The Deringer Difference

Q&A: Deringer's President & CEO, Jake Holzscheiter, on the front lines of trade tensions - VTDigger Article

Posted by David Laroche on Jul 15, 2019 9:19:20 AM
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The following article was written by Anne Wallace of VTDigger.org.

Anne Wallace Allen is VTDigger's business reporter. Anne worked for the Associated Press in Montpelier from 1994 to 2004 and most recently edited the Idaho Business Review.

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ST. ALBANS – Every time President Trump tweets about trade or tariffs, Jake Holzscheiter’s phone starts ringing. As president and CEO of A.N. Deringer, the largest privately owned customs brokerage in the country, Holzscheiter likes to respond to those calls with information about how the latest change in policy, or threatened change, could affect imports.

“The best thing we can do is arm them with the best information to make the best decision,” he said.

Holzscheiter, 49, has worked at the family business his whole adult life. He’s never had another job, apart from mowing some lawns in high school. He left St. Albans for four years of college at Washington and Jefferson College outside Pittsburgh, and then spent a year working in an A.N. Deringer office in Hartford. But other than that, he’s been watching trade policy evolve from the company’s downtown office about 15 miles south of the Canadian border.

As the people who fill out the piles of paperwork necessary to move goods through U.S. ports, customs brokers operate out of the public eye, and Holzscheiter said local residents are often unaware of what A.N. Deringer does. It’s a large company by Vermont standards, with 500 workers, only 60 of them in St. Albans. Another 40 Vermont workers are at A.N. Deringer offices in Highgate Springs and Derby; the rest are distributed among 30 offices at major air and seaports in cities like Atlanta, Chicago, Detroit, Seattle, and Houston, across 20 states.

Alfred Neel Deringer, Holzscheiter’s great uncle, started out as an exporter who sold Canadian hay and grain to the Allies in World War I, according to Holzscheiter. He eventually passed the customs brokerage he had developed to Holzscheiter’s father, who retired in 2004. The largest share of the business, which was founded in 1919, is its customs brokerage services, but A.N. Deringer also provides international transportation, warehousing and distribution services.

Holzscheiter spent some time talking to VTDigger about A.N. Deringer and the turbulent trade environment. The interview has been edited for length and clarity.

VTDigger: What do you do up here?

Jake Holzscheiter: An importer with 20 trucks crossing the border needs someone to represent them legally in front of U.S. Customs, and that’s what we do through power of attorney. We do about a million shipments a year; they vary from very expensive oil tankers to inexpensive stuff being sold on Amazon.

For every shipment that comes into the country, you have to file a customs entry. We make sure all the proper duties are being paid and the proper exemptions are being claimed, or taken advantage of. All the other government agencies — the FDA, the USDA, the EPA, the list goes on and on — have a stake in the entry to make sure the proper regulations are being followed, and all the correct data is being submitted to the government.

We’re also a freight forwarder, so we help with transportation, getting it on a ship in China and getting it here. It goes into our warehouse, and we ship it to the customer.

VTD: What’s the government’s interest in controlling imports and exports?

JH: They are charging duties and taxes and fees because it produces revenue, and then certain industries have higher tariffs, like dairy and textiles, to protect domestic markets.

The government also has a security interest to make sure there isn’t a bad actor sending a bomb in a truck. And from an FDA perspective, they are trying to protect the food supply, to make sure there isn’t something hazardous. Frequently they take lab samples to make sure it doesn’t have something it shouldn’t, whether it’s buttons with lead on them or flame retardancy requirements. There are thousands of pages of stuff that the government is interested in being reported and approved.

VTD: Do you collect trade data?

JH: We keep a lot of statistics, and we do a lot of data-mining to help our clients do forecasting.

The last year in particular, with the trade wars — if you want to call them that — have been a very data intense time for us and our clients. All of a sudden your tariff rate is going up 10%, 15%, and customers want to know: If I am sourcing products from China, what is it going to cost next year? If I make the product differently so it’s cheaper, can I source it somewhere else so I can avoid the duty? Can I change the way I buy to legally reduce how much duty I owe? A lot of our customers are struggling with how to deal with trade wars and how permanent they are, and with having a consistent, predictable supply chain.

We also monitor exchange rates closely because it has a big impact, especially on the Canadian side. It has been favorable for U.S. buyers for the last seven or eight years.

