Going for broke

Oct. 6, 2004
Changes in cross-border commerce since September 11 have certainly been felt by U.S.-based exporters and importers. What's more, that heightened concern
Changes in cross-border commerce since September 11 have certainly been felt by U.S.-based exporters and importers. What's more, that heightened concern for safety and security is also a common trait for shippers and transportation companies located both north and south of the U.S. border.

For instance, within the next two years the CanadianBorder Services Agency (CBSA) says all goods imported into Canada from the U.S. will fall under Customs Self Assessmentor Advance Commercial Information (ACI) requirements.

"One of the issues under ACI is the requirement that carriers report admissibility data to Customs prior to arrival of a truck," says Candace Sider, director, customs and trade development, for thirdparty logistics provider PBB Global Logistics. "Admissibility data is different than the release data a customs broker would provide. It is going to be mandatory that Customs receive — an hour prior to arrival, in electronic form — data on what's on the truck, who the carrier is, driver identification and other specific data."

According to Sider, there are still quite a few carriers that have not yet made the investment to move to an electronic environment. "For them it's going to be a real challenge to meet the requirements for Customs on both sides of the border," she says.

Both governments have many complementary programs. For instance, the Advance Electronic Cargo Information (AECI) is the American counterpart to Canada's ACI; similarly, the U.S. Customs-Trade Partnership Against Terrorism (C-TPAT) has its equivalent in the Canadian Partners in Protection (PIP).

Recent prior notice requirements for import of food products into the country by the U.S. Food and Drug Administration, however, are not reflected in Canada. The regulations are definitely an issue in terms of exporting food to the U.S.

A major change for Canadian shippersmoving product into the U.S. that went into effect at the beginning of the month is the 100% requirement that each invoice must include the 10-digit Harmonized Tariff Schedule of the U.S. (HS) classification for each product in the shipment. Failure to meet this requirement in prior notice documentation can bring serious consequences. "We've been told that if HS isn't met, Customs will turn trucks around," says Sider.

If Customs does follow through and turns around trucks at the border, it will be a challenge for all concerned, since northern border crossing points have very tight infrastructure. "A lot of border points are in the process of revamping their infrastructure," notes Sider. "Fort Erie/Buffalo, for example, is undergoing a $45 million expansion at the Peace Bridge. However, finding a place where the trucks can turn around is really going to be an issue."

There is talk of creating an off-site staging area that would have the capability of being able to report that information to U.S. Customs, Sider says, but that proposal is still in the preliminary stages.

Third-party logistics providers (3PLs) such as PBB are allowing shippers to fax customs data to them. In turn, the 3PL will create the necessary electronic document and transmit it to Customs.

"With everything going electronically to Customs, there is some concern that other Canadian government agencies will not be ready for the change over," Sider cautions. "If that's indeed the case, it will force shippers to do a two-level release — some documents in paper, and some electronic — and that situation is really not feasible at all."

Looking to the south, Kansas City SmartPort Inc. is working to make a region comprising 18 counties on either side of the Missouri-Kansas border an inland trade processing center with focus on the North American Free Trade Agreement (NAFTA).

SmartPort already clears about $9 billion in imports that move in bond from the West Coast. Shipments move to Kansas City and clear through the U.S. Customs office there. As a result, Smart-Port's ability to create and execute its Mexican Customs Project is made that much easier — clearing in bond is already a big part of its economy.

Not-for-profit SmartPort was formed by community minded organizations and private commerce with the aim of growing the transportation and logistics industries within the region, explains Chris Gutierrez, president of SmartPort.

"With the NAFTA focus," explains Gutierrez, "the biggest inefficiency of moving freight throughout the NAFTA countries is crossing the Mexican border. So this project is looking at southbound freight."

SmartPort is identifying locations in the area for establishing a facility that would be designated as sovereign Mexican territory. Southbound freight would enter the facility, be inspected and cleared. All necessary processing that would normally be performed at the border would be handled in the center. Once freight is cleared and ready to go, the container — whether truck trailer or railcar — would be sealed.

On reaching the border, the only inspections needed would be to make sure it's still the same trailer and that it's still sealed with an electronic seal when it crosses the border. There are no more inspections or handling by Mexican Customs after that.

The Mexican government is committed to the project. One stumbling block, however, is that by Mexican law brokers must be part of the operations. Most Mexican broker facilities are on the U.S. (Laredo, Texas) side of the border. They are legal entities on the Mexican side, but are performing most of their work on the U.S. side. There is still a need for drayage, since many U.S. carriers don't use their trucks into Mexico, just trailers. The Mexican brokers must take possession of the freight in order to have it move. Smart-Port is very aware of the need and has been proactive in meeting with the Nuevo Laredo Customs Brokers Association, among others.

"When we met with them, we explained we didn't want them to duplicate all of their activities in Laredo in Kansas City and have two cost centers," says Gutierrez. "We asked them: How can we partner with 3PLs here to help you manage the process? How can we assist you to make it economically feasible for you, knowing that the Mexican government is committed to doing this?"

Part of the discussion with Mexican brokers concerns the expense of technology.

"We have U.S. Federal government funds," notes Gutierrez, "to conduct tests in terms of tracking freight when it leaves Kansas City going to Laredo to make sure nothing has happened to it along the way, using all available technology, such as electronic seals and transponders."

