cargo damage, cargo claims, C-TPAT/CTPAT, customs law,

 
cargo damage, cargo claims, C-TPAT/CTPAT, customs law,
cargo damage, cargo claims, C-TPAT/CTPAT, customs law,

CUSTOMS AND INTERNATIONAL TRADE

CARGO SECURITY

Customs Update: H.R. 1 and more data requirements
(Published in the Journal of Commerce Online Feb. 6, 2007)
to view article.

LOS ANGELES -- Bill H.R. 1 has passed the House of Representatives, and with it many provisions having to do security recommendations of the 9/11 Commission.

The one causing potential indigestion for traders is the requirement for 100-percent scanning of all containers entering the U.S. Section 501(1)(A) of the bill calls for radiation and density scanning. Will it stop there or will we see more unrealistic demands for physical examination of all containerized goods prior to loading? Equally worrisome is the requirement in Section 501(2)(b) for container seals which can detect breaches. This bill will now make its way to the Senate for consideration and then possibly to the White House for President Bush's signature.

While everyone agrees these are good ideas in principal, one has to question whether the technology exists to accomplish these goals in a meaningful and cost-efficient fashion, or whether we are once again seeing Congress pass bills for the sake of looking like it is doing something positive.

At the same time, the trading community is grappling with what is "affectionately" known as 10+2. Section 203(b) of the Safe Port Act requires "the Secretary [of Homeland Security], acting through the Commissioner [of Customs and Border Protection], shall require the electronic transmission to [DHS] of additional data elements for improved high-risk targeting, including appropriate elements of entry data...to be provided as advanced information with respect to cargo destined for importation into the United States prior to loading of such cargo on vessels at foreign ports."

So, why is everyone so jittery? The concept behind 10+2 is to allow traders to provide the required addition data elements 24 hours prior to loading in order to allow Customs to conduct better targeting. While we all agree that is an admirable goal, again, is it doable, and at what cost?

The additional data elements are:

  1. Manufacturer name and address.
  2. Seller name and address.
  3. Container stuffing location.
  4. Consolidator name and address.
  5. Buyer name and address.
  6. Ship to name and address.
  7. Importer of Record number.
  8. Consignee number.
  9. Country of origin of the goods, and
  10. Six-digit Commodity Harmonized Tariff Schedule number.

These data elements are to be provided by the importer. The other two data elements are vessel stow plan and container status messages. These last two data elements will clearly come from the carrier, so the focus is on the other 10 data elements. But who will provide them? How will they be provided? What happens if all this data is not available at the appointed time, 24 hours before loading?

Customs has made it clear it is up to the importer to pick his agent. It could be his U.S. customs broker. It could be his foreign freight forwarder. Customs has left that to the importer, but it begs the question -- how will this be accomplished? Customs has said that filing will occur either through AMS, the manifest system, or ABI, the customs broker interface. The likelihood of the American customs broker being in a position to transmit the data is small, if for no other reason that the time difference to other parts of the world. That means realistically that foreign entities will do the filings. So, first, how is business proprietary information protected? Next, what about all the American importers, large and small, who do not control their shipping? How can they make sure the data being submitted is correct? It is reasonable to expect that Customs will validate the data it is being given, especially since the screening is for national security reasons. What happens if it turns out to be wrong? At what point will amendments to these transmission be required and on what time frame?

To its credit, Customs has again set the standard for how government agencies should interact with their constituencies. Customs is working closely with the Departmental Advisory Committee on Commercial Operations of Customs and Border Protection (COAC) and other private sector advisory groups trying to figure out how to make this work in a manner that minimizes interruptions to the flow of legitimate trade but maximizes getting the data in a timely fashion.

Customs has put implementation of this provision on a relatively fast track, an understandable decision given the constant criticism it receives from all quarters that not enough cargo is being examined. COAC has formed a sub-committee to work on this issue with Customs. Its report is due to be discussed at COAC meeting in mid-February. Customs has also extended the deadline for comments from the trade from Feb. 5 to Feb. 14.

American importers are cautioned to start thinking about how they will implement this requirement into their trading practices. [American exporters are cautioned to think about how they will start providing these types of details and other criteria as other countries enact their own versions of this requirement.] It is reasonable to expect that at some point in the near future -- perhaps no more than a year down the road -- there could be a serious interruption in the flow of your imported goods if your suppliers are unable or unwilling to provide the needed data elements. What are you going to do?

For more information, check out Customs' Web site for links to the agency's position paper and the announcement inviting comments from the trade no later than Feb. 14. Customs wants to know what the trade thinks about:

  1. The data elements.
  2. The parties most likely to have directly knowledge of each element.
  3. The technology necessary for parties to transmit the data in a timely fashion.
  4. The impact on the flow of commerce, including explanations of the existing commercial practices of affected parties and the changes to those practices that would be necessary in order to comply with the requirements proposed.
  5. The necessity for transition periods between promulgation of the regulations and the effective date of the regulations.

Comments should be sent to securityfilingstrawman@dhs.gov.

What are you going to tell Customs?

THIRD PARTIES NAMED
06/07
 Customs has posted to its website the list of those selected to perform C-TPAT validations in China. The lucky winners are: ABS Group, CSCC/STR, Cotecna, Det NorskeVeritas, Intertek, Omega Compliance, Pinkerton, Sharp Global, SGS North America and TUV Rheiland. The open question is whether any of the eligible importers want to pursue the process if it costs them to do so? 

CBP CHANGES TARGETING
05/07
 The Automated Targeting System has been revised to put automatic holds on shipments. The previous process was to flag a shipment and leave the initial decision to the reviewer. CBP admits these additional holds are often the result of entry data, leading to holds on some shipments long after the entry is processed. These overrides are still in the process of being fixed. If the override applies to cargo which has not yet been picked up, traders should assume they are valid. Manifest holds will continue to be issued while cargo moves between the initial arrival location and the CFS or CES site. Just imagine the changes with 10 + 2!

TSA MANDATES INSPECTIONS
04/07
 In Pipeline 07-18, Chicago Customs has announced the procedures to be used by airlines in carrying out TSA’s mandate to inspect a defined percentage of goods  being transported, and differ depending on whether Customs intends to be present during the inspection.

Customs Update: SAFE Act details
[Published in the Journal Of Commerce Online Oct 25, 2006}
for a printable version of this article

While Republicans and Democrats made the recently passed SAFE Port Act a political plank in their election-year battle for control of Congress, it's worth taking a practical look at the legislation which will reshape the government's role in supply security.

Section 203 of the Act addresses possible changes to the Automated Targeting System. Customs Commissioner Ralph Basham previously announced a second ATS center will be opened, one to deal with passenger clearances and the other with cargo issues. The Act instructs Customs to look at the cost, benefit, and feasibility of requiring additional non-manifest documentation; reducing the time period allowed to revise a manifest and to submit entry data elements, for vessel or cargo, and other actions which would improve the ATS. Customs is also mandated by the Act to consult with its stakeholders in making decisions. Customs is also expected to seek other ways to improve the system. An independent panel will review the effectiveness and capabilities of ATS and how it should be changed or updated, including the use of so-called smart features.

Section 204 requires regulations regarding the Container Security Initiative. Rulemaking is to commence within 90 days of enactment and interim rules are to be published within 180 days. Within two years of the standards being enacted, compliance is demanded for all containers entering the U.S. Promulgation of international standards is also supported.

