Janet Labuda:
0:05
So we're not talking about a situation where we're just looking at the final product. You can have one thread in a shirt, and that entire thing is tainted. It's contaminated, and it's subject to detention. It's subject to seizure. So the old ways really aren't going to work. People have to really and when I say people, I mean people in the trade community have to strategically put a plan together as to how they're going to address number one, you know, the products that they're bringing in, where they're bringing them in from, and then what do I do if I get a detention?
Blythe Brumleve:
0:47
Welcome into another episode of everything is logistics, a podcast for the thinkers in freight. My name is Blythe Milligan, and we are proudly presented by SPI logistics, and we've got a banger of a show for you today, because we have Janet Labuda. She is the head of customs and trade issues at Maersk customs services, we're going to be talking about the complexities around global trade and how your company can help navigate those complexities. So Janet, welcome to the show.
Unknown:
1:13
Thank you very much for having me. It's a pleasure to be here with you in the audience. Absolutely.
Blythe Brumleve:
1:18
And I we were just talking off air about how I had heard you speak at a CSC cscmp event last year, and good friend of the show, also on a on regularly Grace Sharkey said that she was very jealous that I was interviewing you today. So she says hello, and she says that she loves you, and she can't wait to hear the discussion so well,
Unknown:
1:38
thank you, and the feeling is very mutual. So
Blythe Brumleve:
1:43
well, one of the regular topics that Grace and I actually talk about on our regular episodes together is the show to catch a smuggler. I'm sure you've seen it.
Unknown:
1:54
I've seen it. I've caught them. I've been there.
Blythe Brumleve:
1:59
Awesome. I was hoping that we would, that we would bond on that show, because it is really, as someone who, you know, got my logistics start at a trucking company. I didn't really, and it was all domestic freight. I didn't really know of all of the complexities that surround, you know, sort of customs and trade and what you know the border team does. And for folks who may not be aware. Could you give us sort of that high level overview, because you spent more than 30 years in customs, border trade, before joining Maersk and so give us a little bit of a, you know, I guess, a high level overview of what that role, or that, you know, institution entails. Well,
Unknown:
2:37
you know, it's the face at the border for everything, and customs is responsible for really enforcing the law for many different federal and state, you know, regulators. And so the really, the customs job is extraordinarily challenging and complex. And if you know, if you look in my day, there's one level of trade, and it was just starting to really take off. And today, you know, the the amount of imports has grown exponentially over the years. We now have the dynamic of de minimis and all of this e commerce dynamic, you know, the trade community has changed to meet the requirements of the consumer, and as a result, customs is in the same situation, and they have to meet the requirements, really, of other regulations and the law and what Congress is really kind of expecting customs to do as far as regulating the trade, and yet, they are being bombarded with all of this, all of these packages, and the amount of trade coming across the border, there is a lot of fraud. There's no doubt about it. I think we're seeing things right now with regard to the fentanyl coming into the country. We're seeing things with regard to really, what I call misdescription, illegal transshipment, the entire tariff dynamic, with regard to the 301, anti dumping tariffs. Every time you have a new regulation or law, there are people out there whose job it is to circumvent that, and that's the challenge that customs always has. You know, what's the balance between legitimate trade and facilitation? And then how do we really uncover the fraud, the violations, the smuggling, etc?
Blythe Brumleve:
4:42
Well, with all of that, you know, just explosion and growth of what you were just talking about, how do you know what to focus on and what not to focus on? Well,
Unknown:
4:53
you know, one of the things is you really have to prioritize what you're doing, and you have to prioritize the compliance dynamic. And you want the biggest bang for your buck, and that's that's a problem that customs kind of always has to deal with, because they're being pushed and pulled in a lot of different directions. And as a result, you know, they have to be very, very upfront with regard to what their priorities are. And you know, we see that there are a lot of conflicting priorities. And as a result, customs will always tell you that they can't really resource their way out of situations. And as a result, they punt to the trade community and they say, Okay, you're responsible for your own compliance. You're responsible for understanding who's in your supply chain. You're responsible for understanding not only who's in the supply chain, but what they're doing in that supply chain. And so the penalties, the exposure that you know importers have, is really getting very, very challenging and complex for the importing community.
Blythe Brumleve:
6:01
And so how do you navigate some of those complexities? Because I imagine, for a lot of businesses, maybe they've been around for, you know, 2030, years, and they're having to, you know, not only navigate all of these additional regulations, but also the technology that has, you know, come onto the scene in the last five to seven years. How do you know what to do if you are an importer or a shipper?
Unknown:
6:25
Well, one of the things I, you know, I always say to a number of our clients that are importers, you know, you know, you don't have the level of data that's out there. You wouldn't be able to afford the level of data that's out there. Secondly, really, in your compliance departments, you don't have the analytical skills to take data and make you know conclusions with regard to that data. As far as your risk is concerned, you know, many importers, they understand their first level in the in the supply chain, but they don't go beyond that. They may have a buyer, and they say, Okay, here's the product we want to get on the shelf. Here's what it looks like. How many pieces we need. You know when we want it. Here's our price points, things like that. You go find it and and in many instances, they don't want to take on any other responsibility. But today, the regulators and the Congress is telling the employers, you have to understand this. And from my perspective, they cannot do this alone. You know, there's, there's two things that I see on the horizon. One is the use of artificial intelligence. And there are providers out there, and I you know, MERS, customs services, partners with Altana. And Altana is also a product that's being used, a solution, product that's being used by us, Customs and Border Protection. And I always say to our clients, isn't it grand to be able to have the same thing that Customs has to see, the same thing that customs is seeing, and customs is using these solutions to determine risk, and that's what the importer should be using. They need to go outside their own sphere. Many times, importers will say, Well, I send out a questionnaire and I send it out to my first tier supplier, and I tell them to send it to the second tier, third tier, etc. And then I say to them, how do you verify and validate the information you're receiving back? This is a very number one subjective approach. You cannot verify and validate the information it takes so long to collect that type of information and make sense out of it. And if you're using the technology that's out there, such as artificial intelligence, you can synthesize this information in minutes. The other thing that's critical is really to have a partner in the brokerage area that is ethical, has integrity and really provides the level of compliance support that you need. I always say a good broker really is a force multiplier for the importing community. There are a lot of folks out there that are not that concerned in the broker area with compliance, and I've seen it firsthand. And there are others that really, really take this issue extremely seriously and works with their importing community. We are at the point where, you know, you hate to be trite, but it takes a village.
