Hitting the target

Customs brokers could be big losers if they can’t transmit to U.S. Customs in ACE by Nov. deadline.

   U.S. Customs and Border Protection’s transition from its legacy Automated Commercial System to the Automated Commercial Environment (ACE) is entering the stretch run. Nov. 1 is the date by which importers and their agents must electronically transmit to ACE all cargo release filings and associated entry summaries, including documents required by other agencies. 
   Many small and midsized brokers who dragged their feet updating software systems to communicate with ACE now face the stark reality of going under if they can’t meet the deadline because, in today’s fast-paced business environment, no customer will accept waiting for cargo at the port while Customs processes paper documents, according to trade compliance experts.
   Brokers and some software vendors appear to have been caught off guard by the speed in which Customs has righted a floundering information technology program and cranked out new functionality. 
   “If you’re a broker and not already filing in ACE, are you going to be ready to completely change your system to this new filing system in 10 months from now?” Tom Gould, senior director of customs and international trade for Sandler & Travis Trade Advisory Services, said during a recent webinar to educate brokers about how to use the ACE system.
   “If you haven’t started this transition, as far as I’m concerned you have two options: you need to be in panic mode, running as fast as you can to get this done; or you need to be shopping for a bankruptcy attorney because this date means your system will no longer work and if you don’t have a system to file entries you aren’t going to stay in business,” he said.
   By late this year, ACE will be the only means of filing and exchanging import- and export-related information with CBP. The next-generation IT system has been under development since the beginning of the century at a cost of about $3.2 billion. It will serve as the platform for trade processing and enforcement, risk management and communication with the trade community, as well as the “single window” for streamlined interaction with other agencies. Having a single government processing system for cargo is expected to improve inter-agency coordination on release decisions and enable imports and exports to flow faster.
   ACE will also enable importers and exporters, as well as CBP, to access and analyze their customs data on an account-level basis. 
   In less than two years ACE must be used for all cargo transactions, including drawback (a duty rebate for re-exported goods), reconciliation (an updated entry with more specific information) and protests. ACS will be decommissioned on Oct. 1, 2016.
   And a year ago, President Obama signed an executive order instructing federal agencies that deal with trade to complete links to the International Trade Data System by Dec. 31, 2016. Forty-seven agencies have some sort of jurisdiction over imports and exports and among them nearly 200 forms are required. The current process is largely paper-based and requires information to be keyed into multiple electronic systems. ITDS is the common, government-wide data transmission pipeline that will be powered by ACE to allow companies to file data once instead of multiple times to multiple agencies. A harmonized set of trade-related data will be collected by Customs in ACE and distributed via an interoperable web-based service to the agencies, along with any unique data elements each requires. CBP will, for example, pass information from an entry for pharmaceutical products to the Food and Drug Administration through ITDS. The single-window system will also allow agencies to transmit release decisions to CBP and communicate with companies.
   CBP has gradually built ACE functionality over the years, but the process was so slow, over budget and behind schedule that many international traders lost faith it would ever be completed, or reach its potential to transform cross-border goods movement. The situation began to change in 2010 with new direction from then-CBP Commissioner Alan Bersin. His successors have followed through with a series of widely praised organizational, development and procurement reforms, including better defining system requirements and project scope.  
   A key moment was the introduction in late 2012 of a new software development strategy that emphasizes the frequent release of bite-size pieces of functionality instead of holding related pieces of software until everything is complete and can be bundled into a single release. Software development is now based on open standards instead of proprietary software and customized off-the-shelf programming. The more flexible approach gives users faster access to needed tools and provides constant feedback to programmers so they can make necessary changes before the architecture is finalized.
   The Agile methodology is very interactive, with development teams of users and programmers working together in two-week sprints that involve testing the software’s function, feel and ability to connect with other software, with the goal of producing software that is production-ready every few months. 
   Brokers, and importers who choose to self-file entries, use the Automated Broker Interface to submit required import data with Customs. ABI is the pipeline between the broker’s entry-filing software and the Automated Commercial System. Customs is modifying the ABI messages so that the entry software can communicate with ACE. Although some brokers with the wherewithal develop their own software to interface with CBP, most rely on CBP-approved software vendors.
   The ACE Secure Data Portal allows the trade community online access to their CBP transactional data, set up payment options and perform national trend analysis.

