It's not that the industry didn't know new regulations were to be imposed on goods destined by ship for the US. Part of the Security and Accountability for Every Port (SAFE) Port Act passed in October 2006 mandated that ocean shipments to the US had to have electronically filed manifests in the hands of US Customs and Border Protection (CBP) at least 24 hours in advance of lading a vessel at its foreign port.
There are 10 data elements to be included in the Importer Security Filing (ISF) by importers or their agents. Ocean carriers and Non-Vessel Operating Common Carriers (NVOCCs) are to file 2 data elements that describe the status of a container and its physical location on board the vessel. Hence the 10+2 regulations. The specifics of required data are listed in the box on page 20.
In January 2008, CBP published its proposed rulemaking in the Federal Register. It then collected and evaluated some 200 public comments, made what it calls “significant enhancements,” then issued the Importer Security Filing and Additional Carrier Requirements interim final rule.
When the proposed rules appeared they caused concern since while seeming to be fairly straightforward, the amount of data required to answer each element can be burdensome. Some proactive companies saw this as a strategic opportunity to evaluate and gain greater visibility into their supply chains. The alternatives for companies to meet the new regulations appear to be handling the entire filing process themselves; purchasing or using as required a vendor's software solution; or turning the entire process over to a third party supplier.
Walt Fountain, director of enterprise security at Schneider National, feels the largest component to the ruling that will affect shippers, importers and logistics industries, is the level of visibility each party needs for a transaction. “The depth of information needed truly makes the importer responsible for understanding every point in their supply chain,” he says. “We strongly recommend that every importer go to their suppliers and vendors and make sure that each party in the supply chain can provide the needed information within the prescribed time frames.”
Depending upon the service supplier, there are differing perspectives on who will handle the import process. For example, Don Woods, director of customs brokerage compliance for UPS Supply Chain Solutions, claims results of two surveys conducted in each of the past two years indicated that many importers expected their broker to handle the paperwork on their behalf. “The advantage the broker has is that they are familiar with the data elements required in the security filing,” he notes. “They are dealing with this type of information on a daily basis, particularly linking information together on what we call the line item level.”
While realizing that some are going to turn to outside logistics providers to handle the process, Nathan Pieri, senior vice president of marketing and product management, Management Dynamics, argues that the government's increased security regulations, holding importers more accountable than ever, are moving companies to have more control and develop core competency in the area.
Management Dynamics is a provider of global trade management software and information services, part of which is to provide solutions to automate and complete the import process, from order entry to delivery. “As part of our core trade import information,“ explains Pieri, “we added 10+2 capabilities. Our perspective was that there would be pain in implementing this new regulation, but with that there is the possibility of a tremendous gain. The gain is that all of a sudden you have much more automation in your supply chain. There will be much more visibility and control over what's going on. Now you can actually start getting operational benefits. We see it as a net good.”
There are barriers to overcome. For example, Fountain feels because of the intermediary nature of the global economy, getting information on the true manufacturer will be one of the more difficult data elements to get for the “10” portion of the regulation. “Generally,” he notes, “trading companies and wholesalers have been reluctant to disclose the actual name of the manufacturer for fear of losing future orders, and this piece of data is one of the major components of the 10 + 2 filing.”
Another challenge pointed out by Woods is that for importers the filing is fairly involved. “What really complicates it,” he says, “is that you have to link it at the line item level for the commodities. You have to identify the manufacturer, country of origin and harmonized tariff schedule number. That puts it on a par with a Customs entry.”
Interacting with DHS on implementation of the new regulations, Woods notes that the government has indicated there will be some flexibility in enforcement for a period of time. He claims that between January 26, 2009 and January 26, 2010, DHS and CBP will accept minimal data in the timing of when the ISF is to be reported. When full enforcement comes about in 2010, there is to be a change in penalties. Where they were leveled at shipment value, the new charge will be at $5,000. per violation.
Another change involves what CBP has considered as the responsible party for the security filing. In the past it has been assumed the responsible party was going to be the importer of record, usually the same party as for Customs entry purposes. Now the importer of record may be an owner, buyer or a nominal consignee, whoever causes the goods to enter a port within the US. This change may relieve some anxiety since the importer of record on the entry doesn't have to be the same as the ISF importer.
Further explaining results of his governmental meetings, Woods recalls that, “Part of that flexibility comes in four data elements of the eight identified in the proposed rule where there could be multiple responses instead of a single one. So, indicates the government ‘if you don't have all data 24 hours before loading at origin, you can give us the information you have to the best of your knowledge at that time.’ However, a modified or amended ISF must be provided to Customs 24 hours before arrival.”
Woods enumerates the four flexible data elements “1. The manufacturer of the goods. But if you don't know that you can give them the supplier. 2. Country of origin. If you don't know, you can provide the country where the final stage of production took place. 3. You don't have to have the perfect harmonized tariff schedule. Give them the best information you have at lading, then perfect it before arrival. 4. The fourth and final piece of data they will allow you to give the best information you have up front then amend it later is the ‘ship to’ party. In some cases — particularly where the importer or ‘ship to’ party may not be known — they will allow you provide what they call a nominal consignee where they will accept in some cases they'll even accept a terminal, container freight station or warehouse. So, that's a lot of flexibility on that piece because many importers say they just don't know where the goods are going to be finally delivered.”
As for vessel reporting requirement, “The carriers have their operational systems that can report the ‘2’ element,” claims Pieri. “Some of our logistics provider customers are interested in using our systems to manage their part of 10+2 which sometimes involves providing the compliance details of stuffing locations and some of the other ‘10’ items. Most carriers can provide the ‘2’ elements pretty much from their normal operations.”
Although there is a substantial grace period before 10+2 enforcement goes into full force, this time should be sufficient to allow importers to assess their supply chains and capabilities to determine whether to handle compliance internally, outsource it, or some combination.
Fountain explains Schneider works with its customers to understand how they view their compliance programs and determine if compliance is best handled internally or should be outsourced. “Every successful compliance program will incorporate both internal and external factors,” he argues. “Generally, activities such as Focused Assessment Audits should be done by an outside organization, but the development of the actual program must be done on an internal level and can be guided by outside consultants or by US Customs. The structure of the compliance program will depend on the complexity of the organization, its products and the reach of its supply chain.”
In Pieri's view, “At the end of the day there are going to be a couple of different camps. There are going to be those that have relatively simple supply chain and are going to solve 10+2 transactionally. Typically they'll work with one forwarder and move that way. There will be another segment that will say ‘hey, I think this is a good time, especially now that we have lead time, let's go ahead and look at doing a better job. Let's get it right in procurement. We'll make sure all of our orders are compliant.’ Our view is that now is the time, especially with this regulation, to treat global trade management as a strategic piece of information technology that your business should have.”
Reflecting on the motivation for implementation of these rules: the reason is security. “US Customs has long stood by the idea that cargo security is best achieved by ensuring that freight which poses a possible threat does not make it onto a vessel or aircraft destined for the United States,” points out Fountain. “The security of our country depends on the ability of international communities, and industries within these communities, to support and follow through on these initiatives.”
The 10+2 List
There are different requirements for importers and carriers in the rules. The “10” refers to eight data elements that must be in the Importer Security Filing (ISF) with an additional two elements that refer to where containers are located on a vessel and who performed the consolidation.
Here are the 10 for importers:
Importer of record/FTZ applicant identification number
Manufacturer (or supplier)
Ship to party
Country of origin
Commodity Harmonization Tariff Schedule of the United States (HTSUS) number
Container stuffing location
The 2 for carriers
Vessel Stow Plan
Container Status Messages (CSM)