Blythe Brumleve:
9:43
And what do you mean by by that? It takes a village because it you are I think it also maybe would coincide with a broker who wants to be better. So how I guess? How do you know how to be better? Is it just talking to other three PLS, or other brokers? Well,
Unknown:
9:58
I think there's, you know, associate. Regulations. You know, you've got the the various associations out there for brokers. I think that if you build like Merce custom services has built an outstanding compliance department for their clients. They really keep their finger on the pulse with regard to new regulations, new laws coming out, new requirements. You know, you talk about the Lacey Act changing just a few days ago and adding more requirements on importers. It's really getting out there and really understanding what's happening in the trade community. I don't think it's necessary to rely on other importers brokers, but I think it's very, very important to rely on the associations that really do provide a great deal of information, the conferences, things of that nature. So I think that's very, very important to really understand that that part of it, and you'll know when you're compliant, when customs is not doing anything to the entries coming in.
Blythe Brumleve:
11:00
Yeah, that's as long as you don't get a knock on your door, I imagine from your team then,
Unknown:
11:06
right? And you know, a lot of importers tell me they got now, well, do you think I really get caught? And I say, Well, do you really want to take that chance?
Blythe Brumleve:
11:16
You shouldn't have said that to someone like Janet first, right?
Unknown:
11:19
Exactly, you know and you know what, what's your appetite for risk? And in this day and age, as a an ethical you know broker, an ethical importer, being concerned about your brand, being concerned about your financial standing, I have seen any number of importers really get into trouble with customs, where their goods have been detained. They've missed their selling season, they've now had to hire external attorneys, they've been given penalties, they've lost product. Do you want that in your company? And really, you should be looking at this and saying, What happens if I miss my season? What happens if I have to pay $2 million in penalties? What happens to me if my brand is damaged? Then I think these are the type of questions that importers really need to ask themselves to be able to determine and identify really, what is your risk appetite? And it should be a very small appetite that you have for risk your appetite for compliance should be very, very, very, very big. Your risk appetite should be very, very small.
Blythe Brumleve:
12:37
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Unknown:
13:33
Well, I know one of the things that that MERS custom services does is they do a compliance review for importers, and they, you know, they look, what are you bringing in? What are the countries of origin? Are there any specific regulatory challenges to your product? Okay, do we have anti dumping, countervailing duty? Have we had problems with, you know, forced labor in this area? So, what is your exposure in that way, where you where you kind of can look at the importer. And of course, I suggest the importer do that themselves. I think that really one of the most important departments in any importing company is the compliance department. And there should be a process where you're looking at, where are you sourcing? What are you what are your sourcing habits again? What are there any particular requirements that are over and above the normal? Hey, I valued it correctly, you know. I, you know, classified the product correctly, etc. You know, am I? Am I leaning toward any type of unnecessary risk for my company? And I think again, partnering with a good broker will allow you to get those insights and to microscopically Look at that. The other thing you can do is you can. Use third party providers with regard to artificial intelligence, because those algorithms of risk are built into the data set. And you can see, oh, hey, wait a minute, I've got a red flag potentially here on this product with regard to this country, and not only that, drilling down to, you know, with regard to a supplier. So I think that that's important. The other thing that's important is generally looking at, you know, the rulings and the legal determinations that customs makes with regard to product coming into the into the country, so especially with regard to using, you know, free trade agreements or trade preference programs. Am I really understanding how my product is being made? Do I really understand that it meets the rules to get a preference? And that's going to be, I think, in 2025 more and more of a focus for the government. It's going to be forced labor. It's going to be okay if we're going to be doing more near shoring and using more free trade agreements like the usmca or, you know, the CAFTA agreement. Am I really in compliance? Customs tells me that not only do they want to know about who's in the supply chain and what's being done in the supply chain, they also want to know how goods, inherently are being made. So what are the component pieces? Because, for example, we know with forced labor, it's not just necessarily the final product that they're looking at. It could be any component to that. And I think that, you know, one of the examples that I give is I had one client who was detained, and they said, you know, it's, it's wearing apparel, but we got all the cotton from India, and it's organic. And I was like, Oh, that's a slam dunk, no problem. But then they shipped that cotton, the raw cotton, to be ginned in China. And customs came back to me and said, prove that not one thread of the Chinese cotton that was in the shipment before this one that was ginned got into this product. So we're not talking about a situation where we're just looking at the final product. You could have one thread in a shirt and that entire thing is tainted, it's contaminated, and it's subject to detention. It's subject to seizure. So the old ways really aren't going to work. People have to really and when I say people, I mean people in the trade community have to strategically put a plan together as to how they're going to address number one, you know, the products that they're bringing in, where they're bringing them in from. And then what do I do if I get a detention What do I do if I have a problem with regard to the goods being seized and I no longer have a season that I can meet, I can no longer put product on the shelf? And I think that's, you know, what people really, really have to have to do? How accurate is the data that I'm getting. How confident do I feel in what's happening? And as I said, I think you know, what I say is more and more companies need to push the compliance structure further away from the port of entry as possible, to the point where you say, Can I really put this product on the ship, the truck, the train, the airplane, whatever it is to ship it to the country of import, or do I have enough risk that I can pretty well think that customs is going to detain these goods when they arrive. And, you know, it's, it's a many of these things, obviously, are global problems. They're not just problems with regard to the US. You know, January 1, we have the European Union coming in with their forced labor requirements. And again, it's not country specific, like the UFL PA is, but it is an across the board. We've got Canada that's operating, you know, Mexico is starting to gin things up. And my understanding is the Department of Homeland Security is reaching out to our trade partners to have more harmonization, to do best practice sharing to show how US Customs has enforced, you know, the forced labor laws, etc. And I think you know, in 2025 there are going to be a number of trade what they call remedies. You may also want to call them weaponizations. Okay? That that may be used with regard to the, you know, geopolitical leverage, such as tariffs. And we've seen this, you know, the rhetoric with regard, recently, in the last week or so, with regard to Mexico and Canada. We've seen this in regard to our relationships in China, I think more and more the US is going to look at, you know, what's our trade relationship with the entire African continent. You know, we have the African Growth and Opportunity Act, but will we see more free trade agreements? Because here we have a dynamic right now where China is saying we're not going to export critical minerals. We know that Africa is a critical mineral area for us. We know how important critical minerals are for all our electronics, etc. So I think there's going to be a lot of challenges, a lot of complexities, and some shifting as we go forward in 2025 but the operative word is going to continue to be enforcement of the law.
