Stretch run
Importers race to meet ISF deadline as implementation hurdles remain.
By Eric Kulisch
Importers and their logistics partners are still experiencing a host of challenges as they enter the stretch run to meet the U.S. enforcement date for new advance data requirements about their international shipments.
The Importer Security Filing requires 10 types of origin-to-destination cargo information 24 hours prior to vessel loading. It is designed to refine the system for isolating and inspecting containers that may have been compromised by terrorists seeking to smuggle nuclear devices or other weapons into the country.
Customs and Border Protection has given the import industry a year to develop the information technology and business processes necessary to gather and electronically transmit the information before starting to issue penalties for tardy or inaccurate filings. The grace period ends on Jan. 26.
| Related News • Implementing ISF • Get along |
Under the so-called '10+2' rule, importers can be subject to damages of $5,000 per transmission, meaning they could be on the hook for up to $10,000 maximum for a shipment with multiple filings or amendments. Officials have repeatedly stressed that companies are better off using the delayed enforcement period as practice to iron out problems and that such good faith efforts will serve as a mitigating factor if they make filing errors in the coming months.
As of Dec. 6, CBP had received 3.65 million security filings from 1,950 approved parties representing 103,000 importers, according to ISF program manager Richard DiNucci. The agency is now receiving about 110,000 submissions per week directly from importers or their agents, almost double the amount compared to early spring when the program was only a few months old. About 3 percent of filings are incomplete or have errors (mostly attributed to data entry mistakes and duplicate filings) and the on-time filing rate is in the 50 percent to 60 percent range.
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| Richard DiNucci Importer Security Filing program manager, U.S. Customs and Border Protection |
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| 'We want to use the least amount of force to ensure compliance.' | |
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Few importers have taken advantage of the flexible filing arrangements (stuffing location and consolidator can be submitted up to 24 hours prior to vessel arrival, and four other data elements can have a range of responses if exact information is unknown) so far because they don't want to pay fees to service providers to refile until the rule is in full enforcement, he said.
Bill of Lading. Determining whether the documentation is filed on time continues to be a bone of contention for many companies because CBP does not have a direct way to identify when container loading takes place. Instead, the agency has resorted to measuring ISF timeliness against the first bill of lading (B/L) filed by the carrier with the cargo manifest at least 24 hours prior to loading, as required by CBP. The B/L is issued by the carrier to the shipper certifying receipt of the shipment and establishing terms of delivery. Many B/Ls are filed with Customs up to three days prior to vessel loading, which makes it difficult for importers to compile and file the necessary cargo details without running afoul of the rule. Under the current system, the ISF could be on time but appear late to CBP.
Meanwhile, some shippers are still having trouble getting ocean carriers to issue a B/L number early enough so they can file the ISF in a timely fashion. The B/L number is required on the ISF form as a cross-check with two carrier-supplied data elements and the ocean manifest that CBP receives. Part of the problem is that the B/L number is not a data element that importers have traditionally asked freight forwarders or carriers to provide before the freight arrives in the United States. Many ocean carriers have addressed the situation by designating the booking number as the B/L number, but some shippers are still experiencing difficulties with carriers who haven't streamlined their process or because of an extra layer of communication with transportation middlemen.
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| 'For those who have elected not to start cooperating with the process there hasn't been any downside so far. So they're skeptical that anything will change on Jan. 26 which will force them to rethink their positions.' | |
| Bryce Blegen chief executive officer, Trusted Trade Alliance |
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Government and industry officials say the situation is complicated by non-automated container consolidators and freight forwarders who file paper manifests instead of using CBP's system. The B/L issued by non-vessel-operating common carriers as a receipt for goods being shipped with other consignments is not the same as the ocean carrier's master B/L, which shows the forwarder as the primary customer. An NVO that has an electronic link to the Automated Manifest System (AMS) benefits because the system automatically can attach the forwarder's in-house B/L to the master B/L. Non-automated intermediaries have to rely on the ocean carrier to file their B/L, which sometimes can mirror the internally generated ID numbers from other forwarders. In order to distinguish between the various house B/Ls, the carrier assigns its own tracking number and that becomes the new house bill filed in AMS. Many NVO customers incorrectly list on their ISF the sub-house B/L number issued to them instead of the new, carrier-generated number.
The same scenario often occurs with master loaders who consolidate freight from multiple forwarders in one container. ISF could lead to industry rationalization because shippers may gravitate to intermediaries that can tie into AMS, some industry practitioners say.
