Here, we explore whether investing in a separate Service Level Agreement (SLA) with your customs brokers could be a worthwhile step to better protect your business and strengthen the relationship with your customs broker.
The relationship between customs brokers and import businesses is complex and often misunderstood. Brokers make legal customs declarations on behalf of their clients, binding the business to these declarations while assuming little to no liability for any errors. This dynamic leaves companies exposed to potentially significant financial and reputational risks. Yet it is rare for import businesses to question or negotiate the industry-standard contracts that govern these relationships.
Most customs brokers operate under the British International Freight Association (BIFA) standard terms. These terms place the responsibility for errors firmly on the client, not the broker. While the contract includes limited liability clauses, they are typically insufficient to address the potential liabilities arising from broker errors.
Businesses inadvertently leave themselves vulnerable by agreeing to the BIFA terms without fully understanding their implications. For example, the contract includes a clause that allows businesses to request increased liability coverage for certain customs errors. However, this clause only applies if the client actively chooses to invoke it—something few businesses are aware of.
Adam Wood, Head of Commercial for Barbourne Brook commented:
“Most import businesses are unfamiliar with the BIFA terms governing their relationships with brokers the relationship between themselves and their brokers, leaving them exposed to unnecessary financial and reputational risk.
Two important considerations are here for the person managing the relationship with brokers. Firstly, what steps have you taken to ensure liability is shared appropriately with the broker? Have you considered negotiating a bespoke service level agreement? Secondly, how seriously are you taking your side of the partnership? How accurate and complete is the information that you provide to brokers? What systems do you have in place to review declarations post-clearance?”
Safeguarding Your Business with Bespoke SLAs and Legal Expertise
To mitigate risks and ensure shared responsibility, businesses should establish a detailed SLA that outlines the broker’s obligations beyond the standard contract. For example, if a company is called for audit, they must provide customs declarations from the past three years, and it is critical to the business that they can do so. This requirement is not specified in the BIFA contract but can be addressed through a bespoke SLA to safeguard the business’s interests.
Engaging commercial lawyers to activate the liability clause in the BIFA contract and draft enforceable SLAs is highly recommended. While contract negotiation may not fall within a company’s usual expertise, partnering with legal experts who understand both customs duty matters and the legal intricacies can provide critical protection.
By taking a proactive approach to better understand standard customs broker contracts, you can assess the implications and determine whether commercially justifiable variations, such as bespoke SLAs, would better protect your business and build stronger, more accountable partnerships.
Ian Wildish, Solicitor at Womble Bond Dickinson, commented:
“The BIFA terms raise several legal considerations for importers. As the owners of the goods and instructors of agents, businesses should strive for greater control to effectively manage risks, regulatory compliance, and insurance obligations. Relying on standard terms can be inherently risky. In most transactions, the initiating party, typically the importer, would propose their own terms to govern the agreement, an approach that contrasts with the BIFA terms.
Aside from capping the broker’s liability to a certain amount per kilogram (which may be significantly less than the actual value of the goods), the BIFA terms raise further legal troubles for businesses. For example, clause 27(B) imposes strict time limits for making claims, i.e. claims for loss or damage must typically be made within nine months of the event. Missing these deadlines can result in the loss of the right to claim. Furthermore, clause 20 requires an importer to indemnify a freight forwarder against various liabilities, thereby placing a significant financial responsibility on the importer, considering the potential costs and legal issues that may arise while transporting and handling goods. There are a host of other concerning provisions for importers in the BIFA terms, highlighting why investing in a separate SLA could prove worthwhile for businesses.”
Talk To An Expert
Need help with customs compliance or looking to save on costs?
Share your contact details, and one of our experts will be in touch to assist!
Related Posts
Smart Customs Planning: Achieving Savings Through Strategic Planning
There are all sorts of tried-and-tested…