Blythe Brumleve:
21:08
And so we've talked a lot about the companies that that want to be compliant, that want to do the right thing. But what about the flip side of things you know? Kind of where you know the, I guess, the juicy to catch a smuggler, you know, type actions are taking place. How do you, how do you find the companies that don't want to look and make sure that that, you know, one thread of cotton is not in compliance? And so how do you, how do you find those bad guys?
Unknown:
21:37
Well, I think, you know, I laugh, because when I was in customs, and I, as you mentioned, I was there over 30 years, and I really worked on the trade enforcement side. And you know, one of the things that I said when I saw the new, you know, artificial intelligence approach, I was like, Wow, if I had this one when I was in customs, I would have been sitting in a catbird seat. And I think one of the things is that if you have a good system and a good solution using AI that's helping you with, you know, your risk assessments as a regulator, a lot of these things are going to bubble to the surface very quickly. You're going to see problems in the supply chain. You're going to see people move in and out of the supply chain. You're going to see people change their business relationships. You're going to see people beyond the scene for three, you know, transactions, and then all of a sudden they disappear, and you will see them come up again as a new company. And as you look more and more at that type of information, it's going to become pretty obvious that you have a potential risk when I, you know, when I was in customs, just before I retired, I worked on a product that was probably the best thing I ever did in my entire career. So I'm glad I didn't, I didn't retire two years earlier, but we called it operation Mirage, and it was, you know, what you see is not what's there, okay? And we were looking at the importation of textile products and wearing apparel into the US, because some people in the trade community had gotten in touch with me and said, you know, there's something wrong. I can't compete with the prices that I'm seeing. And really, we started to dig into, you know who was bringing the product in. What did we know about them? And we then found out after a series of attempted visits that 55% of the companies that we were looking at did not exist at the addresses in the United States that they said they were operating out of and as a result, we found out that we had players overseas that were orchestrating all of these transactions, and they had no presence in the United States. So at the time, my boss said, Go and penalize them. I said, How do you penalize Casper the ghost? They're not here. Okay? So there's a lot that goes on that I think now with the type of data that we have, the type of analytical skills, the machine learning, etc, I think gives us a great deal more insight into actually what is happening in the transaction or not happening in that transaction.
Blythe Brumleve:
24:23
How, in your experience, how, how much, how willing, I guess, are other countries and their customs and border departments willing to work with the US?
Unknown:
24:36
Well, I think they will be willing to work with the US. But I also think that in many instances, it's kind of difficult, okay, the inherent regulatory framework may be different, the level of expertise may be different. You know, I'm a at heart, a customs person, so I always look for. Very, very positively at the custom services. I have done work in Vietnam with the custom service. There done work in the Republic of Georgia. I've been all over Africa, the Far East, etc. But I also think that there's a lot of challenges. There's there's challenges with regard to, you know, obviously, the level of expertise, I think that there's challenges in some areas with regard to corruption. There's challenges with, you know, differences in priorities. There's, you know, obviously some countries out there that don't have any laws with regard to forced labor. In some instances, the custom service, services overseas. It's the only way that any kind of solid, regular revenue is coming into the government. So as a result, you know, their priority is totally revenue driven. So you know, are the goods declared correctly? Are they classified correctly? Are they valued correctly? And some company countries, you know, they they see certain things that are prohibited, and other countries don't see the same things that are prohibited. So, you know, trying to use an organization like the, you know the role Customs Organization and we now have, you know, former US, Customs and Border Protection, Ian sounders as as the head of the WCO, and using platforms like that to raise concerns, To raise issues that are maybe not as much transparent in other countries, or that you don't have a uniformity of approach. I mean, it was through the WCO and the WTO that you wound up getting the Harmonized Tariff Schedule, because before that, everybody had their own way of you know, obviously classifying the goods trade is global, and there has to be a harmonization, and, you know, there has to be a commitment to assist each other in trying to address the risk, the inherent risks, in trade. We'd like to sit back and think that everything that's coming across the border is compliant, and, you know, doesn't have any violations, and there's no fraud being committed, and everybody's doing what they're supposed to do. But that's a wee bit naive.