Subtitle B of the Act deals with the Customs-Trade Partnership Against Terrorism (C-TPAT).. It requires the formulation of the voluntary program to "strengthen and improve the overall security of the international supply chain...and to facilitate the movement of secure cargo through the international supply chain." Minimum security requirements are to be established, likely to be those currently published on the Customs Web site. Those eligible to participate are importers, customs brokers, forwarders, air, sea and land carriers, contract logistics providers, and other entities in the international supply chain and intermodal transportation system. This is expected to expand the eligible participants to include warehouses, but does not specifically require Customs to expand the pool of foreign manufacturers who may become members.

The Act codifies the tiered approach to benefits. Tier 1 members are certified, meaning their supply chain security profile has been submitted to Customs and accepted and, under the Act, this is to be accomplished within 90 days. They will receive a credit in ATS not to exceed 20 percent of the high risk score. Tier 2 members are those who have been validated and the Act calls for validation to be completed within one year. They are to receive the same credits in the scoring system as Tier 1 members, plus reduced exams and priority searches, presumably priority searches means they go to the head of the line when their goods are to be inspected for compliance reasons.

Then there are Tier 3 importers. These are the ones Customs has designated as relying on best practices. They are to receive expedited release, a further reduction in exams, priority for any exams ordered, further credits in the targeting system, and inclusion in any joint incident management exercises.

Section 217 requires Customs to establish procedures to revoke C-TPAT status. Suspension or expulsion from the program will now be published in the Federal Register, but at the same time, an appeals process is mandated. Section 218 requires Customs to develop a plan to institute a one-year pilot program allow third party validations which is to occur in about a year. The Act requires certification of those third party validators and does allow them to limit their liability. The Act also requires revalidation every two years for Tier 2 and Tier 3 members.

And then there is Section 220 which contains some rather odd language. Showing yet again that Congress really does not understand how cargo moves, it states, "The Secretary, acting through the Commissioner, shall consider the potential for participation in C-TPAT by importers of noncontainerized cargoes that otherwise meet the requirements under this subtitle." So, the CFS cargo of C-TPAT members now moving through the supply chain is all of a sudden chopped liver? Apparently Congress thinks bulk cargo is invisible!

There are C-TPAT program management provisions in the Act, too, but the only one of general interest is that 50 new supply chain security specialists are to be added to the staff! More newbies, ugh!

The rest of the Act is a hodgepodge of security provisions for ports and includes such things as additional radiation technology. Screening of some sort is mandated for all containers arriving in the United States and 100-percent scanning and searching of all containers identified as high-risk. There are also provisions for assistance/grants to foreign and domestic ports.

Establishment within DHS of an Office of Cargo Security Policy is also mandated by the Act. Whether this will end the turf wars between Customs and the Transportation Security Administration remains to be seen. Perhaps another sleeper provision is the requirement to appoint a Director of Trade Policy within DHS who is to

    (A) advise the official [appointed to ensure that the trade and customs revenue functions within DHS are properly coordinated] regarding all aspects of [DHS'] policies relating to the trade and customs revenue functions of the Department;

    (B) coordinate the development of department-wide policies regarding trade and customs revenue functions and trade facilitation; and

    (C) coordinate the trade and customs revenue-related policies of the department with the policies of other Federal departments and agencies.

Apparently the concerns of the trade are being heard, as the Act also requires a study to determine:

    (A) the extent to which the customs revenue functions carried out by the former U.S. Customs Service have been consolidated with other functions of the department (including the assignment of non-customs revenue functions to personnel responsible for customs revenue collection), discontinued, or diminished following the transfer of the Customs Service to the department;

    (B) the extent to which staffing levels or resources attributable to customs revenue functions have decreased since the transfer, and

    (C) the extent to which the management structure created by the department ensures effective trade facilitation and customs revenue collection.

Throughout the bill, DHS is mandated to consult with the business community, its stake holders and the Departmental Advisory Committee on Commercial Operations of U.S. Customs and Border Protection and Related Homeland Security Functions (COAC). Of course, we all heard that the Act included the requirement that Customs establish an Office of International Trade. Basham established that office prior to the Act being signed into law.

Section 405 deals with the International Trade Data System, the computer system intended to allow traders to enter trade data once, and have it automatically distributed to all agencies that need it, and mandates all federal agencies that require paper for clearing or licensing imports and exports must participate in ITDS. There is also a section about in-bonds which seeks ways to enhance tracking and reconciliation between ports of arrival and ports of destination.

There is one more provision of great interest to international traders. Section 202 requires Homeland Security to develop a program for the resumption of trade in the event of another terrorist incident.

So, did either party win in enacting the legislation or did the country win as a whole?

10 + 2 JINGLE
12/06
No, that isn’t the latest line dance step. 10 + 2 is short hand for a rapidly evolving security measure that Customs has long sought - more data in advance of shipment arrival, right now limited to ocean transport. Not surprisingly, the more data Customs has in advance of loading, the better screening it can perform. The question is what data, transmitted by whom and what impact does providing more advance manifest data have on shipment release, especially in the face of another attack or other disaster? Read what Customs has to say at -
http://www.cbp.gov/linkhandler/cgov/import/carriers/adv_data_elements.ctt/adv_data_elem ents.doc .

It will be up to the importer (or his agent) to figure out how to transmit these additional data elements, except for that data coming from the ocean carrier, but will we be limited to existing data platforms - AMS and ABI - for now? What about ACE? Other means?

The 10 data elements to come from importers are: manufacturer name and address; seller name and address; container stuffing location; buyer name and address; ship to name and address; importer of record number; consignee number; country of origin of the goods; and the 6 digit Harmonized Tariff number.

The other two (2) data elements are to come from the carrier and consist of the vessel stow plan and container status messages.

Building on its long-standing working relationship with the trade, and as further mandated by the SAFE Port Act, Customs is closely coordinating its efforts with the Departmental Advisory Committee on Commercial Operations of the Bureau of Customs and Border Protection (COAC) to figure out the definitions of each data element and how best to implement the next step in advance manifest reporting.

COAC, in turn, has formed a special sub-committee on this topic. Not only do the definitions for each of the importer provided data terms need to be formulated, but questions remain in areas such as:
When is it reasonable for an importer to not be able to provide all these data elements? What is the impact of not being able to provide them all 24 hours prior to loading?
What happens if the importer has used best available information but it turns out to be wrong?

 

Customs Update: Anti-terRodriguez O’Donnell measures trumping trade
(Published in the Journal of Commerce Online June 14, 2006)
for a printable version of this article

The General Accountability Office in March issued a startling report describing how undercover government investigators used fake documents to enter the United States with enough radioactive material to make two dirty bombs.

The report, prepared for the Senate Permanent Subcommittee on Investigations, described two breaches of security at the northern and southern borders despite detection by Customs and Border Protection's radiation portal monitors and inspections that were conducted according to protocol.

In response to the report, a senior subcommittee staffer was quoted as saying "It's just an indictment of the system that it's easier to get radiological material than it is to get cold medicine."

While a simplistic but catchy comment, it hardly does the situation justice. Customs has given radiation detection equipment to most, if not all, of its inspectors. However, there is no centralized database yet in existence which can validate the accompanying Nuclear Regulatory Agency documentation. It is irresponsible to insist that Customs personnel now also become experts at forgery, especially since such determinations often requires sophisticated equipment and extensive special training.

