In this episode of Blue Ocean by StartOps, we sit down with Justin Sherlock, co-founder and CEO of Caspian. In this episode, we dive into:

• Duty drawbacks: what they are, how they came into law, and who qualifies.

• How brands can figure out whether “the juice is worth the squeeze” when filing claims

• How Caspian uses AI to automate the complex process of filing claims with U.S. Customs

• The landscape of customs-related service providers, and where Caspian sits in it

Watch or listen on your favorite service:

— YouTube

— Spotify

— Apple

To learn more about Caspian, check out their profile on the StartOps Directory: https://startops.network/companies/caspian

*****

Q&A summary

Q: What does Caspian do?
A: "Caspian is fighting tariffs with AI. We help companies understand their duty exposure and then find them ways to actually get refunds and save money on tariffs. The initial product that we are working on is something called a Duty Drawback, which is basically a duty refund for companies that sell products internationally."

Q: What is a duty drawback and why does it exist?
A: "Most developed economies have some sort of duty refund provision for exporters. The way to think about drawback is really, it's a reward for exporters. Exports grow GDP... Drawback was created in the 1700s. It's one of the oldest export incentives in the US today."

Q: How has the drawback process evolved recently?
A: "The 2018 Trade Facilitation and Trade Enforcement Act called TFTEA was passed in 2018, which actually made drawback fully electronic. You used to have to submit your drawback claims on paper. 2018, that all shifted to online electronic submissions."

Q: Who is eligible to file for duty drawback?
A: "It starts to get really interesting where you have companies that are paying 10 percent plus in duties ad valorem. So somewhere around 5 to 20 percent of their cost of goods is actually duties, and that's where, if you're selling 10 to 20 percent of your sales are international out of your U.S. stock, then you could have a really meaningful claim."

Q: Can you provide an example of the potential financial impact?
A: "If you're a $10 million e-commerce brand importing air conditioners from China, you're paying a 25% Section 301 duty, you might be spending a million dollars a year on duties. And then for every sale that you make internationally, that's a pretty significant duty pool to pull from. If 10 or 20% of your sales are international, you could be looking at $100K or $200K a year in duty refunds, and you can look back five years. So you could potentially be getting millions of dollars a year back."

Q: What would a shipper have to do under ordinary circumstances to claim drawback?
A: "It's this exercise of matching imports and exports. You want your highest duty per unit imports and your most exported SKUs and you're matching those transactions together. You have to get the entry summaries, the commercial invoices, the packing lists on the import side, the ACE data as well on the import side... And then on the export side, you have the purchase order or commercial invoice that you're issuing to your customer... Getting those documents out of your logistics providers is difficult."

Q: How do traditional providers handle drawback claims?
A: "Typically you'll go to a customs broker and they'll say, 'okay, yes, I can do this for you. I need you to give me all your export documents.' The broker will create these data files for you manually or with a BPO... and then they'll use some type of off-the-shelf software product to generate a claim and submit it. None of those tools really have any of the latest LLM technology or even basic OCR for document structuring."

Q: What format is the claim submitted in?
A: "The submission to customs is actually a text file that goes over basically what's like an EDI connection called an ABI, the automated broker interface. Customs has its own software language called Catair"

Q: How frequently can claims be filed and how long until payment?
A: "If it's your first time filing drawback, you file for privileges to do drawback... The application review can take up to 90 days. And then the first claim typically had some type of desk review... that takes about two months typically for the first claim to get reviewed and completed. The shortest you're looking at is four to five months for your first payout. But then after that, you could get them on a monthly basis."

Q: How are payments received?
A: "It's typically actually a physical check that customs will mail. What Caspian is doing is actually doing all the check processing and electronic remittance to our clients. So no client's going to have to wait in the mail and confirm that they got the check... We actually just get the checks sent to Caspian ourselves and then we distribute the funds in Caspian wallet."

Q: How detailed does the matching between imports and exports need to be?
A: "It depends on where you're exporting the products to. If you're exporting the products to Canada or Mexico, which a lot of e-commerce brands are exporting stuff into Canada, you need to track inventory at a SKU level and report inventory in and out. It doesn't have to be exact serial numbers."

Q: Are there different methodologies for matching?
A: "When you're not selling to US and Mexico, it's actually much easier to do the claim because that methodology is called substitution. On that method, you're just looking at the tariff codes and products coming in and out. You're not looking at the individual SKUs and you're definitely not tracking individual serial numbers."

Q: How does Caspian's solution work compared to traditional methods?
A: "The exact state of play of what it looks like is basically customer data submission is in our app. We can integrate with dozens of different ERP and WMS systems and ingest those reports automatically. We do need to get the documents... that piece is still a manual piece where we're reaching out to the broker or they're reaching out to the broker and copying us."

Q: How automated is the process with Caspian?
A: "The software tracks and displays updates on the project to the customer. If there's actions that are needed, puts those in notifications in the app. It also sends emails to customers if there's specific transactions that need to be audited or investigated further. And then the claim generation view submission - all that is kind of user guided. We wouldn't actually generate and submit a claim without getting their approval."

Q: What should shippers consider when thinking about drawback?
A: "The key takeaway is I want everybody who watches this to be able to understand what their claim potential is quickly... Before you even start answering any of those questions, determining if this is relevant for your business... What's the juice is something that I really would love everyone to have a mental model around. That's basically how much duties do I pay per year and how much of my sales are international from US stock."

Q: How does Caspian help brands determine if drawback is worth pursuing?
A: "The first thing we do is get access to the ACE data and assess what is the duty spend on shipments where you are the IOR. That's the first critical piece. And then typically brands will know, okay, well, this much of my sales are from US stock, are exported... that kind of gives you a sense on the opportunity. That's really the first thing we do is get to what is the value here really quickly so that people don't waste their time."