The question is if it will be carriers, brokers, shippers or importers who will ultimately pay for the new technology needed to make the project a reality. One holdup now is that the U.S. Department of State wants to know the exact location of the building which will house the Mexican Customs Project, which SmartPort will ultimately provide. State is involved because the facility will be sovereign Mexican territory.

"The Mexican government is working with the U.S. State Department to get approvals," notes Gutierrez.

According to Gutierrez, the Mexican government wants to cut the ribbon on the facility by the end of the year. However, he doesn't think all issues will be resolved that quickly.

How about SmartPort readiness? "If you draw funnel lines on a map above Kansas City into the upper Midwest," says Gutierrez, "including freight volumes from Minneapolis, maybe even Chicago, into the Dakotas and Kansas City itself, we're definitely ready in terms of scale to meet the demands. A second and third phase would be to include rail or air cargo, both of which already preclear. Besides carriers who can shorten line hauls, our airports are interested in the project, as are BNSF, Kansas City Southern and Union Pacific railroads, all of whom have significant operations in Kansas City."

A primer on customs brokers

A customs broker is a highly trained import professional, licensed by the U.S. Department of the Treasury. He/she has thorough knowledge of tariff schedules, Customs regulations and the amendments resulting from the many changes in the law and administrative regulations.

The broker is able to determine proper classifications and dutiable value, and is aware of all the commodities subject to quotas.

Many brokers help clients choose modes of transportation and appropriate carriers, which require analyses of a vast body of data. They also provide assistance to importers in assigning shipments the best routes. There are estimates for landed costs, payments of goods through draft, letters of credit insurance, and re-delivery of cargo if there is more than one port of destination.

In dealing with Customs, the broker must be aware of any potential problem involving every entry item represented, including cargo handling. This includes all factors affecting appraisement, exchange rates and regulations concerning calculation of duties.

In addition to the U.S. Bureau of Customs and Border Protection, a broker needs to remain current with regulations from over 40 other government agencies, such as the U.S. Department of Agriculture (USDA) on meat importation, the Environmental Protection Agency (EPA) on vehicle emission standards and the Food and Drug Administration (FDA) on product safety.

Source: National Customs Brokers & Forwarders Association of America Inc. (NCBFAA)

How safe is the logistics industry?

With all the concern about safety and security, it's time to ask just how safe transportation and logistics truly are these days. That's exactly what consulting firm Deloitte Services (www.deloitte.com) undertook when it hired the U.S. Chamber of Commerce's Statistics and Research Center (www.uschamber.com) to survey more than 100 senior executives employed by transportation providers.

The major conclusion is that the transportation industry recognizes the serious security threats it faces, and is concerned that not enough is being done to counter those threats.

Among those surveyed, maritime (84%) and air cargo (70%) are the two sectors at highest risk, says Christina Steinman, national director, aviation and transport services industry with Deloitte Services. "Some of that is a result of the inspections of cargo at foreign ports before it comes into the U.S.," Steinman explains. The news media has contributed to that perception as well, she adds.

Highest cargo risk areas for the industry are perceived to be when goods are in transit (55%) and during dock operations (44%). While 10 different security measures are cited as being important, not one of them is thought to be used effectively. Background checks of employees is seen as most important (62%), but is perceived as being effective by only 14% of survey respondents. Physical security measures are also thought to be important (57%), but only 9% of respondents believe they're effective.

While air and maritime executives expect to give high priority to Homeland Security issues during the next 12 months, just 60% of rail executives say they will be doing the same. Homeland Security will be a priority during the same time frame for just 26% of truckload carriers and 25% of less-than-truckload companies.

In seeking funding for new security measures, 55% of respondents expect to take money from their profit and reserves, while 47% will increase rates in order to meet requirements. Of all respondents, 48% plan to use outside services in order to implement their Homeland Security strategy. The maritime sector will be the heaviest user of these services (76%), followed by rail (50%) and air (50%). Physical security (49%) and training (47%) are the two areas most expected to be outsourced.

According to the survey, 41% are Customs-Trade Partnership Against Terrorism (C-TPAT) certified, while an additional 18% have certification action in process.

"One of the eye-catching things about the study," says Steinman, "is that respondents thought they were doing a good job in compliance, but the industry as whole had a long way to go. Not all regulations are finalized right now, so the respondents don't want to make a major financial investment until they're pretty sure they are investing in the right thing at the right time."

Steinman predicts a shift from federal mandates to shipper mandates in the supply chain. "If you are going to continue to be a preferred provider, for example, you have to be aware of these issues and be in alliance with your customers and partners," she says.

Acronyms solved

So many names, so many abbreviations, for so many governmental programs involved in U.S.-Canada customs. Here's a quick review of some of the most important trade acronyms:

ACI - Advance Commercial Information
- Automated Commercial Environment
- Automated Commercial System
- Advance Electronic Cargo Information
- Administrative Monetary Penalty System
- Customs and Border Protection Agency
- Canada Border Services Agency
- Canada Customs and Revenue Agency
- Customs Self Assessment
- Customs-Trade Partnership Against Terrorism
- Department of Homeland Security
- Free and Secure Trade
- Harmonized Tariff Schedule of the United States (Also HS)
NAFTA- North American Free Trade Agreement
- Pre-Arrival Processing System
- Pre-Arrival Review System
- Partners in Protection


Kansas City SmartPort Inc.

National Customs Brokers & Forwarders Association of America Inc. (NCBFAA)

PBB Global Logistics

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