CBP is developing a function within the automated ISF system to allow importers and their customs brokers to query the B/L number in the AMS and determine the B/L status, DiNucci said at the quarterly meeting of the Commercial Operations Advisory Committee on Nov. 6. It is unclear how such transparency would help if the importer hasn't filed by the time the B/L is in CBP's system. Customs brokers already can conduct a search through the Automated Broker Interface used to file customs entries and ISFs, but the problem is that they first need the B/L number, said Cindy Allen, director of the National Customs Brokers and Forwarders Association of America's Educational Institute, in an interview. The organization wants CBP to enhance the system so brokers can query the master B/L and pull up the house B/L, but understands the technical fix is complex, she added.
'The best solution is that everyone in the supply chain needs to start communicating more with other parties in the transaction,' Allen said.
'We've seen dramatic improvements among our customers in timeliness' due to enhancements on CBP's side and shippers getting better at demanding an early B/L from carriers, said Kelby Woodard, executive vice president of TRG Direct.
TRG provides software and services that enable importers to directly file their customs documents instead of using an agent.
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| Thomas Winkowski assistant commissioner, U.S. Customs and Border Protection |
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| 'For us it's not about penalties. It's about driving compliance.' | |
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CBP officials confirm they now have a secondary method to measure the ISF filing ' 24 hours prior to vessel departure time. CBP can determine when a vessel sailed from the status messages transmitted by carriers and officials have suggested they will use that baseline as an additional indicator of on-time filing.
A representative for Maersk Customs Services at an ISF town hall meeting in Miami last summer said the company experienced a 10 percent to 15 percent higher on-time rate than CBP calculated by measuring the ISF filing date against the departure of the vessel, DiNucci said at the NCBFAA's fall conference in Washington.
Curing Apathy. More than 80 percent of ISFs that can be filed are being filed when compared to the total universe of customs entries received. CBP attributes a large portion of the compliance gap to the fact that many importers only enter goods once or twice a year and are not familiar with, or feel overwhelmed by, the new regulation.
Nonetheless, CBP claims the vast majority of participating importers are small to medium-size enterprises based on the volume of customs entries they file. Officials express satisfaction with the ISF volume, saying it is a healthy representation of customs entry traffic, and therefore of importer participation, even through there is not a one-to-one correlation.
Alison Reichstein, customs operations and compliance manager for technology giant HP, said at the Aug. 5 COAC meeting the early participation numbers could be deceiving because companies have focused on their simplest supply chains ' the low hanging fruit ' to get their compliance efforts off the ground.
'We're not seeing a true representation of the more complex and dynamic transactions that make up the whole program that will be subject to compliance,' she cautioned.
Industry representatives on COAC praised Customs for trying to spread the word about ISF, but said more still needs to be done to reach small and medium-size importers who are not networked to customs developments through trade associations or sophisticated logistics providers.
CBP officials fanned out across the country, and around the world, holding dozens of seminars, attending industry conferences and participating in webinars throughout the year to educate trade professionals about '10+2' and how to comply.
'Rich and his team probably at this point have clocked more miles getting out in the field than all the contestants on Amazing Race put together,' COAC member Karen Lobdell, director of trade security and supply chain services for Chicago-based law firm Drinker Biddle & Reath, said at the Nov. 6 meeting.
Suppliers in Europe are among those who do not appear to seriously believe the ISF rule, according to Bryce Blegen, chief executive of the Trusted Trade Alliance. Foreign shippers and logistics companies are key partners in ISF because U.S. importers rely on them to provide much of the required information, such as the manufacturer's name and address or container stuffing location.
Blegen, who has extensive supply chain experience on the continent, said attendance was lower than expected ' about 100 people ' at CBP outreach seminars in Belgium and Germany last October.
Many European businessmen, including non-resident importers who normally enter goods under their own name, assume that if CBP didn't enforce the rule during the past year then it won't go into full effect, he said.
'For those who have elected not to start cooperating with the process there hasn't been any downside so far. So they're skeptical that anything will change on Jan. 26 which will force them to rethink their positions,' Blegen said.
The Trusted Trade Alliance, which helped set up the events along with local shippers associations, had to scrub plans for a third seminar in southern Europe due to lack of interest.
Lobdell asked CBP to continue outreach efforts to those who are not filing instead of simply focusing on assisting current filers as the agency moves into the enforcement phase.
