January 2003

don’t miss the boat on new customs rules

THERE’S ALWAYS SOMETHING TO KEEP IMPORTERS AWAKE AT NIGHT. Just as the threat of further labor disruptions at U.S. ports began to evaporate, new government rules took effect that could disrupt the distribution networks of businesses that import goods into the United States.

If you import goods into your distribution system, you already know that U.S. Customs demands detailed information on what’s being carried on ships headed for the United States 24 hours before the goods are loaded. The regulation containing the 24-hour requirement, known as the Cargo Security Initiative (CSI), took effect at the beginning of December. Customs gave ocean carriers two months to implement the new rules fully, a period that expires early next month. If Customs doesn’t receive the information, containers may quite literally miss the boat to the United States, leaving the freight inside stranded on the dock.

The new rules represent a major departure from past practice. Previously, shippers could submit documentation to the carrier after the vessel had departed. Carriers could file a vessel manifest with U.S. Customs up to two weeks following a ship’s departure from the foreign port. “The new regulation now requires this information in advance,” says John Urban, president of GT Nexus,a logistics software company that specializes in international shipping. “It essentially collapses that two-week window while requiring more detailed and precise descriptions of cargoes.”

Many observers expect that the rules’ implementation will raise shipping costs and create delays in the movement of goods, at least in the near term. The volume of freight affected by the rules is enormous. Nearly half of the goods involved in U.S. inbound trade (when measured by value) arrive by ocean carrier, and about six million containers arrive in the United States each year.

High anxiety
The CSI, which was drafted to address concerns regarding freight security following the Sept.11, 2001, terrorist attacks, attempts to strike a balance between tightening security requirements and minimizing delays. If the regulation achieves its four main objectives, the Customs Service will be able to routinely use automated information to identify and target high-risk containers; pre-screen those containers identified as high risk before they a rrive at U.S. ports; use detection technology to pre-screen high-risk containers quickly; and push for the use of smarter, tamper-proof containers.

To keep the customs clearance process from getting bogged down, the CSI mandates that all information be sent electronically. Specifically, it requires shippers and carriers to file full line-item detail in shipping manifests with U.S. Customs’ Automated Manifest System 24 hours before goods bound for the United States can be loaded aboard ships in a foreign port. The rules affect all shipments headed for the United States, including those that will transship to other nations through the United States as well as freight bound for other nations on ships making U.S. port calls en route.

Because ocean lines depend on the bill of lading instructions for this information, the new regulation will require importers or their export agents overseas to provide accurate and complete shipment documentation to the ocean lines much earlier than before. And the information required is not limited to a precise description of the cargo. According to GT Nexus, Customs now requires detailed information on the shipper and consignee as well.

The potential penalties are high for any shipper that fails to meet those information demands. Aberdeen Group, a business technology research and advisory firm that specializes in supply chain technology, predicts that the new rules could cause shipments without the proper documentation to be left on the docks at the port of departure for days or even weeks after their scheduled departure dates. And even compliant shippers could run into problems if they share container space with others who don’t meet the requirements.

Many see technology as importers’ best hope for achieving compliance quickly. “Employing existing and proven technology will be the key in achieving compliance with the new CSI regulations,” said Jack Maynard, research director, collaborative business solutions for the Aberdeen Group, in prepared comments. To achieve timely compliance,he says, companies must have access to the manifest data at the lineitem detail level—including harmonized codes—as well as the ability to move the information electronically to U.S. Customs. “Importers and carriers,” he says, “need to act immediately and will be well served by deploying systems that capture the relevant information and streamline these processes today.”

Rough sailing
Customs’ initial goal was to have the top 20 foreign ports, based on cargo volume shipped to the United States, participating in the program. As of late last year, 11 of those ports had agreed to participate.

But the implementation has not been without its probl ems. Late in December, for example, the European Commission charged that the ports that had agreed to implement the CSI were breaking European law, which prohibits bilateral agreements between individual members and foreign states. The commission planned to bring charges against France, Belgium, the Netherlands and Germany, according to news reports, and it could file charges against the United Kingdom and Italy. In response, U.S. Customs Service commissioners said they would expand the CSI to include the ports responsible for nearly all shipments to the United States in order to overcome charges that the CSI agreements with select ports created unfair trade distortions.

In the meantime, with Customs about to start enforcing the two-month-old rules, U.S. importers have little time to get their information systems in order.

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