The report was issued at the same time as two others, "Combating Nuclear Smuggling -- Challenges Facing U.S. Efforts to Deploy Radiation Detection Equipment in Other Countries and in the United States," and "Combating Nuclear Smuggling -- DHS Has Made Progress Deploying Radiation Detection Equipment at U.S. Ports-of-Entry, but Concerns Remain." The former chastises the State Department for failing to have adequate accountability regarding the equipment and its uses. The latter report points out what are perceived to be the shortcomings of anti-smuggling efforts by the Department of Homeland Security.

The first report also said that in the case of the nuclear-smuggling event, technical limitations of radiation-detection equipment, a lack of supporting infrastructure at many border crossings, and corruption of some foreign government officials hinder efforts to combat possible acts of terror.

After their successes, the GAO briefed both Customs and the NRC. The latter took exception saying that it did not consider the amount of radioactive material involved to be sufficiently large to trigger its "concern threshold." Nonetheless, the NRC and Customs are working on ways to more easily detect counterfeit documents. Jayson Ahern, Customs' assistant commissioner for field operations, has indicated an expectation a protocol to deal with the validity of NRC documents would be in place shortly.

For anyone who has crossed the border, whether by land, sea or air, what was particularly striking about the smuggling incident is that the GAO's undercover agents made at least incomplete statements to inspectors but suffered no consequences. In one instance, the agents are reported to have first said they had nothing to declare. When they were asked to open the trunk of their vehicle, they said they had specialized equipment being returned to the U.S. from Mexico. In a third statement, they said the equipment contained some radioactive material. From the way the GAO report reads, one could conclude that each time the inspector asked for information, additional facts were provided, but what is striking is how often such activity leads to seizure of goods and vehicles for making false declarations and did not in this case. It makes one admire the overall quality of the play-acting by the undercover GAO agents.

The lesson here is that Customs will continue to be in the headlines in ways that will result in Congress putting more and more demands on the agency, without necessarily providing any more funding. It also suggests the ongoing likelihood that staffing increases will take the form of inspectors and not the commercial operations personnel all of us in the trade community so desperately hope to see.

Any question about the direction of events can be seen in the current efforts of Congress to make the Customs-Trade Partnership Against Terrorism (C-TPAT) mandatory. There is also the looming threat of the introduction of an amendment to require physical inspection of all cargo traveling on passenger planes as part of the debate on Capitol Hill surrounding HR 5441, the DHS funding bill for fiscal 2007. Such a proposal is no doubt well-intended but totally unrealistic in terms of allowing the rapid movement of legitimate/compliant cargo, never mind the extravagant costs and delays which would result, thereby further seriously eroding the ability of the airlines to operate in a solid economic climate.

It leads one to wonder -- what is next?

PORTAL DEADLINE EXTENDED
Recognizing the enormous task it undertook and the programming glitches which deterred initial wide-spread usage, Customs has just extended the deadline for all parties to October 1, 2006. C-TPAT members are now facing what Customs is describing as a firm date by which to update their accounts and security profiles into the recently developed C-TPAT Portal. Failure to do so is expected to eliminate companies from the program.

Unlike the initial submission process, companies are now required to have their security data in a word processing format that allows them to cut and paste information into the individual subject matter boxes provided by Customs as the Portal contains a standardized format.

BOX STANDARDS GROUP
General Electric, Siemens, JP Morgan Chase, GreenLine Systems, Mitsubishi and Unisys have formed the International Container Security Organisation which expects to set standards for container security devices and how they communicate with outside data sources. For more details check www.containersecurity.org.


Highlights of C-TPAT Program

  • Benefits of C-TPAT Enrollment
    • Reduced inspections - C-TPAT participation is considered in targeting system used by Customs to select shipments for inspection at both CSI ports overseas and upon arrival in the U.S.
    • Participants become eligible for other Customs programs such as Importer Self Assessment and monthly payment of duties.
  • Two-Part Application Process
    • Sign and submit Memorandum of Understanding (MOU) agreeing to participate in the program
    • Review security procedures and draft security profile for submission to Customs
  • Applicants receive minimal benefits, such as reduced inspections, upon signing and submitting Memorandum of Understanding.
  • Full benefits available when Customs approves the security profile and counter-signs the MOU.
  • There are currently 6,000 enrolled participants in the C-TPAT program but less than 200 companies have been verified as of June 2004.
     
  • GAO REPORTS:
    • Homeland Security: Summary of Challenges Faced in Targeting Oceangoing Cargo Containers for Inspection   GAO-04-557T
    • Homeland Security: Preliminary Observations on Efforts to Target Security Inspections of Cargo Containers  GAO-04-325T
    • Container Security: Expansion of Key Customs Programs Will Require Greater Attention to Critical Success Factors  GAO-03-770

SEVERE DELAY PENALTY
04/04

The Maritime Security Act (S. 2279) currently under consideration contains a provision calling for a fine of $5,000 per bill of lading for cargo left on the pier more than five (5) days. Such a provision is, of course, at odds with the Customs regulations regarding general order. To avoid the penalty, the bill also allows cargo movement to a public store or general order warehouse for inspection, which is clearly contrary to the requirement placed on importers to file an entry before moving cargo.

MEXICAN INFO EXCHANGE
04/04

The Mexican and U.S. governments have agreed to an exchange of limited information which is intended to assist the Mexicans in reducing commercial fraud. Mexico has also signed an agreement for assistance with SGS. Traders are reminded that under Mexican law, the confidentiality which applies to document submissions to the government does not apply when providing those same documents to a private party. To overcome this dilemma, what many in Mexico are doing instead is arranging meetings with government officials to satisfy any concerns which may exist

MARITIME SECURITY DEADLINE
04/04

July 1, 2004 is the date on which the International Ship and Port Facility Security Code and the Maritime Transportation Security Act require ports and vessels to control access, monitor activity and screen personnel, baggage, cargo and vehicles.

If ports or vessels fail in implementation, the Coast Guard has authority to require individual vessels to take additional security precautions or may deny them entry into the U.S., which begs the question - if you have a security program and/or are a C-TPAT member, what steps does your company have in place to make sure all the vessels on which you ship cargo are in compliance?

What happens if the Secretary announces a port has failed to implement proper security measures and so all vessels departing from that port are barred entry into the U.S.? Is your company ready for such an event?

Customs Update: Seeking smarter inspections
(Published in the Journal of Commerce Mar 9, 2004)
 to view document in printable format

Did you see it? Were you shocked? Could you believe the timing?

No, not the "costume malfunction" at the Super Bowl. The statement by the Transportation Security Administration that it was considering asking importers to provide invoice information about the goods they are importing because, in the view of TSA, manifest information as relied upon by Customs and Border Protection is inadequate.

While any reasonable international trader must agree that the veracity of manifest data is questionable when it comes to accurately describing the goods being shipped, is requiring the filing of invoice data the answer?

No!

While certainly shippers should have the option to provide transaction details to Customs as a means of expediting the release of their goods, it doesn't take a genius to figure out that those who want to bring items into the U.S. which are a threat will simply buy off someone at the receiving end or use the cover of their own American company so that invoice data will correspond with the mis-description on the manifest.

Democrats, in this election year, clamor for 100 percent examination of cargo, but don't explain how it will be paid for or staffed. One hundred percent examinations of any sort are not the solution. The cost and delay are simply not acceptable. Customs also has a long history proving the examination of an arbitrary amount of cargo is a wasted effort. The statute requiring physical examination of 10 percent of all cargo was done away with through the Mod Act, primarily because the agency was wasting time looking at a set amount of cargo without finding irregularities. Why look at all cargo when you can identify higher risk shipments and focus on them? One large company recently estimated that if 100 percent of its cargo was examined, it would require an additional 180,000 man-hours at a cost of $1.7 billion dollars per year, never mind the loss of use of the money involved.