Blythe Brumleve:
27:32
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Unknown:
28:29
Well, I you know, I think in a number of years that I worked there, I had the textile portfolio, and it's probably one of the most regulated, the clothing that's on your back is one of the most regulated items commodities that come into the United States. And of course, you know, one of the things that you have to look at is, if you're using a trade preference program. The rules can be very arcane. So the more that you're using trade preferences getting duty free treatment, the rules can really wrap you around an axle. No pun intended, really, I think other things that that you know, so the textile industry certainly really understanding the component pieces of electronics and, you know, critical minerals and things like that. The other day, somebody at DHS said to me, where do we start enforcing critical minerals, you know, how do we get back to the mine? You know, with textiles, how do we get back to the cotton field? So, you know it depends where in the supply chain your risk is. If you're looking at the final factory where something's being made, and somebody sitting in that factory, and they are in a forced labor dynamic, that's one thing. But if you're pushing back through the entire chain to a feel. To a mine. That's where it becomes very, very, very challenging.
Blythe Brumleve:
30:05
And then how do, I guess, you You protect against, maybe a mine, or, you know, a textile facility that was compliant, maybe they, you know, become less compliant over time. How do you, how do you find out that there's a problem there, and then alert the rest of your customers or importers that there could be a problem.
Unknown:
30:27
Well, you know, one of the things is that, you know, from a customs perspective, I'll speak now, you know, customs doesn't very often tell you, hey, the risk is Acme over in such and such a place, okay? They'll just tell you, Okay, you know, we're going to be looking at this particular commodity. We're going to be looking this particular country of origin. Understand your chain, okay? And, you know, one of the things that we see is there's a lot of illegal trans shipment, so that all of a sudden you start looking at things I remember, I remember working on garlic years ago, and garlic, at the time, had the highest anti dumping duty rate. It was something like 327% and the garlic association in the US was very, very concerned about garlic coming in and whatnot. And you know, you look at these things, and all of a sudden you start seeing shifts. So you you look, and they say, okay, garlic from from China. All of a sudden, China disappears. And then you start seeing Vietnam, Thailand, Indonesia, Bangladesh, and they weren't in the mix before at all. So now you've diffused the product and the problem. Okay, as soon as you do that, it's it's like a tentacle approach. The web is being spun. Everybody is moving in different directions, and that's why I say artificial intelligence really shows you that movement before, when I was in customs, we'd have all these charts, and we'd be plotting and planning it, you know, everything, it felt like we were detectives in a murder mystery, and sometimes you'd hit it and sometimes you wouldn't. And I would always say, Well, you know, we go after low hanging fruit, because it's easy to go after, and you find things that way. Things have become much more complex. And I think using, you know, the technology that's out there now gives you the insights, and then, you know, we're then able to say, hey, we're seeing this in your chain. And you may want to look more carefully at this. You may want to engage your suppliers. You may want to change your suppliers. You may really want to change your country of origin and make sure that one of the things we also look at is, who owns everybody in the chain. So, you know, that's, that's the thing. It's somebody new in the chain. Where did they come from? Those are the things that you start to ask questions about. And you know, we talk to our clients continuously, as we see different things, and we certainly send out, you know, client advisories and things of that nature. And of course, I do what we call these quarterly business reviews with our key clients. And I always tell them, Okay, here's the here's the crystal ball. Look. Just so you know, my crystal ball is cracked. But here's what I see in the crystal ball, what's happening. Here are your vulnerabilities, your potential vulnerabilities with the product that you're bringing in. Here's what I've heard through the grapevine. You may want to look more carefully at this. You may want us to do an audit and check out what's happening. You may also want to look at a third party provider that has data that you don't and then has analytical skills that you don't to look at what's happening.
Blythe Brumleve:
34:13
I anecdotally, I from going through, you know, I guess airport security, which I know is not probably, you know, customs related, but, you know, watching, going back to the, you know, to catch a smuggler show, and then to listening to, you know, a lot of the points that you're making about, AI, I'm curious. It feels like the customs border, that team really is the one of the first that's adopting new technology and new trends. Am I off base in that thinking? Because it seems like there's a lot of tech going on and y'all are fully embracing it, which is cool to see.
Unknown:
34:47
Yeah, no, I think you're, you're totally right. And I think the thing that really pushed it is the E commerce dynamic. And, you know, customs was being drowned in small packages, and then all of a sudden they have issues with regard. Add to Oh, you got this, you know, Uyghur forced labor Prevention Act that you have to enforce immediately. Then you have, you know, the 301, tariffs. So I think there was so much hitting them and again, using the term that they use, we can't resource our way out of this in terms of human resources, but we have to have resources that are technologically advanced to be able to help us resource through this. And I think that's that's really what happened, and they really went cutting edge on some of these things. And as a matter of fact, I was exposed to Altana AI because of the former commissioner of customs who's on their board, and he said, you know, you work the trade angle of everything, look at this and tell me what you think. And I did work not for the company, but with the company for about a year and a half to help perfect what the solution provides, because I was seeing the challenges, the problems that not only our clients were having, but also recognizing, when I was a customs official, the same challenges and complexities that a regulator would have. And so I think customs was very, very smart to pick up this information. And you know, some of our clients say, Well, how do we know this information is accurate? I said, by the mere fact that customs is using it, they have a great deal of confidence in that information. And I would say that level of confidence that Customs has should spill over to your company.
Blythe Brumleve:
36:46
And so how do, I guess, you start use, how do you know what AI to use, what AI to trust? I mean, it sounds like that the company that you worked with for, you know, a year and a half or worked with, it sound like they have one of the top tier solutions when it comes to analyzing those different I guess risk assessments is that what they're I guess the software is doing is that it technically plugs in to an importer's database and then maybe raises red flags.
