Importers unaffected by ISF enforcement, yet
U.S. Customs enforcement of a new security rule requiring advance ocean cargo data from importers has been a non-event since it began more than three weeks ago, according to several industry experts involved in trade management.
Prior to the Jan. 26 enforcement kick off for the Importer Security Filing, agency officials stressed they intended to take a graduated approach by issuing warnings to companies that make compliance errors in the first few months, and that non-filers should expect to have shipments held for closer scrutiny upon arrival at U.S. ports.
There have not been any delays due to the rule because Customs and Border Protection has not started detaining cargo or sending warning letters, Richard DiNucci, the agency’s ISF supervisor, said in an interview.
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| DiNucci |
CBP wants to make sure notices are sent to the correct parties and needs all shipments on the water Jan. 26 to clear its system before tracking down customs entries that don’t have a matching ISF, he said.
The requirement that importers electronically file 10 types of origin-to-destination and content data 24 hours prior to vessel loading of the container in an overseas port began on Jan. 26, 2009. Ocean carriers must also provide two sets of cargo data. CBP delayed enforcement for one year to allow the import industry to adjust its business processes and practice filing the document.
Many companies have been diligent about obtaining missing data such as the intermediate warehouse location, setting up information technology systems to automate data collection and transmission, and filing regularly. But few are yet able to file all their ISFs on time and with complete accuracy.
So far there have been no consequences for those errors, Virginia Thompson, manager of import/export operations for Crate & Barrel, confirmed in a webinar last week hosted by trade software provider Integration Point.
‘None of our clients have received notices of non-compliance or have been warned by CBP to date,’ Kelby Woodard, executive vice president of TRG Direct and a principal with supply chain consultancy Trade Innovations, echoed in an e-mail.
And a manager at a large logistics company privately said no customers have complained about freight being held or any other problems with ISF.
Under CBP’s strategy, enforcement will escalate with more inspections of non-compliant shipments during the second and third quarters, culminating in the late third or early fourth quarter with the issuance of liquidated damages against shippers who fail to file, or file improper ISF documents. Fines can reach $5,000 per transmission, before any mitigation procedures take place. CBP said it would also consider suspending, reducing or revoking the privileges or status of companies enrolled in the voluntary Customs-Trade Partnership Against Terrorism.
The number of ISF documents filed has increased 30 percent to 40,000 or more per day since the enforcement period commenced, DiNucci said. The on-time rate has reached as high as 75 percent some days compared with 60 percent a few weeks ago, based on a strict manifest comparison. CBP is using the bill of lading filed by the ocean carrier with the manifest as an indirect proxy for marking the 24-hour loading window.
‘We’re pleased with the progress, which is a direct result of our outreach and work with the trade associations and a tribute to them as well because they made sure their members were ready to’ implement the rule, he said.
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| Thompson |
The implementation challenges associated with the so-called ’10+2′ rule led Crate & Barrel during last year’s comment period to request a six-month extension of the enforcement deadline, even though it is considered one of the best prepared companies in the industry. Thompson said CBP’s decision to postpone fines until the end of the year has the same welcome effect as a formal extension.
‘When CBP says it takes (60) to (90) days to become ISF compliant, I personally have to laugh because we’ve been working at this for a year now and we’re not 100 percent compliant. We have late ISFs. We’re getting better and better like most importers are, but just having enough time to test all the possible scenarios’ is important for companies with complex supply chains,’ she said.
The Northbrook, Ill., company has 600 active suppliers at any given time in more than 30 countries, and ships about 7,500 40-foot containers per year with the help of a dozen freight forwarders and three ocean lines.
‘We may have a manufacturer that only ships to us once a year. The last time they shipped to us we were still in the process of gradually rolling out over our vendor base to ISF filing and this year we’re in full enforcement mode. And so they haven’t even had a chance to try it out, to send us that wrong bill of lading number so that we can go back and say, ‘No, no. This is the B/L number you need.’ And that definitely has been one of our biggest challenges,’ Thompson said.
She cautioned that filing the ISF is more complicated than a customs entry. Arrival notices sent by freight forwarders and ocean carriers to customers when the vessel nears port serve as a flag to file the entry, but the transportation industry doesn’t yet have a similar tool for the ISF.
On the entry side, importers or consignees also have a 15-day window before they must take delivery of goods to prevent them being sent to a general order warehouse at their expense and risk. Filing an entry that late is not recommended, but the time frame is in stark contrast to the tight deadline to collect all the necessary information at origin.
‘One of the biggest challenges for us has been the fact that the window of time from when you know the last piece of information — which for us is usually the B/L number — until it has to be filed is a couple of days, maybe a day, maybe hours. And when you start adding in things like loss of time, and weekends and holidays, it can be extremely challenging to get that information filed with Customs 24 hours before the goods are laden on board,’ Thompson said.
The other key difference between an ISF and an entry is the potential for getting hit with one or more $5,000 liquidated damage charges for making a mistake. Classification errors or other mistakes can often be corrected on an entry with less consequence. A late entry fine, for example, can be mitigated down to $100.
The B/L number is commonly referred to as the 11th data element required on the ISF and it continues to be one of the biggest problem areas for compliance professionals. CBP uses the reference number to match the ISF to the manifest. The B/L is issued by the carrier or freight forwarder to the shipper certifying receipt of the shipment and terms of delivery, but many B/Ls are filed by carriers well in advance of the 24-hour ISF window. That often creates the false impression that the ISF was late. Meanwhile, many companies continue to struggle with getting the B/L number early enough from the carriers. In the past, shippers didn’t ask for this information before the freight arrived in the United States. Many ocean carriers have updated their systems so that the customer’s booking number becomes the B/L number, but problems still persist, especially with secondary bills of lading issued by logistics providers.