To anyone who is an international trader, in being realistic, we surely must admit the current system is based on the good faith of the person who fills out the paperwork. Certainly such an approach doesn't really make the U.S. any more secure now than it was before Sept. 11. We all support the efforts of Customs to collect more information to support its risk analyses. We all want to be safe in our everyday lives. Quite properly, Customs recognizes the need to distinguish between cargo which does and cargo which does not pose a threat to national security. Obviously, one way to do that is through programs such as the Customs -Trade Partnership Against Terrorism (C-TPAT) and the Container Security Initiative (CSI), but more really does need to be done and now. But what?

What is needed is a national consensus that terrorism is an international problem and so requires international solutions. But those of us who have been around international organizations also know that takes time. In fact, often it seems the time required is interminable, but that is how government by consensus operates. So, what to do in the meantime?

Well, how about mixing things up? Right now, through CSI, Customs picks and chooses the containers to examine at the port of origin based on intelligence it gathers from a variety of sources. How about adding another source of intelligence? Many of the large freight forwarders are willing to consider investing in X-ray equipment. The idea behind this concept is the equipment would be installed at origin. The necessary personnel would be hired and trained and then 100 percent of the cargo that forwarder transports would be X-rayed prior to loading. The equipment standards, along with the standards which apply to the hiring, retentions, and training as well as operating the equipment would have to be agreed upon, plus the criteria for reporting and record-keeping. The results would, of course, be shared with Customs. For those forwarders not in a position to invest the $1 million or more for each piece of equipment, there are discussions about forming consortia. What is holding up implementation? Well, in exchange for such an investment, these forwarders want something in return, namely, expedited clearance of their cargo upon arrival in the U.S. Trust but verify must naturally remain the guiding principal, so periodic inspections of this pre-screened cargo is expected. The stumbling block to this idea taking hold is the quandary faced by Customs regarding implementation.

While there is no question that any shipment could be compromised, the fact remains that the industry security programs in place right now all favor large corporations which are, quite properly, already committed to protecting their brand names. The single biggest shortcoming in the current structure is none of these programs are geared to smaller companies, where the real risk presents itself. If forwarder X-raying were available, even through consortia, C-TPAT would be a meaningful program for the little and midsized companies.

Maybe we in industry can come up with some realistic means for this to work. Is forwarder X-raying a good idea? How should it be implemented? How should the results be integrated into Customs' scoring of shipments for inspection? What would your company be willing to do if it was a forwarder and could join a consortium? If you are a shipper or importer, would you be willing to pay an additional amount to have your goods X-rayed by your forwarder if you received expedited release upon arrival? If so, how much?

MORE SECURITY DEMANDS
9/03

Wal-Mart is reported to be demanding that its 100 key suppliers use radio-frequency identification to track goods through the supply chain.

Customs Update-Security Tops AAEI Agenda
[Published June 23, 2003 JOURNAL of COMMERCE ONLINE]
CLICK HERE for a printable version of this article.

NEW YORK — At a time when many traders complain there are too many important issues to manage, the American Association of Exporters and Importers held its annual conference June 16-17 and focused on the biggest issue of the day - security.  However, rather that "just" talk about Customs-Trade Partnership Against Terrorism or the Container Security Initiative, AAEI structured its program to deal with security issues from both the regulatory and the physical security perspective and by so doing encompassed all of the current hot-button issues.

The theme heard at all the sessions was that to be truly successful, companies will have to figure out on their own how to secure their supply chain. Any question about whether government understood the shipment of goods was answered with a resounding "no" when Customs rolled out its advance manifest rules and the Food & Drug Administration proposed its bioterrorism regulations. Equally important, there is no coordination of anti-terrorism activities by the federal government between the agencies.

One session reinforced the point further when an FDA representative described C-TPAT as focused on container security! Another session underlined the lack of communication between the agencies when another panelist described a situation of importing a line of products subject to the jurisdiction of several different agencies. Representatives of two of those agencies with offices down the hall from each other had never met until something came up on one of the speaker's company's shipments!

Further efforts by the government to insert itself into the process were evident when the idea of licensing shippers export declaration filers was described in some detail as focused on requiring one licensed person at each filing location!

While the requirements of the Sarbanes-Oxley Act of 2002 - broad-based legislation affecting corporate governance, financial disclosure and the practice of public accounting - were touched upon as they impact publicly-traded companies and how that level of structured risk management will be expected from other companies by the government, perhaps the most useful parts of the program were the tips given by the speakers who represented various import and export companies as to how they were able to successfully implement C-TPAT and other meaningful security measures. In each instance, it is clear a team assembled from the various disciplines within the company was necessary, but more than anything else, the most successful programs were the result of active support from upper management.

There has been much criticism by business of C-TPAT as a make-it-look-good paper chase, what became quite clear from the many presentations at AAEI is that private industry has taken to heart the need to develop its own security methods and to have those efforts result in ensuring that what goes into the packages which are stowed into the container, railcar or trailer are what actually arrives at destination. The process is pushing documentation, security and all the other shipping formalities away from destination and toward origin.

C-TPAT Seminar
4/03

 "C-TPAT and Related Security Issues" was the title of a well-received seminar presented in February in Los Angeles. If you were unable to join us but would like to purchase the handouts and presentation materials, please send us a $25.00 check per set requested and we’ll be happy to make arrangements for you to receive the materials.

Our next security seminar will be held in Houston, Texas on June 26, 2003. Look for more details in the near future on our website.

Customs Update:  24-Hour Rule Yields Chaos
Published in the Journal of Commerce Online

3/24/03
In carrying out the provisions of the Trade Act of 2002, U.S. Customs put into force the requirement that all ocean shipments must be reported 24 hours prior to loading. While enacted with the best of intentions, the manner in which Customs went about putting the requirements in place has been little short of a disaster in terms of the movement of cargo.

The rule of thumb at the Port of Los Angeles-Long Beach was that a container moved every 11 seconds 24 hours a day, seven days a week! Since the 24-hour advance manifest filing rule took effect Feb. 2, what took hours to move now takes on average of five to seven days.

To his credit, Customs Commissioner Robert Bonner recognized there were problems and dispatched a team from Customs Headquarters to meet with the trade community in Los Angeles during the week of March 10 in order to get a better handle on the problems. Those of us involved in those meetings reached out to various constituencies in order to get as complete a picture as possible regarding the impact of what has come to be called "the 24-hour rule."

It seems clear Customs unwittingly stepped into the middle of the love-hate relationship between the vessel operators and NVOCCs without fully understanding either the dynamics of that relationship or what was really involved in implementing the changes mandated. Put another way, there was a lot of homework Customs needed to do prior to proposing the regulations which, because it did not occur, made the whole situation much more painful than necessary.

Customs failed to comprehend that carriers are by law required to comply with the descriptions in their tariffs or service contracts. As such, descriptions on bills of lading are designed to meet that requirement. By changing the rules, carriers ran directly into the problem of bill of lading descriptions which did not match manifest descriptions, which did not match tariff/service contract descriptions, a situation further compounded by letters of credit which had to be amended and reprocessed since the resulting documents did not match the original letter of credit requirements.