Unknown:
37:13
Yeah, that's part of it. But, you know, they have some analysts. For example, when PVC flooring came up. Had one, one analyst who worked in China, worked in the PVC industry, understood the industry could look at the data and say, Now this doesn't look right. It's not a solution that you just throw at the importer and say, Okay, now figure it out yourself. Okay, you can't do that. And the other thing is, what I always say is you're looking at the same thing that customs is looking at, and that, I think, is one way to really identify who you're going to use in this space. And I think you ask those questions, are you, you know? Is any government organization using this? Is any non government organization using this? Who are your clients, you know, and going out and checking with those clients, getting references and saying, you know, have they helped you have have you had issues? Have they been able to identify risk that you did not see, and that you were able to take, you know, positive steps to ameliorate that risk. So I think that's, you know, that's one of the key things, is, you know, to be able to sit back and say, Hey, customs is using this. It's not going to hurt you to use this either.
Blythe Brumleve:
38:41
How much of a dramatic impact you mentioned e commerce having this large impact on on customs. What about from the the the temu, the she in angle? I think I heard you mention at that cscmp talk that they're responsible for 30% of all shipments coming in on the West Coast? Yeah,
Unknown:
39:02
I believe so, yes. And, you know, and I just saw the other day that there is a US government investigation with regard to the Timu process. And so I think that there's the potential, you know, when you're flooding the market with many, many products. How compliant is the temu company? I can't say. I don't know specifically, but I think it raises questions. When you have someone that is so engaged in E commerce, you know who's watching the store, so to speak. So I think there are questions that need to be asked, there are processes that need to be looked at, maybe some tightening up needs to be done. I can't say specifically, because I don't know you know how they. Operate. There's been many allegations, but you know, you have to prove the allegations. And I'm not in a position to to say anything about that, really. I can only say, You know what I've seen, you know in the press, and you know what the government is look, you know, looking at etc, that they do have some concerns, and somebody has to do that, that look see to find out exactly what's going on.
Blythe Brumleve:
40:28
Does Amazon kind of fit into that same boat, or do they have a whole do they have to technically follow all of the US regulations? I mean, obviously they do. But are they in maybe a different category from an E commerce perspective, because I think they're also opening up a factory to compete with, or a shipping location infrastructure in Southeast Asia in order to compete with temu and she in are they going to face, or are do they face the same sort of challenges as a Shein or temu? Well,
Unknown:
41:00
I, you know, I think that we always have to remember that whoever the importer of record is is responsible for the compliance. So if you know, if you've got a third party in there that nobody knows about, there's still a responsibility on the part of the team who's the shins, the Amazons, etc, to make sure that you know products are not prohibited, that you're bringing in product that is in compliance, that follows the rules and regulations. And you know, I think because Amazon is a US company, they're much more aware of what their responsibilities are, and they take those responsibilities extremely seriously, that I know personally. And so, you know, you can compete, but the competition has to be such that compliance is the key factor to what you're doing, you know, and how, how compliant you know, other countries businesses are, that remains to be seen.
Blythe Brumleve:
42:10
Where is there? So we've talked to, you know, about, you know, fentanyl coming over the border, and how that that's a huge issue. You know, maybe some, some other companies are trying to to skirt regulations. But do you have a, maybe a favorite case, or, you know, a favorite investigation that you're you led on your team, and how did you, I guess, discover it?
Unknown:
42:32
Well, you know, again, I think operation Mirage was my, my favorite, all time favorite, because what happened was the trade community tipped me off to it, somebody in the trade community and I decided that this really critically needed to be looked at. And at the end of the day, what we determined was that even in a small universe of companies that were shipping to the US and importing into the US, we lost over a billion dollars in revenue from just about 160 companies. And if you look at the number of companies that are operating in the US, it's the hundreds of 1000s. And you know, you make the leap of faith that people are trying to do the right thing, so how do you carve out those that are not trying to do the right thing, and then, what is that impact? And how do you stop it? You know, one of the things I say, and I say this about AI as well, is you need a, not a reactive model. You need a predictive model. And very often, you know, we look at, oh, this happened before, and they did this, they put a false wall in a container, or they did it using this particular methodology, and it's going to happen again, and then it doesn't because they know, you know, and they've shifted to something else, okay, so really understanding and having somebody out there that really has access to a lot of data that can be crunched very quickly. And like I said, Operation Mirage was was such that one of the questions that I raised was, here you here, you have importers or supposed importers on paper, and they're not there. And how does that really affect the whole security angle, the anti terrorism angle, the CT Pat angle of how businesses are bringing products into the United States, if they're lying about who they are and where they are, what's to say? They're not lying about everything else. And so, you know, Operation Mirage gave us that that look see into kind of the underworld and the dark side of of importing in a in a violative environment. So. So that's what, you know, that's probably about my best one. I mean, I found other, you know, companies that mis describe goods like, you know, patio furniture and its textiles, or, you know, things of that nature, because textiles has some of the most highest tariff rates on them, because it is such a protected industry, and so you don't want to, you know, you don't want to pay, you know, 30% on a polyester shirt coming in. So you're going to call it something that has a zero duty rate, you know, you're going to call it a patio chair or whatever. Okay,
Blythe Brumleve:
45:38
that's interesting because I just was thinking of my camera that I have that that's recording this right now, and in order to get it, or in order to order it, I guess they had to ship it as a camera, and not a video camera, because the tax rates or the import rates were higher,
Unknown:
45:56
but they're just gonna go after You.
Blythe Brumleve:
46:00
Am I the importer of record? Probably,
Unknown:
46:03
oh my gosh,
Blythe Brumleve:
46:06
that is getting cut from the conversation, right?
