Table?

So you know, Aman, any advice for brands that are, you know, in your space that are not in your space that are looking to navigate drawback or to improve their trade footprint? You know, you're in a unique position within a really exciting company. I think there's a lot of things that other people can learn from someone like you.

Aman Advani: Yeah, I mean, I think my, the first thing that comes to mind as it relates to all this is, probably something I started with, which is it's real and as such it's worth the time. You know, if we could do anything different, probably be that fight through some of those false starts and kind of find the right answer. And I think we would have called you all earlier if we had known that you did this. So wonderful that others are finding that out here, but I think it is absolutely real. Yeah, there's a good chance you, you know, listener qualify, so it's worth the effort.

Tim Vorderstrasse: Yeah, I know, when we present drawback we're almost like that, that Nigerian prince that shows up in your spam folder like, hey, you have money out there, just send us your Social Security, right? But no, this is.

Aman Advani: We're having this conversation right now. And maybe this is a nice other Flexport plug here, but we're talking to the Flexport capital team about terms, and again it says like, wait, you know, they'll approach us, how about an extra 120 days on your payments. Okay, let's talk about that, you know, and again, I think these are all examples of like, once you're in the system, the system can can grow with you. And I think that's been what we've enjoyed about our partnership.

Tim Vorderstrasse: Absolutely. You know, the drawback process is something that I think is a great opportunity for companies. It is real, it's been around since 1789, you know, I'm sure you know there's people listening that have heard this, but it's been around since you know, in the same act that created customs, created tariffs, there was, they also created the avenue for drawback recoveries. And while I don't want to talk about that, you know, this is a very different drawback program than you know, your grandfather's drawback program back in the 80’s and 90’s and even you know, four years ago five years ago.

So Dan, you've you've been around for seen some of the changes maybe not very intimately with with drawback, any advice on you know, how to navigate, if companies looked at drawback prior to that, you know, current regulations, any advice for companies out there?

Dan Strick: Yeah, I mean, if you're, if you also make air filters, I'd say don't use drawback, it works too well, you won't benefit from it, whatever. Everyone else.

Tim Vorderstrasse: Right.

Dan Strick: Right. So you're mentioning that history of it and drawback has always been one of those programs that is just sadly extremely underutilized. And so just with the new program, the way the program through TFTEA, we'll get all that, but the way the new program has been rolled out, the government wants you to file drawback right? Customs wants you to take advantage of getting getting this money back.

And so just, especially through the new program, it's incredibly much more user friendly. It's not the most user friendly thing in the world. Definitely, I would not feel comfortable doing it completely on my own. But regulations have definitely become more user friendly. Definitely makes it easier for companies to receive their refund, unless you're another auto part manufacturer then you know, to support.

Tim Vorderstrasse: Yeah, with the drawback regulations, it really did open up a lot of opportunities that there really weren't in the past. If you know, we can substitute based on HTS numbers now, where before we had to have, you know, style, color, size, substitutions, and really, there's a lot more opportunities out there. And you're right, customs, while the regulations and the business rules and all the technology makes it a little bit challenging to really realize your drawback recoveries, they really do view that drawback is an important part of promoting US business.

And that's really the point, it's supposed to, you know, promote innovation. It's supposed to help companies, you know, price their goods better overseas and build more of that, that export footprint and helping with profitability. That's was the intent in 1789. That's still the intent today. And no, it's not easy in all aspects, but at the end of the day, you know, and I know I talked to both of you about this all the time.

Find Giant Refunds Within Your Trade Date

You know, if you import, and you export, you should be able to claim drawback. And generally, there is a way to make that work. So with that, I, you know, I'm going to kind of wrap up here, but any closing remarks from either of you before we close it out?

Aman Advani: I'll just jump in to reiterate my huge thanks to the Flexport team again for hosting us and for partnership, and specifically to Monica on the Flexport team who's just been incredible to work with. If any listeners will put in special requests, Monica has been incredible, and Tessa on our team has just been wonderful. So I think we've been lucky to be surrounded with the right people and proceed here, kind of in a beautiful way that's created a nice outcome. So thanks to everyone.

Dan Strick: Yeah, I'd say definitely make sure that your partners are an extension of your team, right? And that's the way Flexport's been from our freight forwarding, our customs brokerage to drawback, to a few other services that we're utilizing right now, as every member is an extension of our team. And that really makes life a whole lot easier. And makes business flow a whole lot easier as well.

Tim Vorderstrasse: Absolutely. And you know, before we conclude, I do want to thank both of you, I appreciate you taking some time sharing your experiences, you know, we love working with you and helping you solve these challenges. We do hope that it is relatively straightforward that it isn't too much of a burden for either of you. But we really appreciate the partnership. And you know, in many ways the friendship that we've been able to build over this. So with that, I do thank you and we'll wrap it up now.

That concludes our webinar today. Thank you all for the great questions. If we were unable to answer live then we'll follow up with you after the webinar. If you'd like to learn more about Flexport Duty Drawback Program, please email us at Flexport, drawback@flexport.com.

Ukraine Crisis: How Can you Help

Before we say goodbye, we would like to mention that flexport.org is raising donations to send shipments of relief supplies to refugees from Ukraine. We will drop a link in the chat if you would like to learn more about these efforts or make a donation. Thank you again everyone for joining us today. A copy of the slide deck and access to the recording will be emailed to you tomorrow.

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