In recent weeks at TSI Global Consulting we have advised several clients on pending routed transactions. Suffice it to say, there is a LOT of confusion in industry over what defines a routed transaction. I figured it was about time to set the record straight, especially because we have good reason to believe that U.S. Customs on behalf of the Department of Commerce is cracking down and imposing fines and penalties on exporters and/or freight forwarders who have documentation errors and/or make false statements on the EEI filing (regardless of whether they be knowingly or out of confusion caused by innocent ignorance of what defines a routed export). Failure to properly document a routed transaction on the EEI filing is a violation of the Foreign Trade Regulations subject to fines and penalties So, in brief, use caution and here is the story.
Under the Foreign Trade Regulations (15 CFR Part 30.3) a routed transaction is defined as “a transaction in which the Foreign Principal Party in Interest (or FPPI) authorizes a U.S. agent to facilitate the export of items from the United States and prepare and file the Electronic Export Information (EEI) through the Automated Export System.”
O.K, so given the above definition let’s say Exporter “A” (i.e. the US Principal Party in Interest or USPPI) is instructed by its customer the Foreign Purchaser and Ultimate Consignee “B” (i.e. the Foreign Principal Party in Interest) to export a $3000 machine tool using their (Foreign company B’s) freight forwarder in the United States to export the machine tool. Is this a routed transaction? The answer is NO unless a contract between Exporter “A” and the foreign purchaser and ultimate consignee specifies that that transaction is “ex-works” (EXW) or there is some other written agreement with the USPPI in which a) the FPPI accepts responsibility for export clearance and b) the FPPI has provided a Power of Attorney to their US agent/ freight forwarder authorizing them to prepare and file the EEI. It should be noted that while the Foreign Trade Regulations (15 CFR Part 30) were not written to accommodate INCOTERMS, Ex-Works is the ONLY incoterm in which the buyer is contractually responsible for export clearance. The important point to note is that a routed transaction is NOT determined by which party appoints the freight forwarder, rather it is determined by which party has undertaken the responsibility for formally clearing the goods for export.
In an ex-works routed transaction, the FPPI issues a Power of Attorney either to the USPPI or to an independent agent granting them the authority to prepare and file the EEI on their behalf.
See the following link (Click HERE) for a full overview of the responsibilities of parties in routed transactions. A good overview of Incoterms can be found HERE and HERE. And our parting “word to the wise” if you are looking to avoid possible disputes with U.S. Customs down the road is that it is fine for a foreign customer to appoint a forwarder and pay for freight, but make sure the INCOTERMS are clearly delineated in your contacts or at a minimum that all parties are clear and have authorization in writing that defines as to who is responsible for export clearance, issuing the Power of Attorney and filing of the EEI. For further information on routed transactions please contact TSI Global Consulting, LLC at 210-757-0618.
Disclaimer: The information noted above should be interpreted as general guidance and cannot be relied upon as legally binding and applicable when applied to a specific export transaction. Please seek transaction specific counsel prior to acting on this advice. TSI Global Consulting holds no liability for actions taken by your company that were not reviewed and recommended by our firm.