Unknown:
46:09
And they got penalties next, and you,
Blythe Brumleve:
46:12
oh no, well, it's just, it's just, it's a different camera. Yeah,
Unknown:
46:15
right, right, yeah, I was going to use it as a different camera, and then found out I could use it as a video, yeah, exactly, you know, it really some of the tariffs with regard to, for example, the anti dumping duty. Sometimes these tariffs are not on the product, per se, but what the product is being used for. So, you know, you could have a microphone, and if you use the microphone in a radio or whatever, you know, it then becomes subject to the duty. And if you use it for something else, it doesn't. So that's another complexity for customs, you know, how is this product? Not only, how is it made, how is it being used? Who made it? Where did it come from? So there are a lot of, you know, t's to cross and I's to dot, you know,
Blythe Brumleve:
46:58
and it sounds like you can't really be an importer, unless you have technology in order to help you point out all these things. I
Unknown:
47:05
agree, and I always say that, you know, importing is not for cowards, okay? And really, you know, one of the things that I say is, well, is that, not only is it not for cowards, but you really have to get your hands dirty. Okay, you really have to look. You can't say, oh, I'm just going to forget about that. I had somebody say to me one time, a very large company years ago, just before, really, I'd say, about two years before forced labor really hit hard, and I knew it was coming, and I said to this person, you better look at forced labor, and you better have a strategy in place. And the person looked at me and they said, I don't have time for that. I said, You better make time. I don't. I have too many other things that I have to do. Grant it. Okay? You have to build teams. You have to have compliance structures. I was speaking at a C suite conference the other day, and I said to the the you know, executives, I said, Look, you know, the most important division area in your company is the Compliance Division. You know, they protect your brand. They protect you from, you know, not being able to meet the requirement. They allow you to meet the requirements of getting your product on the shelf. They keep you out of a penalty dynamic. They keep the lawyers at bay. I mean, there's a lot that goes into they keep customs at bay, because once customs finds an issue and they think you really didn't take the steps you were supposed to take and use reasonable care and have a good compliance structure in place. Now you're on our radar screen. There's no doubt about it. So we're going to look, we're going to dig, and we're going to find because we're going to audit you. We're going to check all your, you know, shipments coming in, so on and so forth. You may have your goods detained. You may have your goods seized. So I think that really, those are the things that you really have to be aware of.
Blythe Brumleve:
49:23
What does, I guess, a standard or a modern compliance department look like? Is it a team of a few people powered by, you know, AI software, or is it, you know, a team of 20, realistically that are all handling individual roles? Well, I
Unknown:
49:38
think it's probably a combination. I think, you know, some companies I was dealing with one unfortunate client, nice, and the guy said to me, Well, I'm the only one in the compliance department, and I don't really understand all of this. And I thought to myself, maybe this company didn't make the right decision to number one job. Have one person number two, have somebody that really didn't understand. I think compliance departments really should be not necessarily top heavy, but I think they have to have the tools and resources available to make the correct decisions with regard to the reasonable care used by the company, with regard to, you know, risk assessment and the ability to reach out to third parties to say, hey, we need help. Okay, we can't do it all. There is just too much out there, and it's not going to throttle back, okay? It's just going to, you know, go full steam ahead, engines roaring into 2025, and beyond. There's no doubt about it.
Blythe Brumleve:
50:49
And so, as I guess, as these companies are starting to, you know, maybe realize it, either, you know, by nature of them being in an unfortunate situation where they have to address it, or maybe they're trying to stay up to date with future regulations that may be coming down the pipeline. You mentioned, you know, with the forced labor, is there anything that's coming down the pipeline that people should start preparing for now?
Unknown:
51:16
Well, you know, I do think Blythe that if you have a good compliance structure and you have a strategy as to how you're going to, number one, identify risk. Two, how are you going to address the risk? Number three, how are you going to protect your supply chain? Four, how do you really understand what's happening in your supply chain? That goes a long way. You know, one of the things that the government does, which always drives me crazy, and I always said I felt I could really affect better compliance outside of customs than being inside of customs, is the fact that they don't give you any warning. Now, if, if you know the Entity List with regard to the uflpa, well, I was on a call the other day with DHS, and they said, We're going to, you know, increase the number of companies. They're at 107 now. We're going to increase the number of companies. And you want to say which ones, and you're not going to get an answer, okay? They're just going to say, surprise. Okay, we're going to increase the number of product areas, so commodities, etc. Now they did mention cocoa. They did mention critical minerals, okay, construction material, etc. But it's not like you know. If they pick a commodity out of the air, they're not going to let you know until you see a Federal Register notice that says, you know, on January 1, 2025 you can expect to see XYZ happening, and we're going to add 150 new companies on the Entity List, and you're scrambling as an importer, so you have to have a process in place that allows you the flexibility to move as the risk moves. And frankly, the only thing I see in this day and age that gives companies the tools to be able to do that is the technology inherent in artificial intelligence that can can take inordinate amount of data. You know, if you look at the automated commercial environment and customs, it was one of the biggest IT projects in the world, if not the biggest, okay? And now you've got AI that takes all of that information and in minutes, synthesizes it and gives you red flags and tells you what to look for. And I think that we're in a whole new, different environment. With regard to trade, I always say, you know, people who are romantic say, you know, love makes the world go round. I like to be very practical and real and say, trade makes the world go round, okay? And the challenges are very, very intense. And of course, obviously you got a difference between, you know, large importers that you know probably can afford to have a good compliance department, and then medium companies and then small companies. How does everybody operate in this space, you know, and how? How do you as a smaller company be able to get the same kind of leverage with regard to the data as a larger company may have, they're more in a situation where they're probably insulated from having, you know, going under, although a large company did go under with regard to having a number of detentions and things like that, but a smaller company has a lot more challenges because they don't have the extra resources. The profit margins may not be that big. Maybe the. Saying we can't really get an AI solution at the level that we would like. So there's got to be different levels of approach that they can take in order to protect their business.