VTD: How has the business changed in your time here?

JH: Before, Customs didn’t even know what was arriving until goods showed up. They would report their manifest; they would come to us and we would take care of it.

Post-9/11, everything is now reported electronically to Customs before it comes down, so the government knows what is coming, when it is coming, who owns the goods, who bought the goods, who is the carrier, who is the driver, what the driver looks like, who owns the trucks, who owns the carrier, everything about that shipment. Now they can do their testing and security work before it enters the country. The data has to be reported to the government and accepted before it arrives.

We have a very large IT system; we are the fifth-largest transmitter of data to Customs in the country. The four larger are UPS, FedEx, DHL, and another competitor of ours.

VTD: So how is the trade situation affecting your customers and the economy in general?

JH: Our customers want predictability in their supply chain. There’s a lot of talk about moving manufacturing to a country we have stronger relations with, where it might be more stable. Some are in the process of moving to Vietnam if they can. Or they’ll try to source their raw materials in the U.S., but that’s not necessarily possible for a lot of them.

Our clients to a large degree are going to continue to import in similar volumes, but instead of having maybe seven or eight suppliers in China, they’ll probably move what they can to another country, and maybe keep in China only the stuff they have to.

Up until this point, the tariffs have been targeted on certain commodities. You might have a fully finished product that is taxed or has a high duty rate, but some individual components aren’t taxed. So they maybe move the manufacturing to Vietnam but still source some of the components in the same place, or they move assembly here.

A lot are looking at how to avoid those tax rates any way they can; they can’t just pass along the costs to clients to remain competitive.

It used to be companies would have quite a bit of time to plan for a tariff change; that would be part of a routine process. Now they have to respond so quickly that it requires us to always be up to speed on what is going on.

We’re really involved in our trade associations and we’re able to mine our databases really fast and efficiently, which isn’t something we needed to do in the past. It wasn’t a big deal if it took a couple days.

VTD: How about Mexico?

JH: When there was a threat of tariffs on the Mexican border, as soon as that information was tweeted, our phones started ringing. But that has subsided for now, and we don’t do tons with Mexico.

Because of our market share and location and history, Canada is our largest market. NAFTA was a big threat, the steel duties were a big threat, there was a lot of concern about how NAFTA going to be terminated. The biggest impact for us has definitely been the goods originating in China, and the steel tariffs.

VTD: What’s the future for trade?

JH: I don’t think this trade unrest is going to necessarily change if there is an administration change. We’re in a time where there is a lot of protectionism going on, and there are a lot of changes taking place across the globe.

The market has seen the uncertainty of the supply chain for 20 years; the softwood lumber dispute with Canada has been going on for 40 years. I think it’s going to continue to be very fluid as it’s been over the last year — where any month, something can change.

Anti-dumping and countervailing duties that target certain industries have really escalated in the last eight to nine years. We’re seeing those more and more as industries try to protect themselves from unfair competition, and I think that’s going to continue to increase across the U.S. It’s been going on globally, and it doesn’t have anything to do with our current administration.

The trade war stuff does have to do with current administration and that could tamp down, but it’s anyone’s guess if it will. The trade war topics have almost become not political anymore; you have [Sen. Chuck] Schumer endorsing it and encouraging the president to stand strong with China.

While Trump’s approach may be different than what most would do — like the tweeting — with his willingness to take on the flack on his shoulders, both parties are supporting it in a lot of ways, so I don’t think that’s necessarily going to change with the new administration.

All the press with Huawei, the boundary disputes going on in Asia with the fake island they are building, all that stuff is speaking to unrest globally with China in particular. Trump trying to target intellectual property rights is something that everybody wants, and not just here but in Europe and across the world.

Right now, we have someone leading the administration who is kind of willing to take all the heat, so it’s really popping, but they are not new issues.

VTD: Is all this affecting the U.S. economy?

JH: What I know is that last year, a lot of our clients hadn’t built the duties into their pricing and contracts. A lot of them had to absorb it. This year, a lot of the contracts are now factoring in the increased duties, and so I think you’re going to start to see it hitting the consumer this year. How big that is going to be, I don’t know. It’s probably affecting 300 to 400 of our customers.

I’ve seen stories that contradict every economist out there. The economy is strong, but the biggest impact for our clients is, they want to have predictability in their supply chain.

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