Lessons · Lesson 5 of 6
What the relief costs to run, and the break-even
Build the annual running cost of a relief regime line by line, and work out the volume of imports below which it stops being worth having.
Lesson 5 of 6 · 18 min
The price of the relief is not on the tariff
Everything so far has priced what the relief gives back. This lesson prices what it takes, because a regime is a permanent operating commitment and it is almost never costed as one. In a factory's accounts it appears as a bit of somebody's time, a bank line and a consultant's invoice, spread across three cost centres and added up by nobody.
Here is Halvern Apparel's inward-processing authorisation, costed for the year:
| Line | USD a year | Note |
|---|---|---|
| Compliance clerk, 0.6 of a post, loaded | 6,840 | Entries, stock account, discharge schedules |
| Broker's discharge schedule, 96 export entries at 38 | 3,648 | The extra over a normal export entry |
| Bank guarantee at 1.8% on an average suspended balance of 210,000, plus issuance fees | 4,560 | Guarantee live all year |
| Annual authorisation fee | 1,150 | Marnesa's fee, illustrative |
| Stock-accounting module in the ERP | 2,300 | Licence and support |
| External review before the annual return, 4 days at 640 | 2,560 | Serhan Adiye |
| Total | 21,058 |
Two lines in that table are the ones people leave out.
The broker's extra is not the export entry itself, which Halvern would file anyway. It is the extra work of tying each export back to the authorisation so that it discharges something. Ask your broker to quote it separately. It is the line that grows with the number of shipments rather than with their value, so a buyer who splits one order into six sailings has just moved it.
The guarantee is not a fee. It is a rented balance sheet. It is sized on the average suspended amount, not the peak, and the average is driven by how long cloth sits between import and discharge. Shortening that gap is the only lever on this line that does not involve arguing with a bank. Track 13 owns the cost of money properly. This is one application of it.
What it returns
Halvern imported USD 1,840,000 of fabric CIF under the authorisation during the year. At the illustrative 12.0% duty, the relief returned USD 220,800 of duty that would otherwise have been borne.
USD 220,800 returned for USD 21,058 spent. Ten and a half to one.
That ratio is why nobody argues about whether to have a relief regime. It is also why nobody costs it, and why the wrong question gets asked when volumes fall.
The break-even, and why it is a volume
Almost every line in the table is fixed. The clerk, the authorisation, the ERP module and the annual review do not shrink when the order book does. Only the broker's extra and part of the guarantee move with volume.
So the regime has a break-even, expressed in imports:
USD 21,058 ÷ 12.0% = USD 175,483 of dutiable imports a year.
Below that, the relief costs more than it saves. Above it, the ratio improves with every metre.
Put it in the factory's own units. One order like TR-7715 imports USD 173,104.80 of cloth. The break-even is 1.01 orders a year. That sounds as though the regime pays for itself immediately, and for Halvern it does. But read the fixed lines again. The 0.6 of a clerk's post is 0.6 because there are ninety-six export entries to attach. A factory doing one order a year does not need 0.6 of a clerk, and its cost table is a different table.
| Line | USD |
|---|---|
| Compliance clerk, 0.15 of a post | 1,710.00 |
| Guarantee for 263 days, plus issuance fee | 881.46 |
| Annual authorisation fee | 1,150.00 |
| External review, 2 days at 640 | 1,280.00 |
| Broker's discharge schedules, 3 export entries at 38 | 114.00 |
| Total | 5,135.46 |
Against duty relieved of USD 20,772.58 on that one order, the ratio is 4.0 to 1. That is still comfortably worth having, which is the honest answer for fabric. It is also the reason lesson 6 has to look somewhere else for the cases where relief is not worth claiming.
Where the running cost really goes
If you want the annual number down, there are only three levers, and two of them are free:
- Shorten the suspension period. Every day between import and discharge is guarantee cost and audit surface. Cloth that lands eleven weeks before cutting is a decision somebody made in planning, and it has a customs price nobody put on it. Track 7 owns the critical path. This is one more thing hanging off it.
- Reduce the number of discharge events, not the number of shipments. Six sailings against one order is six discharge schedules. Consolidating the paperwork, with one discharge covering a batch of exports where the procedure allows it, costs the buyer nothing.
- Keep the stock account current rather than rebuilding it. An hour a week is roughly six clerk-days a year. Lesson 4's rebuild was 31 days plus 9 consultant days. The maintained version costs about a sixth of the rebuilt one, and it is the same work.
Check yourselfYour order book halves next year. What happens to the case for the regime?Show the answer
The saving halves and most of the cost does not, so the ratio gets worse about twice as fast as the volume falls. Recompute the break-even first. At USD 21,058 of fixed cost it is USD 175,483 of dutiable imports, so the question is whether next year's imports clear that, not whether they fell. Then look at which lines can actually be scaled down. The clerk's fraction and the broker's extra can. The authorisation, the ERP module and the review largely cannot. Do not drop the regime on a bad quarter. It is slow and expensive to get back.
What to take away
- A relief regime is an operating commitment with an annual cost. Build the table once, and keep the broker's extra and the guarantee in it.
- Halvern's regime returned USD 220,800 for USD 21,058. That ratio is normal on fabric and is not the interesting number.
- The interesting number is the break-even, because the cost is mostly fixed: USD 175,483 of dutiable imports a year.
- The guarantee is sized on the average suspended balance, so shortening the gap between import and discharge is the one lever that costs nothing.
- The running cost is the price of not having a bad audit. Price the thing you are preventing before you cut it.