Holdouts.   Customs has conducted extensive industry outreach to spread the word about the need for brokers to upgrade their systems to remain relevant and take advantage of ACE’s many benefits. The new mantra is: “Don’t wait. Migrate.”
   Liz Connell, vice president of product management at Integration Point, said Customs is encouraging importers to talk to their brokers about their ACE preparedness because it doesn’t want importers to suffer. 
   In mid-2012, only 8 percent of entry summaries (the post-release form for settling duties and user fees) were filed through ACE instead of the legacy system. Entry summaries filed in ACE have since climbed to 46 percent of the total, according to CBP officials.
   “If you’re not filing at least 20 percent of your entry summaries in ACE and starting to work on the entry piece, you’re behind the curve,” Brenda Smith, the new assistant commissioner of international trade, warned in September at a National Customs Brokers and Forwarders Association of America conference in Washington.
   As of Jan. 3, 75 percent of core cargo release processing functions—including split-shipment entries and partial shipments—have been delivered in ACE and a basic simplified entry process is now available for all modes, after initially starting as an air-only pilot.
   Simplified entry is considered the first step in creating entries in ACE.
   Also, more than 60 percent of post-release functionality, such as correcting an entry, as well as about half of export-processing capability has been delivered, according to CBP officials.
   In order to transmit data to CBP systems via electronic data interchange, filers must test with the agency to ensure all programming is correct and their systems are able to send data to, and receive data from, CBP.
   And once the software ready, Gould said in an interview, brokers have to put new procedures in place and train staff on how to use it, as well as the document imaging system and the new post-summary correction process. 
   “It’s not just plug in, wash hands and move on,” Gould, who is active in the Trade Support Network that provides feedback to CBP on its modernization effort, emphasized.
   CBP wants more filers to start filing a significant portion of their entry summaries in ACE. Forty percent (955) of all filers (2,400) are approved to file in ACE and of the top 200 filers (by volume of entries), 75 percent are approved to file in ACE, according to information supplied by the ACE Business Office. But only 22 percent, or 531, filed entry summaries in ACE during December. Large brokers that file thousands of entries a day make up a significant portion of the entries that are filed in ACE, experts and CBP officials say.
   Fifty-seven percent of duties and fees were collected via Periodic Monthly Statement in November and 29 percent of total duties, taxes and fees paid to CBP that month were facilitated via ACE entry summaries.
   The agency didn’t have data readily available on the percentage of ACE filers who are brokers.
   Companies that don’t file in ACE now are “behind the curve and probably at a competitive disadvantage going into the next year,” Smith said at the NCBFAA event.
   Fast forward, and trade compliance professionals familiar with ACE development say brokers may soon run out of time to be ACE compliant.
   “This is the next level of automate or perish,” Cindy Allen, the head of DHL Global Forwarding’s customs brokerage division in the United States, said in an interview, referring to a famous statement made by former Customs Commissioner William von Raab almost 30 years ago. “It’s re-automate or perish because if on the deadline for final transmissions if you can’t transmit in ACE, you’re forced into a paper-based environment. And for a customs broker in this day and age that’s going to be devastating to their business. They aren’t going to be able to compete.”
   Allen, a veteran logistics specialist who helped turn around the ACE program as executive director of the ACE Business Office between 2010 and 2012, said smaller customs brokers finally realize they can’t postpone investing in an ABI upgrade.
   “There are thousands of customs brokers with an active brokerage permit, and I bet a majority are not transmitting yet,” she said. 
   DHL plans to go live in ACE in January.
   “A small minority of brokers has been really engaged in ACE and is doing the majority of transactions in ACE. A large number have done little or nothing,” Craig Seelig, product manager for customs and compliance at software firm WiseTech Global, concurred.
   Many brokers who are not ready to do business in ACE procrastinated in hopes of avoiding investments for which returns seemed nebulous, compliance professionals say. Many perceived few benefits to their bottom line since, until recently, ACE development only focused on fulfilling compliance requirements, without introducing any features that were advantageous to the trade, Seelig said.
   The extra outlays can be difficult for smaller service providers to absorb.
   “It’s a significant investment for DHL,” Allen said. 