Despite the way in which the rules are written that mandate the carrier must transmit shipping details unless the NVOCC is Automated Manifest System-certified, we still hear stories about carriers refusing to accept cargo from non-AMS NVOCCs. In fact, we continue to hear stories about carriers even refusing loads from AMS-certified NVOCCs!

Perhaps the two areas causing the most delays in cargo movement are in-bonds and permits to transfer. What seems to be missing from the dialogue is a logical explanation from the carriers as to why they can't continue to file in-bonds. The explanation we have heard relies on the excuse that the carriers can only transmit in-bond documents for shipments transmitted through AMS using their own codes. Well, that's all anyone is asking them to do. Move the goods on the master bill of lading to destination! Perhaps in response to this column, a carrier organization will provide a better explanation, but for right now, there seems to be only chaos and finger-pointing.

Beyond just the question of who prepares the in-bond documents, there are other problems confounding the situation. For example, there are carriers who change master bill of lading numbers, sometimes adding suffixes and other times creating completely new numbers, and not conveying those changes to anyone else a party to the transaction. Additionally, in-bonds cannot be pre-filed. As a result, NVOCCs are having a difficult time consistently getting accurate arrival information. They must also identify on a per shipment basis the truck company or railroad a given steamship wants to use for a specific shipment on a through bill of lading.

The same confusion exists with shipments arriving at destination. To move them from the terminal/pier to a devanning station, each NVOCC having a shipment in the container is required to prepare a Permit to Transfer (P/T). Why is that necessary as opposed to the master co-loader preparing the P/T? Another headache has to do with piece counts. Apparently with some degree of regularity, when each NVOCC issues its P/T and the piece counts are tallied, they don't match the master bill of lading, but no one has a satisfactory explanation for why or how that is occurring.

Recognizing these problems need to get fixed, Customs is looking at changing procedures so the master co-loader will be allowed to prepare the P/T for the entire shipment. Customs also was slated to roll out a programming change to AMS on March 22 which is said to allow each NVOCC to report the master bill of lading and list the master carrier as the second-notify party. Customs hopes this change will allow the necessary relationship between transactions that is currently missing from AMS.

Customs is also working with the carriers to see if it is possible to assign the bill of lading number at time of booking. As things stand right now, two transmissions are required from NVOCCs, one to comply with the 24-hour rule, and a second to associate the first transmission with a carrier's (steamship line and NVOCC) bill of lading number. Clearly one transmission is preferable to all parties.

Customs is also looking at another change involving a procedure whereby the steamship lines might not transmit their master bill of lading data but rather only transmit the master NVOCC's bill of lading. While some may see this and the other proposed changes as siding with the carriers at the expense of the NVOCCs, Customs' perspective is it is seeking to provide as many options as possible so the cargo moves.

In the end, the solutions to the delays caused by the 24-hour rule are several-fold:

1) Getting the carriers and NVOCCs in one room for a set of serious negotiations. Previous meetings have apparently been civil but unproductive. Why not use the model employed for reform of the drawback regulations? Get a professional mediator in the room and get the issues resolved!

2) Implement the recommendations of COAC (the Treasury Advisory Committee on Commercial Operations of U.S. Customs) which are due to be released shortly and will deal with all modes of transportation.

3) Work to get AMS upgraded so that releases are input in a timely fashion and not force brokers to provide copies of signed-off entries to terminals in order to get shipments moved.

4) What about outreach and training sessions? There is mass confusion within Customs and equally in the trade over how the rules are supposed to work and what data elements are reported where. Training sessions would be helpful.

5) The Frequently Asked Questions posted on Customs Web site at www.customs.org are great, but take too long to read. Charts and graphs would be helpful to simplify things and make the rules easier to comprehend.

Bonner is now focused on getting the cargo moved. Are there other solutions? Let's hear them.

Customs Update:  Homeland Security a Reality, but Are We Any Safer?
Published in the Journal of Commerce Online
2/5/03
CLICK HERE for a printable version of this article

President Bush, in establishing the new Department of Homeland Security, submitted a reorganization plan to Congress this past November. The plan itself is a summary, but the contents make for interesting reading and beg the question: are we really any safer?

For traders, one possible scenario was illustrated in an article in the Dec. 4 Wall Street Journal. The newspaper reported on war games conducted under the aegis of The Conference Board and consultant Booz Allen Hamilton that attempted to gauge the economic consequences of terRodriguez O’Donnell attacks on the U.S. supply chain.

The games envisioned a series of attacks by road, rail and sea that would force the eventual closure of all U.S. ports of entry. Full recovery, the gamers estimated, would take 66 days and cost the economy $60 billion in lost revenue!

The main questions facing the participants were:

    1) Who is in charge, and
    2) What steps are necessary to ensure the economy keeps running?

Shutting the ports was easy, but figuring out who made the decision or identifying the process to reopen them was clear as mud. Bush expects that Homeland Security will answer both questions. However, the initial summary submitted to Congress leaves much to be desired. Participants in the war games consisted of private and public sector representatives, from carriers, border operations, federal policymakers and supply chain/business, to the Ports of Los Angeles and Savannah, and a control group. The war gamers quickly concluded:

    1) Public-private partnerships are essential
    2) Port security begins at origin
    3) Security must be a part of the process, not something added on
    4) There is no one size fits all approach which works for the entire system
    5) The federal government needs to coordinate and unify its efforts

Key players in Homeland Security
The Department of Homeland Security opened for business Jan. 24. Of particular interest to international traders is Under Secretary for Border and Transportation Security, Asa Hutchinson, and Customs Commissioner Robert Bonner. By March 1, Customs, the Coast Guard, the import/export functions of the Department of Agriculture, and the Transportation Security Administration will be transferred to the new department. By Sept. 30, 2003, transfer of all the personnel, assets, and liabilities of the various entities and agencies is to be completed.

A to-be-named Assistant Secretary for Information Analysis will identify and assess the nature and scope of terrorist threats; integrate relevant information, analyses and vulnerability assessments, and review, analyze and recommend improvements in the policies and procedures of sharing law enforcement intelligence. This individual is also required to solicit information from the private sector regarding terrorism. Unfortunately, there is no mandate to share information with the private sector, only collect it.

There will also be an Assistant Secretary of Infrastructure Protection who job it will be to assess the vulnerabilities of key resources and critical infrastructure; identify priorities for protective and support measures; and develop a comprehensive plan to secure and recommend measures to protect these assets. Here again, there is an obligation to the private sector, this time to warn. Again, there is no obligation to consult or work with the private sector.

The Under Secretary of Science and Technology has jurisdiction to assess and test homeland security vulnerabilities and possible threats and also, to establish priorities for directing, funding, and conducting national research, development, testing and evaluation and procurement of technology and systems to prevent the importation of chemical, biological, radiological, nuclear and related weapons and material and for detecting, preventing, protecting against and responding to, terrorist attacks.

The Undersecretary for Border and Transportation Security is responsible for preventing the entry of terrorists and instruments of terrorism; to secure the borders and ports of entry, plus the ports, terminals, waterways, air, land and sea transportation systems; administer the customs laws except as otherwise provided (again raising the unanswered question of just where Customs agents and inspectors fit into Homeland Security, and to whom they report), and ensure the speedy, orderly and efficient flow of lawful traffic and commerce.