The B/L is critical for ’10+2′ because without it CBP does not consider the document as having been filed.
To help it self-file the ISF with Integration Point software, Crate & Barrel has added a couple of new fields — the bill of lading number and container stuffer/location — to its Advance Shipment Notice (ASN) filed by the vendor. Thompson said on the webinar that her department asks the forwarder for proof that the B/L number was sent to the vendor and asks the vendor for proof they received it. The company also created a simple form designed to make sure the supplier only includes the specific house B/L number used by the forwarder in CBP’s Automated Manifest System and not the master B/L or in-house identification number used by non-automated forwarders.
Thompson shared some of Crate & Barrel’s best practices for implementing ISF, including good communication with transportation providers and customs brokers about the need to follow the company’s specific requirements for transmitting the data to CBP. Internal communication with other departments is also important to enhance information sharing, prevent mistakes and coordinate logistics.
The home furnishings seller has educated merchandise associates, for example, that they have to create a stock keeping unit number for samples and include them on the ISF rather than asking the vendor to toss them in a container with other purchased products, she said.
Other tips are:
- Ask for address information in the ISF format, with provincial postal codes. Most parts of the world have regional codes but people often don’t use them. Crate & Barrel recently reformatted the screens on which it captures vendor information in its enterprise resource planning system so that the address is in the ISF format. It also provided a link to a Web site that has all the regional codes listed by country, so vendors can look them up if they don’t know their own. Getting the proper information up front eliminates time-consuming efforts to track down the information in real time when the ISF needs to be filed.
- Ensure the corporate logistics group understands the impact of transportations decisions, such as rerouting shipments, on ISF compliance. Crate & Barrel’s import/export group is responsible for logistics and compliance, but many companies separate those functions. Logistics staff members need to understand that if a container is rerouted they are affecting the ‘ship-to party’ listed on the ISF and opening up the company to penalties, unless an amendment is filed.
- Make sure you and your customs brokers are using the most current item classification list, even if the broker isn’t handling the ISF filing. Having consistent harmonized tariff system numbers will be important once CBP begins comparing the ISF data against the customs entry. Discrepancies could result in inquiries or penalties.
- Companies that are not the importer of record need to confirm with the supplier who is going to be the ISF importer. The ISF regulation considers the entity that purchases goods from the supplier with the duty already paid as causing the shipment to the United States, and therefore the one that bears ultimate responsibility to file. Crate & Barrel has confirmed in writing from all vendors from whom it purchases under ‘delivered duty paid’ terms that they are the ISF importer.
Thompson encouraged importers to communicate with CBP representatives so there is a record of seeking help if the agency tries to assess damages.
She estimated that it will eventually take about 10 man hours per week to process ISFs, but the workload is much more time consuming now because of all the outreach to explain the requirements to vendors the first time. Crate & Barrel has two associates responsible for filing the advance data.
In the absence of an arrival notice, Crate & Barrel has some ocean carriers and automated forwarders that have started to provide notices of cargo that has been loaded on the ship without an ISF after receiving that information from CBP. The retailer also double checks when it receives shipping documents — usually a couple of days after cargo has shipped — whether the ISF has been filed. Companies that have a robust transportation management system for vendors to tie into can probably track their cargo’s progression through various handoffs and Thompson said she hopes Crate & Barrel procures its own TMS in the future so it can do exception reporting without the manual effort.
Crate & Barrel has also created another form for domestic vendors that source some products overseas and sell it to Crate & Barrel under Free on Board terms — meaning the retailer isn’t responsible for the goods or transportation until they are offloaded from the vessel. Thompson said communication between the manufacturer at origin and the U.S. vendor is often poor. The form helps the domestic vendor know what information it should be asking the foreign manufacturer to provide because in most cases the U.S. vendor is the one that’s key in the ASN.
The retailer has begun to integrate ISF into its normal business routines, including semi-annual audits of all import transactions, new vendor education and ocean rate negotiations. Last spring, the company conditioned its contracts with shipping lines on making their booking number the same as the bill of lading number, and asked in the request for quotations whether carriers file the B/L in the Automated Manifest System.
‘It’s definitely going to become one more thing that we look at when we’re considering a new partner for transportation needs as to whether they’re going to make our ISF program easier or more difficult,’ Thompson said.
To ensure it receives ISF data in a timely manner, Crate & Barrel has informed vendors they will be liable for any CBP penalties it accrues that are due to late or inaccurate information from them on the ASN. In addition, the retailer recently implemented a measure to charge back a smaller amount for a late ASN even if it isn’t hit with a penalty ‘because we know that even if we don’t get the penalty from CBP it’s not making our numbers look good,’ she said.
Crate & Barrel is also preparing for the day when Canada and other countries adopt similar advance data requirements. Canada is developing a rule that will cover all modes and Thompson said she assumes CBP will also extend ISF at some point beyond the ocean environment, despite official pronouncements to the contrary.
The company has turned ISF into a business advantage despite the initial start-up hurdles, Thompson said. It now receives rich data about its supply chain that it didn’t have before or didn’t have as early in the shipping process, which has helped the company better understand the status of its freight between the factory and the vessel. Obtaining the manufacturer information, for example, has opened some consolidation opportunities when Crate & Barrel realized different trading companies were purchasing merchandise from the same factory. By knowing the container stuffing location, the company also can more quickly sort out liability for damaged products such as rugs.
ISF ‘in some cases has added to transit times because things have had to be pushed back (until the data is available) — but there are other times where we’ve actually been able to improve transit times because we have a better understanding of where goods are going and when, and we can ask some intelligent questions,’ Thompson said. – Eric Kulisch