   DHL is the largest third-party logistics provider in the world and one of the largest freight forwarders.   
   Other factors are also affecting how soon brokers can participate in ACE, and to what degree. 
   The incremental product releases pouring out of CBP are posing a challenge for brokers, who have to update their processes each time, Allen said. Some brokers are waiting to synch their systems to ACE all at once rather than training personnel, issuing policy guidance, notifying customers and changing internal processes multiple times a year whenever there is a new release, to minimize the impact on operations and clients.  
   The broker transition to ACE is also being slowed down by software vendors who are struggling to get all the functionality programmed and available for their customers, according to industry professionals involved with ACE.
   The ability of CBP to produce new pieces of code in very short periods of time using the Agile method has been a bit of a shock to some software companies accustomed to a linear development track and long lead times, Allen said.
   By several accounts, Customs has almost gotten too good at what it does, which is a role reversal from the typical perception of slow government bureaucracy and the nimble private sector.
   CBP’s recent track record indicates it will meet the upcoming deadlines. The agency has developed the bulk of the programming and is now quickly ticking off smaller types of functions sought by industry and internal users as it hones its development process, according to Allen.
  “It’s been an adjustment for [software vendors] to get to this Agile method. They built their business on a certain type of software development and they’ve had to make some pretty significant changes once Customs did. And I think some of them are still trying to react to that.
   “There’s a lot of talent needed in software development in the new Agile method. It’s an area ripe for further investment by everyone,” she added. “I think some of the software vendors took a cautious approach and said, ‘let’s wait and see how this works out with Customs before we make a significant investment,’ and when it started to work out it started to work out very quickly.
  “I think Customs has even surpassed their own expectations. It’s proven to be the right approach. To be honest, [industry] heard it before for 10 to 15 years. You can’t really blame people for saying we’re going to take a wait-and-see approach because most of the time it didn’t happen,” Allen said.
   Seelig said the lack of urgency is widespread in the broker community, too.
   “I have talked to brokers in the last three months who still say it’s been 15 years, I’m not sure it’s going to happen on that date. But that to me means that they’ve not been keeping the pulse of what’s really happening,” he said.
   “They’re out of business Nov. 1 if they are not on ACE. It’s time to get serious, but that time has already probably passed,” he warned.
   WiseTech Global, previously known as CargoWise and headquartered in Sydney, Australia, has experienced a boom in ACE middleware business during the past year. Technology providers are sun-setting older versions of software and starting new ones, so large and midsized brokers are taking the opportunity to shop the field for new software, either through their current vendor or a new one, Seelig said.
   “There probably is enough time for the stragglers if they start now,” he allowed.

   Depending on the complexity of the broker’s operation, implementation could be relatively short – 30 to 60 days, he said. But if a company has complex interfaces with their customers or with other internal systems then the implementation could take longer.
   Brokers shouldn’t hold out hope that they can be out of action for a few days and pick up where they left off, he suggested.
   “If they let down their customers by not being ACE-ready on that Nov. 1 date, I don’t see them recovering from that,” Seelig said.
   There could also be a thinning of the herd among software vendors, Gould and Seelig said. Larger software providers are all ACE certified and some midsized ones are as well, but about a third of the companies on Customs’ list of ABI software vendors are not yet certified.
   “There are a lot of software vendors on that ABI list that are really an offshoot of brokers self-developing some software and then turning it into a side business by selling it to other brokers. So, I think those are the ones that pose the most risk to not be ACE compliant by the deadline. It may not be worth their while” to build an ACE version of their software, Seelig said.
   Lighthouse Systems in Ramona, Calif., could already be a casualty of the ACE evolution. The main phone number is no longer in service and the number for the company’s point of contact was to a residence with no connection to the firm.
   “If your software vendor is not certified on ACE yet, I would have some very serious questions,” Seelig said.

This article was published in the February 2015 issue of American Shipper.