Blythe Brumleve:
55:16
Is there almost a little bit of leeway or grace that's given to some of the smaller companies that maybe don't have the staff or the budget of the bigger companies.
Unknown:
55:26
No, you know, the rules and the regulations and the laws are the same. If you're an importer, whether you're, you know, bringing in millions of dollars of goods a year, or you're bringing in hundreds of dollars of goods a year or 1000s of dollars, it doesn't change. And you know, that's that's the issue. And there's no, I don't want to hate to use the word de minimis, because we have another dynamic with de minimis. But there's no with regard to some of these violations. There's no de minimis where you could say you had 150 shirts in the in the shipment, and we think one of the shirts was a problem, or one a cuff was the problem, or the collar was the problem. And we'll let all these go this time. It doesn't work that way. You know, once the the regulators determine that the good is tainted, contaminated, you know, affected by a particular problem such as forced labor. You know that that whole shipment is subject to detention, and obviously, again, subject to seizure, so it's not your best interest. Yeah, and so, and some people have said to me, Well, what happens if I get caught? Is it like, you know, a penalty, a small penalty, no, no, you lose your product. And think about that. I had one company, small boutique company out on the West Coast. They lost their product. They lost their entire, entire selling season. And that selling season for them, represented ten million and they were a small company that
Blythe Brumleve:
57:05
put them out of business. I would imagine they
Unknown:
57:08
were very concerned that they were really on the verge of going out of business.
Blythe Brumleve:
57:13
And so what, what happens to, I guess, all that product? Is it, you know, just destroyed? Is it sent back to the country of origin?
Unknown:
57:20
Well, when I worked the textile program, they used to auction off the product. And I said, How do you auction off violative product? Okay, so we got to the point where everybody agreed we could destroy it. So you could blame me for that, yeah,
Blythe Brumleve:
57:40
because I feel like that would be a little unfair if, you know, one entity is able to make money off of it. And Right,
Unknown:
57:46
exactly, somebody, you know, they buy it in auction, then they go sell it in some in a flea market. You know, this doesn't make sense. This is not right.
Blythe Brumleve:
57:56
So say you're one of these companies. You You have a compliance department, you've adopted AI into your tech stack, and you're trying to do the right thing. How do you know? What are the signals that you are doing the right thing? Well,
Unknown:
58:10
I think you know, the biggest signal is you don't get detentions, you don't have customs knocking on your door. And I think you know, using some of these things provide you with a good track record of, Hey, I am compliant, because these are the things I'm doing. You know, the standard is reasonable care. Now it's very hard to really figure out what the definition of reasonable care is. You know, when I was in customs, you know, the trade community would come in and they'd say, if I do these 10 things, am I okay? And then our lawyers would say, Well, yeah, those 10 things are great. But then they'll come back and say, Well, I couldn't do 10. I did nine. Is that okay? And they said, We're not playing that game. You have to understand what informed compliance means to you. Okay? And I think you have to go the extra step. And Customs has said this, if you do nothing, that's not a that's a non starter. But if you can say, hey, I'm using AI technology, I understand who's in my my chain, I got rid of three companies in my chain, and changed. I understood where the risk was, and I addressed that risk, 123, I moved out of the country of origin. I changed people in the chain. I changed the way my product is being made. Whatever it is you have to show that steps are being taken to identify risk and to address risk in a very positive way. And Customs has said over and over again in various conferences that I've attended that you really should be using the type of technology that's out there. And you know, in some instances. The The other type of technology is, you know, this isotopic testing. And so, you know, I have AI. I use isotopic testing. Here's what, here's my lab reports, here's what I've done. And so I think, you know, you can make a cogent story that resonates with the regulators, but if you do nothing, take my chances. That's not, that's not going to be what customs is looking for.
Blythe Brumleve:
1:00:30
What was the phrase you just said? Isotopic testing? What isotopic
Unknown:
1:00:34
testing? Isotopic testing is a scientific methodology that looks at the isotopes. For example, if you've got cotton, it'll look and it'll determine what, where the soil, where the cotton is grown, and what soil, wow. So if you're, if you're looking at, you know, hey, the cotton shouldn't be really coming from China, from this area. And you do a test, and you see it's almost like the DNA of the product, and it shows, okay, it was grown in this soil. Here's the particular, you know, fingerprint, so to speak, for that soil. And if you could see, oh, the fingerprint is India, didn't go anywhere near China, or the fingerprint is China. So you can, you can look at your product and determine, through that level of technology, what the source is, and that really started a while back. The other thing is, you know, customs is starting to upgrade a number of their labs, lab in Savannah, Georgia and, I believe, in Los Angeles, where they are also doing isotopic testing on product. So, you know, that's another technology that that can be used. But if you say, you know, hey, I sent out a questionnaire, and this is what they told me, and customs is going to say, Well, did you validate that and verify that? One thing we had the other day was an issue with the with a client who attempted to get some documents and they were counterfeit. So, you know, you need something that's objective, not subjective. Somebody made a comment to me the other day in the regulatory sphere that there are document factories being stood up so that you know, when customs ask for documents, boom, they're right. There you got them. But are they legitimate? Do they really tell the correct story? Are they accurate? Can you rely on them? That's what you have to look at.