Stakeholders' interests key to success
The major problem confronting the war gamers was that critical government functions were splintered between various agencies. We can all agree that with the formation of Homeland Security, it is now more likely that government will be in a position to better coordinate its efforts and, down the road, may actually be able to speak with one voice. Most also agree that security begins at origin, but in the absence of a vehicle through which industry can actively participate with government in a two-way exchange of information, the experiment is doomed to failure. The new department will not succeed unless the interests of all its stakeholders are considered from the outset.

One good example of an experiment which could well be doomed to failure is the Customs-Trade Partnership Against Terrorism (C-TPAT). While it is true Customs has agreed to allow a certain amount of private sector input, it is equally true that the agency wants to limit the number of participants, despite the private sector making clear that if the program is truly designed to provide national security, that means it needs to be expanded, not contracted. The European Union has the right idea: unless everyone can play in the same game, Customs has erected a trade barrier.

If the Bush Administration truly believes what it says, that economic security means national security, then all security-related programs must be available to all who want to participate. A strong public-private partnership always works better than one side dictating to the other. Just look at the mess Customs got itself into with the 24-hour advance manifest rule. Carriers and consolidators are mandated to use the process but few of the basic operational questions were worked out in advance. Why? Because Customs insisted the program be put in place right away, and in so doing, failed to coordinate with the private sector. Hopefully Homeland Security will learn from these mistakes and consult before, rather than after, imposing new rules and/or regulations.

Business Proprietary Information Is Publicly Available
1/03

With the introduction of the 24 hour advance manifest rule and its requirement for even more shipment detail on the manifest, importers and exporters are more concerned than ever about cargo theft and industrial espionage. Customs has assured the public that it intends to deal with the fact that manifest details are public documents which are used by private companies for sale to buyers. Yet, to date nothing has been done to change the regulations.

For exports, data such as the shipper’s name and address, the general character of the cargo, the number of packages and gross weight, name of vessel or carrier, foreign port of destination, U.S. port of exportation, and country of destination is gathered and sold. For imports, the data includes name and address of shipper and consignee, plus port of unlading, foreign port of lading, quantity, units, weight, shipper name and address, consignee name and address, and a description of the goods.

Obviously, making this sort of information publicly available could useful to competitors. Some relief is possible under current law. For imports, confidentiality may be obtained over the importer’s name and address, the name and address of the foreign shipper, and any identifying marks and numbers. For exports confidentiality may be affixed to the exporter’s name and address. Confidential treatment is obtained by filing requests with the Customs Service which must be renewed every two years. As a service to our clients, we will obtain such confidential treatment for your import and export shipments for a single charge of $200, provide you with a letter from Customs confirming that such confidential treatment has been granted, and will notify you 90 days prior to the expiration of the two year period so that you will have ample time to renew your claim for these exemptions.  For more details, please contact Tom O'Donnell at 312-372-7000

24 Hour Advance Manifest Rule - What Does It Mean?
1/03

On February 2, 2003, Customs will begin imposing penalties on carriers (including consolidators) who fail to follow the newly enacted 24 hour advance manifest rule for ocean shipments. An outgrowth of the heightened concern about cargo and supply chain security, the advance manifest rule takes effect first on ocean cargo, although there are regulations proposed with different lead times for the other modes of transportation.

Traders have already seen the impact of the new rule which took effect on December 1, 2002 (although enforcement through penalties was delayed to allow a learning period for all involved). In its simplest form, the new rules require foreign exporters to report to the exporting carrier information about each shipment due for the U.S. so the carrier is able to transmit the data electronically to U.S. Customs at least 24 hours prior to that shipment being loaded on the outbound vessel. As a practical matter, exporters are reporting the need to provide data to carriers as much as 72 hours prior to loading.

While the cargo itself is not required to actually be delivered in advance, the bill of lading contents is what must be reported. Customs is then taking that information and determining which, if any, shipments it considers risky. Inspection is then carried out by foreign Customs officials who share the results with U.S. Customs. In some cases, there are U.S. Customs personnel stationed overseas as part of the Contain Security Initiative, but, for the most part, the information is exchanged electronically between the governments involved.

Customs reports a current erRodriguez O’Donnell rate of about 60%. Perhaps the erRodriguez O’Donnell rate is so high due to the confusion surrounding the new regulations but it is clear, the burden will fall on carriers if they fail to follow the rules. Since carriers are at risk, we have begun to see more demands placed on shippers.

First of all, the requirement to transmit advance manifest data falls on the carrier (whether vessel operator or consolidator), not the exporter or importer. It is possible the high erRodriguez O’Donnell rate is the result of so many consolidators new to manifesting at the level of detail required, but at the same time, we are hearing silliness as part of the process. Recognizing that many issues remain to be resolved, Customs has assured the trade that enforcement through the imposition of penalties will start on February 2 against only egregious errors. The example most often cited is those carriers who type commas into each data field or leave them blank or try similar stunts! In those circumstances, Customs has said it will refuse to allow the cargo to be loaded plus impose penalties.

We are also hearing that carriers/consolidators have begun to charge to transmit the data. The figures most often cited are $100 to transmit and $25 for each correction. If your shipment suffers such a charge, the first thing to do is make sure that charge is allowed by the carrier/consolidator’s service contract or tariff rates on file. If not, complain to the Federal Maritime Commission.

In addition to the amount of time in advance of loading the data must be reported, the impact on importers/exporters is complicated. For example, Customs will no longer accept "Order of Shipper" as a consignee name. Similarly, Customs will no longer accept the name of a bank, consolidator or forwarder as the consignee. This is causing confusion amongst the carriers. In some cases, exporters are being told bills of lading may no longer be consigned Order of Shipper which is, of course, mandatory for a letter of credit shipment. Similarly, if the name of the consolidator or forwarder is no longer acceptable and the shipment is truly a mixed load, given the limits of Customs’ computer system, how does the consolidator/forwarder report a long list of shipper and consignee names?

Similar confusion surrounds the use of the standard phrase "said to contain," a term of art which appears on a bill of lading each time the shipper stuffs the container and was designed to relieve the carrier from liability in case the actual number of packages delivered was less than what the shipper originally reported. Carriers have gotten confused and so have told some shippers that phrase may not appear on a bill of lading. In fact, it may and should in order to protect the carrier. However, when the manifest is reported electronically, that phrase should be omitted or shippers’ load and count inserted in its place.

Similarly, there is still mass confusion about what constitutes an acceptable cargo description. Catch-all descriptions such as "freight all kinds," "consolidated cargo" or "general merchandise" are no longer acceptable. While such descriptions are still needed in order to comply with the Federal Maritime Commission rules regarding tariff filings, carriers are required to report actual cargo descriptions as part of this new process. If one ships a container of t.v. sets, DVD players and AM/FM radios, it is still not clear whether each class of goods must be reported or whether it will be acceptable to state "electronic products." A similar question exists with wearing apparel. Is an acceptable cargo description to state "ladies suits, men’s shirts, etc.," or may one simply state "clothing?" Is produce enough or must each type be listed? Customs is expected to shortly publish a list of examples of acceptable cargo descriptions. In the meantime, no one is sure what is satisfactory.

From the point of view of many importers, the biggest concern in the advance manifest reporting context is the lead time. The shipment data must be reported at least 24 hours prior to loading. There are many points in the Western Hemisphere where the transit time from origin to destination is less than 24 hours, e.g. the Caribbean, Canada or Mexico. Of similar concern to carriers is the fact that all cargo coming to the U.S. must be reported, even if it is remaining on the ship to be delivered in another country. As of this article, Customs has grant 47 exemptions to break-bulk carriers because their cargo is not containerized. Otherwise, all carriers and all shipments are subject to the rule.

