Every time you turn around, it seems there's a new regulatory requirement. Governments around the world are updating customs codes, modernizing and introducing technology processes, and changing classifications—all in the name of streamlining revenue collection and enforcing supply chain security.
The European Union (EU) has been and continues to be very active in promulgating legislation to support its drive to create a single Customs union for its 27 member states. The latest in a long line of supply chain security legislation is the introduction of the Import Control System (ICS), which requires the provision of advanced shipment information to Customs authorities.
Similar to the U.S. 10+2 supply chain security initiative, ICS aims to communicate critical shipment data to Customs before the shipment reaches the EU, and thereby enable their ability to assess any risks it may pose. Effective January 1, 2011, ICS places the burden of supplying advanced shipment information squarely on the shoulders of carriers, not industry. However, importers and exporters aren't completely off the hook; they must provide accurate information on a timely basis to their carriers or goods could be held up indefinitely by Customs authorities.
Import Control System Background
ICS is included in European Parliament and Council Regulation (EC) No. 648/2005, the safety and security amendment to the Customs Code, and Commission Implementation Regulation No 1875/2006. Originally, ICS was to be introduced across the EU on July 1, 2009; however, it was recognized that this date was not achievable for a number of EU member states. The Commission and member states then agreed to a final transition deadline of January 1, 2011. As of this date, it will be mandatory for carriers to electronically provide EU Customs authorities with advance information on shipments that are either in transit through the EU or destined for a member state. Therefore any shipment that enters the EU is subject to ICS regulatory security checks and profiling.
A number of member states have gone live with their ICS systems; the remaining member states are working toward the deadline with separate dates for "go live" testing. In the United Kingdom, for example, the intention is to implement ICS Testing on November 2, 2010. The testing is to be completed by carriers or carrier-approved partners to assess their processes and systems interfaces prior to the "go live" date.
Although related, ICS is different from the Authorized Economic Operator (AEO) supply chain security program promulgated by the same EU regulations. AEO is an accreditation regime aimed at improving global security by attempting to certify the cross-border actions of businesses and their trading partners. Whereas AEO is a certification program, ICS is a transactional program requiring data for EU Customs filings on each and every shipment, much like the 10+2 program in the United States, which requires the advance filing of 12 data elements (10 from the Importer of Record and 2 from the carrier) prior to goods being loaded on a carrier at the point of origin. The intention of ICS and 10+2 is the same - securing the supply chain by evaluating shipments prior to arrival.
The prearrival information needs to be provided to Customs authorities in a specified electronic format at the first point of entry into the European Union (EU). The electronic declaration is known as an Entry Summary Declaration (ENS), which includes:
● Details that identify the cargo such as unique consignment reference, container numbers, seal numbers, goods description, shipping marks and commodity codes.
● Traders involved in the movement such as the consignor, consignee, carrier, person filing or lodging the ENS.
● Identification of consignee and AEO status.
● Specific route into, across and out of the EU, as applicable to the transaction.
The ENS declaration is required for ALL shipments, including those en route via the EU to a destination outside of the EU.
Legislation requires that the electronic ENS be lodged before the arrival of cargo in the EU. The time limit for the submission of the ENS is detailed in Article 184a of implementing regulation EC No 2454/1993 as amended by EC No 1875/2006 and is directly related to the mode of transport. Those time line requirements are as follows:
Mode of shipping
ENS to be submitted
Maritime containerized cargo
At least 24 hours before loading at the port of departure
Maritime bulk/break bulk cargo
At least 4 hours before arrival
Maritime sea voyages of less than 24 hours
At least 2 hours before arrival
Short-haul flights - Less than 4 hours duration
At the time of actual take off
Long haul flights
At least 4 hours before arrival
Rail & Inland waterways
At least 2 hours before arrival
At least 1 hour before arrival
As stated earlier, the carrier, as the operator of the active means of transport on which cargo is brought into the customs territory of the EU, is responsible for ensuring that an ENS is filed within the stipulated time limits, completely and accurately.
Although it is the carrier's responsibility and liability, actual filing of the ENS can be conducted via a third party, such as a forwarder, importer or exporter, but only with the carrier's advance knowledge and consent. It is therefore a carrier's decision to allow clients or forwarders to file the ENS on their behalf.
Sharing Data and Settling Fees
While the requirements appear to be clear, they mask a fundamental challenge: carriers do not have all the data. Supply chain movement data is spread among exporters, carriers, Customs, freight forwarders and importers. For example, only the importer will know its AEO status and the good's commodity code. The exporter will know consignor, contents, type of packaging, transport charges, method of payment and UN dangerous goods code. The forwarder will know additional elements related to the transaction booking while the carrier will provide details of transport and referencing. Therefore, these different parties will need to set up a process to accurately communicate required data in a timely manner to the party filing the ENS.
The ability to collect and transmit this data will require resources—technology and people, both of which have cost considerations. Carriers, for example, will need to make changes to their systems and processes. It appears likely that carriers will append a processing fee to offset their resource and messaging costs.