Blythe Brumleve:
1:02:37
Sounds like the the criminals are, you know, there are the bad guys are evolving every step of the way that and
Unknown:
1:02:43
they always have. You know, if I always say, you know, the one, the one occupation we should never have, is Locksmiths. Because you should leave all you be able to leave all your doors open, your windows open, nobody should bother you. But however, as we know, the locks are getting more and more sophisticated because the perpetrators are getting more and more sophisticated. This
Blythe Brumleve:
1:03:08
has been an awesome discussion. I think I got through all of the questions that I wanted to ask. I'm sure I'll think of dozens of more after this is done. But before we conclude, I'm curious is, is there anything coming, maybe down the pipeline, anything that you feel is important that, you know, we should have talked about, that we should have mentioned, that we haven't
Unknown:
1:03:28
already. Well, I think, you know, as I said, you know, the the crystal ball approach to things, you know, what do we think potentially could happen in the future with regard to trade, once we have the new administration in place, you know, I think the ever evolving issues with regard to forced labor, I don't think that's going to ease up. That's a nonpartisan issue. And I think that, for example, if Marco Rubio gets confirmed as Secretary of State, he was the sponsor of the Uyghur forced labor Prevention Act. It's nothing is going away. We've got the use of tariffs potentially in a geopolitical dynamic. I think the whole sanctions issue and how do you leverage that type of dynamic when you you know you have adversaries out there. Trade is more and more being used in that way to try to really address what people would think might be in equities, you know, unfair trade, not having a level playing field. And I think more and more that we're going to see that type of approach in future.
Blythe Brumleve:
1:04:45
Yeah, it sounds like these things are have always evolved, and they will continue to always evolve, which is why it's probably great to have someone like you and the mayor, you know, customs team on your side to help you, you know, filter through all of these different. Complexity. So Janet, thank you so much for your time. Where Can folks connect with you? You know, follow more of your work and get connected.
Unknown:
1:05:08
Well, basically, I'm on LinkedIn, number one. Number two, I'm at Janet, dot Labuda at L and [email protected] at.merck.com so you know, they can, they can reach me at Maersk. Everybody knows me just about so that's easy to connect there. Well, awesome.
Blythe Brumleve:
1:05:31
I appreciate your time that this was an amazing discussion, and I'm sure you know, Grace will be the first one to get it downloaded, and we'll both fan girl over it.
Unknown:
1:05:41
Okay. Well, tell grace. I said hi and send my love. And thank you very, very much for the invitation. It was a pleasure being with you and meeting you. And sorry we didn't have a chance to talk last year. But this made up for it, I think,
Blythe Brumleve:
1:05:55
absolutely. And real quick, she did want me to ask about a book. You said that you were working on a book and she won't know more about it. Well,
Unknown:
1:06:02
it's interesting. I'm working on my really, my my family dynamic. And I was was telling her a number of stories that I probably shouldn't have told about the family, and I said, I have to get this down in a book. So I did. I have started writing a little bit, but with all these things going on in trade. I haven't had a chance to really sit down and do anything further with it.
Blythe Brumleve:
1:06:25
You're a busy woman. It's one of those things back burner item. And you know, when the global trade stops, you know, maybe, maybe catch a break, but I doubt it's going to stop anytime soon.
Unknown:
1:06:35
Well, you know, it's interesting, because in two weeks, I turned 72 at the age of 72 I never thought I'd be talking about artificial intelligence. I never thought I'd still be working so on and so forth, so and it continues to challenge. It continues to really drive a lot of thinking on my part. So it keeps me a little bit young. I
Blythe Brumleve:
1:06:58
love it. I loved that mindset that you had during that cscmp talk, because people are so hesitant to grab on to these new technologies. And I think from especially from a small business perspective, it's one of the AI has helped change a lot of things for me, where I can work as a team of, you know, five to 10 instead of just one person. And so I encourage other, you know, small business owners to get out there and use these tools too. So I appreciate your willingness to share that methodology as well,
Unknown:
1:07:26
definitely. And I think you know, a lot of people, they try to say, Well, maybe it's not good. Maybe AI is, you know, sending us down a road that's, you know, The Road to Perdition, or whatever, the road to hell. But I think, just as with anything else, you know, there's so many positive things about it, and it provides so many insights that you would not have as a company. You don't have all that data, you don't have the analytical capability. You don't have the ability to make a rule, an algorithm to, you know, figure out where the risk is, and as the machine learns more and more and more by going through all these transactions, it's amazing. And I think if you don't take advantage of this type of technology, you're really going to be behind the eight ball.
Blythe Brumleve:
1:08:15
That's well said. And I think that that's a perfect spot to hopefully leave the conversation and encourage folks to go and begin their own journey into a better compliance team and a better compliance department using technology. So Janet, again, I feel like I keep finding new questions to ask you. I'll say it for the third time, I appreciate your time on this show, and we'll have to have you again in the future to talk more about be
Unknown:
1:08:40
great. It'd be great. Thanks very much. I appreciate it. Have a wonderful holiday. Take care.
Blythe Brumleve:
1:08:45
Thank you. You too. Bye, bye. I hope you enjoyed this episode of everything is logistics, a podcast for the thinkers in freight, telling the stories behind how your favorite stuff and people get from point A to be subscribe to the show, sign up for our newsletter and follow our socials over at everything is logistics.com and in addition to the podcast, I also wanted to let you all know about another company I operate, and that's digital dispatch, where we help you build a better website. Now, a lot of the times, we hand this task of building a new website or refreshing a current one off to a co worker's child, a neighbor down the street, or a stranger around the world, where you probably spend more time explaining the freight industry than it takes to actually build the dang website. Well, that doesn't happen at Digital dispatch. We've been building online since 2009 but we're also early adopters of AI automation and other website tactics that help your company to be a central place, to pull in all of your social media posts, recruit new employees and give potential customers a glimpse into how you operate your business. Our new website builds start as low as$1,500 along with ongoing website management, maintenance and updates starting at 90. Dollars a month, plus some bonus freight, marketing and sales content similar to what you hear on the podcast. You can watch a quick explainer video over on digital dispatch.io, just check out the pricing page once you arrive, and you can see how we can build your digital ecosystem on a strong foundation. Until then, I hope you enjoyed this episode. I'll see you all real soon and go jags. You.