Another area causing confusion has to do with in-bond shipments. Right now when a container lands in Los Angeles for in-bond movement to Miami, generally it is the vessel operator who prepares the in-bond entry (7512) and arranges transport via rail to destination. Under the new rules, carriers are taking the position they are no longer the carrier if the consolidator reports the manifest information and so are insisting the consolidator has the responsibility to move the cargo in-bond to destination. This position is causing additional headaches because in many instances the consolidator does not have an office at the first port of unloading and so has no one located there to prepare the 7512. Another factor complicating things is a properly bonded carrier (one recognized as a common carrier by Customs) must appear on the 7512 in order for the cargo to move. Few consolidators have a common carrier bond so they themselves will not be able to appear as the carrier on the 7512. Therefore, in order to move the goods, they will need to work out an arrangement with a Customs approved common carrier. It is expected vessel operators will not give permission to put their bonds at risk, so one has to question what delays will result as this issue gets worked out?

Of equally practical concern to importers is what happens if a container is loaded despite the carrier being told "Do Not Load." Customs has said it will not allow Do Not Hold cargo to be off-loaded in the U.S. If such a container is loaded, it may be moved out of the way only long enough to allow approved cargo to be off-loaded and then must be placed back on the ship and removed from the U.S. One can imagine what will happen if a hot shipment mistakenly gets loaded and has to be returned to origin!!!!

Looked at from a security perspective, Customs has yet to work out how it will insure that a consolidator reported all the shipments in its containers. Absent that sort of verification, a gaping security loophole exists.

Against this backdrop of heightened security, the best thing importers can do is stay in close contact with their suppliers, obtain a copy of the advance manifest information when it is provided by the supplier to the carrier. and then work closely with the delivering carrier to make sure things flow as smoothly as possible AND keep in mind that longer leads times will become the norm. U.S. exporters should also keep in mind, it is only a matter of time (the deadline is October 2003) before the 24 hour rule is imposed on exports. The current discussions involve having the booking reported 72 hours prior to loading and the manifest reported 24 hours prior.

While just in time delivery may still be possible, the definition of timeliness is obviously being expanded from hours to days and perhaps a week. Incorporating these delays into the planning for future orders should start now.


Customs Update:  Security Everywhere - but What's Really Going On?
Published in the Journal of Commerce
11/ 12/ 02
CLICK HERE for a printable version of this article.

You cannot pick up a newspaper today, even the general press, and not see articles about security, what may happen and everybody's guess as to the next step. While security is indeed important and should be addressed, for those engaging in international trade, we cannot afford to guess. We need hard facts and they are sparse.

At a recent conference, a high ranking official of the Transportation Security Administration characterized the activities of his agency as trying to determine threat levels. What he meant was that in each mode of transportation, the agency needed to determine the proper parameters so it knows when it should act and how. No one disagrees with that goal. Where most take exception is over the question of why there is no formalized manner in which the private sector is participating in that decision-making process?

There is no doubt, some of the TSA's efforts are true law enforcement in the traditional sense of that phrase. Nonetheless, international traders are the ones who know how cargo moves and how the international trading system works. We are the ones who can provide the practical approaches to accomplishing the security of our borders. With no offense meant to the management of the agency, they do not currently understand the supply chain and, frankly, the threat is too great for them to be able to afford the luxury of time to get up to speed. We keep hearing about tangible and imminent Al-Qaeda threats. What sense does it make for the government to take its time, when the expertise is there for the calling?

By way of example, TSA has declared its rules about known and unknown shippers in air freight to be subject to national security. As a result, when an air freight consolidator (indirect air carrier) is visited by a Customs official who is not familiar with TSA's rules, that consolidator is prohibited from giving the Customs' official a copy of those rules! Who does TSA think it is kidding? It is common knowledge that becoming a known shipper is contingent on shipping a set number of shipments (the precise number has been stated in other articles) with a given indirect carrier or passing a site visit. What's the big deal? Why make life complicated for the very folks who can help the agency heighten security? Why not concentrate on important issues like making the Automated Export System more useful for security purposes?

We have heard enough from various high-ranking U.S. Customs Service officials to know that the agency is working to enhance national security by relying on the Customs-Trade Partnership Against Terrorism (C-TPAT), the Container Security Initiative (CSI) and Operation Safe Container. All three programs are designed to involve the private sector in making the supply chain more secure. In other words, Customs is relying on the very folks who know the business to help it accomplish its goal. Customs is fond of saying good information at the right time equates to good targeting. Again, in general, the private sector agrees. Where we have concerns is in the implementation.

Again by way of example, it is reasonable to expect that Customs will verify the information being provided by C-TPAT members. The private sector said from the beginning that verification or assessment should not be performed via regulatory audit for the simple reason that the auditors are not security experts. In October, one Customs official announced there would be audits (when he meant verifications) and that multi-disciplinary teams (including special agents) would handle those procedures. A week later, Customs Commissioner Robert Bonner was quoted as saying special agents would not be included on those teams. Similarly, we now hear rumblings from lower level Customs personnel that they have been told security will be a component of compliance measurement examinations, but no particulars are available. Why not? Customs generally does a good job keeping the trade information. What's going on? Why all the contradictory stops and starts?

Then there is the 24-hour rule. Customs wants advance manifest information for ocean shipments at least 24 hours before loading. It is certainly logical to conclude that if Customs has information before cargo is loaded, it can minimize the likelihood of risky cargo coming to American shores. When the rule was first talked about, Customs seemed to ignore the fact that requiring advance delivery of goods causes more harm than good.

To begin with, the longer cargo sits on a dock, the more vulnerable it is to theft and damage. For some shipments, such as perishables, adding another day to the delivery cycle endangers the usefulness of the product. To Customs' credit, when the ocean advanced manifest final rule was announced on October 30, Customs made clear it wants the data; the cargo can be delivered at a later time. Some will say that separating cargo delivery from data delivery leaves room for compromise of the cargo. That statement is undoubtedly true. On the other hand, none of us is naive enough to think that Customs will ignore the potential risk.

Here is a perfect opportunity for Customs to make C-TPAT really meaningful to American companies. While always subject to verification through inspection, why not allow C-TPAT members to be placed into a lower threat level in the context of cargo delivery in light of this new rule? So far the benefits of C-TPAT are more spiritual than tangible. Here is an opportunity to make those benefits truly tangible.

C-TPAT - A Hands On Tutorial.
11/02

Jointly sponsored by Pinkerton Security, Roanoke Trade Services, and Rodriguez, O’Donnell, we are presenting a comprehensive workshop to help companies establish and develop a long-term program for C-TPAT participation and compliance. The program takes place on November 14, 2002 from 8:30 a.m. to 1:30 p.m. at the Doral Golf Resort and Spa in Miami, FL at a cost of $30 per person. For more information and registration materials, please visit our website at www.rorlaw.com

CUSTOMS UPDATE:PORT SECURITY MOVING AHEAD
Published in the Journal of Commerce
9/4/02
CLICK HERE for a printable version of this article

Finally, we are starting to see Washington address some of the tough shipping security issues.