One thing that is not clear is who will bear the burden of these costs. Incoterms that spell out the responsibilities between the seller/exporter and buyer/importer may support establishing who should pay the fees on a particular shipment; however, the carrier may not be aware of these terms. By default, it appears that the importer, as the last trader in the supply chain, will be forced to pay these fees if he wants to get the goods because without the ENS filing, the shipment cannot take place.
How Will Advance Data Be Used?
ICS information submitted through ENS will be used by EU Customs authorities to conduct a risk assessment of the transaction by evaluating the data against preestablished risk criteria. Though Customs authorities are not revealing the criteria, it is safe to assume that they will be profiling trade lanes according to commodity, point of origin and trading partners.
After assessing the data, a decision will be made by the authorities to approve or intervene in a transaction's movement. Types of intervention may include:
● Transmission of messages to Customs administrations in other member states about any positive risks (labeled as a risky shipment) identified at the first port of entry to the EU.
● Interception of the goods on arrival in the EU.
● Issuance of a "Do Not Load" message to the loading carrier (ocean only), which stops the loading of goods onto the carrier and therefore shipment.
These interventions could result in delays and the examination of cargoes, either as a direct result of the shipment itself or another shipment traveling within the same container or consolidated shipment. To avoid supply chain disruption, it is in the importer's and exporter's best interest to review their order processing procedures to ensure their supply chain time lines are secured, processes are established to provide the required data in an accurate and timely fashion, and that an acceptance process for the receipt of messaging fees has been created.
Some importers may find it prudent during the start-up and bedding in of the ICS process to temporarily increase stock levels, either in the supply chain or at final destination, to avoid potential disruption to critical customer supplies.
As with all legislation, industry wants to understand the consequences for failure to adopt. In this instance, carriers and businesses want to know what will happen should they fail to file the ICS in a timely manner or if the data is inaccurate or incomplete. Failure will impact both carriers and businesses. Carriers will be on the receiving end of fines, although the level of penalties is still being debated by the authorities. Businesses (importers and exporters) will face supply chain delays if their goods are held up by Customs.
What is not clear are the consequences of filing inaccurate data. For example, will there be a penalty for submitting data supporting the movement of a shipment that is then found out to be inaccurate or misleading? Will the carriers be subject to fines or loss of privileges? Will the importer's AEO status be negatively impacted? At this stage, it's too early to tell.
Another question is what will happen when a carrier receives a "Do Not Load" message for a shipment that is already loaded onto a vessel. If it is part of a containerized shipment, does this mean that all the contents of the container are suspect? If not, then the entire container will have to be repackaged, and the carrier will need to communicate with multiple exporters and importers in regards to next steps. In any case, the importer will experience delays receiving his goods. These delays can be costly due to repackaging and storage fees in addition to normal supply chain costs.
An oft-repeated question is whether the ENS declaration will replace current import declarations being made to Customs for the collection of revenue. The clear answer is no. The ENS declaration and risk analysis completed by Customs is a separate process not linked to the collection of revenue; the ENS does not contain a monetary value for calculation purposes.
Next Steps for Industry
ICS enforcement is just around the corner, and industry needs to communicate with its carriers and supply chain partners, and design a mutually acceptable process to collect and file the required data to EU Customs. At a minimum, industry should look at:
ENS declaration processes: All trading partners need to understand who will be making the ENS—is it the carrier, importer, or other third party? If the importer wants to file, then he must demonstrate to carriers that he has sound best practices for collecting the information and filing it electronically with EU Customs—accurately and on time.
Carrier costs: Will the carrier be adding fees to its services to compensate for the increased resource burden? If so, how will those fees be assessed? Will the carrier append charges to freight bills or will he generate a new invoice monthly, quarterly, or annually?
Trade lanes: Evaluate existing supply chains for there may be opportunities to avoid transiting the EU entirely.
Incoterms: Reviewing terms of sale and, therefore, the applicable incoterm may provide an opportunity to formalize the supply chain participant responsible for providing information to the carrier.
Trading partner processes: Is the declaring partner aware of all the data elements required for the ENS? Traders should complete an analysis of the required data elements and existing channels to collect and transmit the data and determine when it can be collected.
Mitigation strategies: A business needs to evaluate all the scenarios that may subject it to intervention, including all trading partners, how shipments are packaged, and which trade lanes can be modified. In addition, the business needs to formalize a plan of what to do should a critical shipment be delayed. LT
David Merritt is a practice leader for the EMEA Trade Management Consulting team at J.P. Morgan. With more than 38 years of international trade compliance experience, he has detailed knowledge and understanding of EU import and export control regimes, laws, regulations and prohibitions affecting international trade. He designs, implements and evaluates compliance policies for both multinational and national organizations.
Jayachand Pachakkil (JC) is a senior consultant for the EMEA Trade Management Consulting team at J.P. Morgan, responsible for client engagements in Europe, the Middle East and the Indian subcontinent. With more than 15 years of experience in a variety of supply chain roles, he provides expertise in warehousing and distribution operations, Customs and Free Trade Zone operations, procurement and inventory management and trade regulations compliance management.