On Aug. 8 Customs proposed regulations which will dramatically change the way carriers submit ocean manifest information. Non-vessel operating common carriers (NVOCCs) have long complained they are recognized as carriers under the law and so should be treated as such when it comes to submitting manifest information. Customs has obviously listened. The proposed regulations allow NVOCCs to submit manifest information electronically provided they are properly licensed by the Federal Maritime Commission and have on file an International Carrier Bond.

Carriers (NVOCCs and vessel operators) will now be required to provide the following information at least 24 hours prior to loading:

1. Foreign port of departure
2. Carrier (SCAC) code
3. Voyage number
4. Date of scheduled arrival at the first U.S. port of call
5. Numbers and quantities from the bills of lading (master or house)
6. First port of receipt of cargo by the inward foreign ocean carrier
7. A precise description (or HTS number(s) if received from the shipper) and weight
     or, for a sealed container, the shipper's declared description and weight; generic
     descriptions such as freight all kinds, general cargo or said to contain are
     specifically mentioned as unacceptable
8. Shipper's name and address or an identification number for all bills of lading
9. Consignee's name and address, the owner's or owner's representative's name
     and address or an identification number for all bills of lading
10. Notice that the actual boarded quantities are not equal to the quantities
     indicated on the relevant bills of lading (except  with shipper's load and count
     shipments)
11.  Vessel name, national flag and vessel number
12.  The foreign port where the cargo is laden on board
13.  Hazardous material indicator
14.  Container number where applicable
15.  The seal number affixed to each container

If the carrier fails to present the required information 24 hours prior to lading, Customs reserves the right to assess monetary penalties, but may also delay issuance of a permit to unlade the entire vessel until all the required information is received. Alternately, Customs may decline to issue the permit to unlade for specific cargo.

Customs has framed these regulatory changes under the authority of the Container Security Initiative (CSI), in which Customs forms partnerships with foreign governments in order to station U.S. Customs inspectors at foreign ports to pre-screen U.S.-bound cargo. The public has until Sept. 9 to submit comments. Customs particularly wants comments as to the clarity of the proposed rule and ways in which to make it easier to understand. Part of this proposal is a change to the International Carrier Bond conditions to include NVOCCs as a carrier and also provides for a $5,000 fine for each violation.

Still left open is the question of manifest confidentiality. Sen. Dianne Feinstein (D-Calif.) has introduced a bill, the Comprehensive Seaport and Container Security Act of 2002 (S. 2895), which addresses that elusive goal, but still leaves open a number of critical questions.
 
The bill defines a "common carrier" as anyone who provides to the general public transportation by water, land or air whether or not that person operates the vessel, vehicle or aircraft, but makes no specific mention of rail.

And while stating that a common carrier may offer many different modes of transportation, in defining a shipment, that term is limited to goods traveling on a bill of lading. Does that exclude air shipments as there is no mention of air waybills?

Of particular interest to service providers is the bill's provision which would transfer the licensing of ocean transportation intermediaries (OTI) including forwarders and NVOCCs, from the Federal Maritime Commission to Customs.

The bill also calls for inspectors from Customs, other federal agencies or the private sector to be stationed at the foreign facilities of manufacturers or common carriers to profile shipments and inspect merchandise and their containers for U.S.-bound goods. Customs is called upon to develop procedures to ensure the security of those goods and, to Feinstein's credit, the bill specifically states that any merchandise inspected at the foreign facility or port is to receive expedited inspection upon arrival in the U.S.

The legislation also calls for the submission of manifest information at least 24 hours prior to departure and stipulates that information be available only to individuals with federal government security responsibility. As to the manifest data elements, they are listed as:

1. Ports of arrival and departure
2. Carrier code assigned to the shipper
3. Flight, voyage or trip number
4. Dates of scheduled arrival and departure
5. A request for a permit to proceed to destination, if required
6. Numbers and quantities from the carrier's master air waybill, bills of lading or ocean
     bills of lading
7. The cargo's first port of lading and the city in which the carrier took receipt of the cargo
8. Description and weight (including the HTS) or, for a sealed container, the shipper's
     declared description and weight
9. Shipper's name and address or an identification number from all air waybills and
     bills of lading
10. Consignee's name and address or identification number from all air waybills and
     bills of lading
11.  Notice of any discrepancy between actual boarded quantities and quantities stated
     on any air waybill or bill of lading   (except those shipments which are shipper's load
     and count)
12. Transfer or transit information while the cargo has been under the carrier's control
13. The location of any warehouse or other facility where cargo was stored while under
     the carrier's control
14. Name and address or identification number of the carrier's customer, including the
     forwarder, NVOCC and/or consolidator
15. Conveyance name, national flag, tail number, vessel number or train number [but
     why is rail included here and not  elsewhere? And what about the voyage number?]
16. Country of origin and ultimate destination
17. Carrier's reference number including the booking or bill number
18. Shipper's commercial invoice and purchase order numbers
19. Hazardous material indicator
20. License information, including the license code, number or exemption code
21. Container number where applicable
22. Empty container certification
23. Any additional information as required
 
While the data elements in this bill and in Customs proposal are quite similar, there are some noticeable differences. Customs' regulatory change seems limited to the ocean environment, while the Feinstein bill seeks to make the change universal to all forms of transportation but misses in a few technical ways as suggested above. Further, Feinstein includes criminal penalties for inaccurate or false information, but the difference is unclear. With a fine of $50,000 or one year in prison or both, one would hope the law would make clear the incorrect information is significant and goes to the heart of Customs' efforts to profile cargo and shippers/consignees.

The bill also provides civil and criminal penalties for violating the arrival reporting requirements. The proposed civil penalty is $25,000 for a first violation and $50,000 for each subsequent one, plus the conveyance is subject to seizure and forfeiture. The proposed criminal penalty is a fine of not more than $50,000, one year in jail or both. However, in the case of prohibited goods, the fine does not change but the jail term stretches to five years.
 
Shipment profiling

Customs is also required to develop a shipment profiling plan to track containers and shipments for threat assessment. To assist in that endeavor, common carriers, shippers and forwarders/NVOCCs are required to provide the manifest data elements articulated in this bill, plus shippers are required to use standard international bills of lading detailing 19 specific fields of information which differ slightly from the list above. Cargo screening is also mandated with Customs required to consider whether the shipper regularly ships to the U.S. and the specificity of the description of his shipments.

Customs is further directed to insure that the Automated Commercial Environment (ACE) is developed to be compatible with the shipment profiling plan described in the bill.

While not directly impacting shippers and consignees, the bill also requires security cards for anyone regularly employed at a U.S. seaport or by a common carrier who transports goods to or from the U.S. As worded, it appears NVOCCs will now be required to issue security cards to their personnel even if not operating at the seaports through which they ship. Not playing favorites, the bill also defines the minimum security requirements to be met by ports and finds that if a port fails to meet those minimum requirements, it will be prohibited from handling dangerous cargo and cruise ships.

Container seals

Of final interest to traders is the bill's requirement for the development of minimum standards for secure container seals. Once those standards are published, carriers will have 180 days to comply. Failure to use satisfactory seals will result in the vessel being denied entry. Additionally, all shipments to or from the U.S. are to be assigned a universal transaction number.

While there are many provisions in S.2895 which are open to interpretation, there is no question the manifest confidentiality provision will be a rallying point even as other points create disagreement. Far less encompassing and much less controversial is Customs' proposal. 

Traders should take the time to keep track of the homeland defense issue as it works its way through the process as it is clear that the way we are all used to doing business is in for dramatic changes.

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cargo damage, cargo claims, C-TPAT/CTPAT, customs law,