COAC members continued to press CBP about upgrading the periodic progress reports that are intended to show filers how well they are doing with providing accurate or timely information. They complain the pass/fail format of the report cards is too generic.
Lobdell reiterated that the high level summaries of ISF activity don't allow importers to drill down to the root cause of mistakes and avoid penalties. Companies need transaction-level detail closer to real-time, she told Customs officials. Some large transportation intermediaries are mapping aggregate data to individual transaction records for their customers, but small filers can't provide the same service. And companies that use several agents receive reports in multiple formats, she added.
Companies that participate in the Customs-Trade Partnership Against Terrorism have the added benefit of directly receiving their ISF progress reports instead of relying on brokers, forwarders or other third-party filers to separate the individual spreadsheets and distribute them to various customers.
Providing more detailed reports is a big lift for CBP at a time when its software programmers are swamped with developing information systems for a host of new security and safety programs, and agencies are under pressure to rein in budgets, DiNucci said.
CBP will require all penalty notices or liquidated damages for ISF violations to be first reviewed at headquarters by program experts to prevent nitpicky and inconsistent actions against importers, Assistant Commissioner Thomas Winkowski assured COAC.
'For us it's not about penalties. It's about driving compliance,' he said, pointing to CBP's track record for implementing the 24-hour advance manifest rule and other programs without the penalty levels initially feared by the trade community.
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| Ahern |
Acting Commissioner Jayson Ahern said at the CBP Trade Symposium on Dec. 8 that the agency would take a phased enforcement approach, focusing on education and warnings in the early months before issuing penalties.
'We want to use the least amount of force to ensure compliance,' DiNucci said, adding that cargo exams and delayed release of cargo upon arrival were preferable escalation measures compared to 'Do Not Load' messages, which will not be utilized unless a security breach is suspected.
A common-sense enforcement approach is critical for small importers that are struggling under current economic conditions to find money for extra software programs, human resources, and filing fees to meet CBP's requirements, and can ill afford any penalties, said Robert DeCamp, director of regulatory affairs and consulting at A.N. Deringer, at COAC's Aug. 5 meeting. A shipper that makes 10 clerical errors and is able to negotiate any associated penalties down to the $2,500 minimum for second violations would be out $25,000, which directly impacts the bottom line, he explained afterwards.
Many small retailers don't have overseas representatives to track down needed information, don't understand where the data resides in their supply chain because they utilize middlemen and believe their broker will take care of all their regulatory requirements. They also lack the ability to pressure recalcitrant suppliers to speed up delivery of the data.
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| 'Companies have learned about their supply chains' They can now speak intelligently with their partners because they've been forced to understand it and they are finding ways to be more efficient.' | |
| Kelby Woodard executive vice president, TRG Direct |
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'We've been filing customs entries since 1789 and even the best of us makes mistakes,' DeCamp said of the broker industry and potential pitfalls for the uninitiated.
He questioned why a late filing for an ISF penalty isn't simply mitigated down to $100 as it is for a late customs entry.
ISF staff has briefed field supervisors and analysts on how to deal with the data, apply the regulations, mitigate penalties, and respond to queries in order to have a uniform enforcement and customer service process at all sea ports of entry, and will do so again in the spring, DiNucci said.
He added that CBP will be judicious about issuing penalties because by the time they are mitigated down the agency will spend more to collect the money than the amount itself. The goal is to go after companies who refuse to file or correct an ongoing pattern of faulty filings. Officials have indicated they will be much more lenient with those companies that have a track record of trying to submit ISFs during the past year than with those that waited until the last minute. The number of violations compared to one's ISF volume will also be a factor in penalty decisions and upper tier firms in the Customs-Trade Partnership Against Terrorism have the potential to cut penalties in half.
Industry experience indicates that it can take a company 60 to 90 days to ramp up data collection processes and systems to properly file an ISF, DiNucci said.
TRG Direct's Woodard said the silver lining of '10+2,' despite the implementation hardship, is that it has helped demystify international trade for small firms that may have gotten into importing as an afterthought.
'Companies have learned about their supply chains. It provides them with greater visibility from manufacturer to warehouse. They can now speak intelligently with their partners because they've been forced to understand it and they are finding ways to be more efficient' in operations and strategy, he said.
TRG Direct has used ISF compliance as a way to help small customers understand the charges and fees on their broker or carrier B/L.
'That knowledge empowers them. Now they know when things should and shouldn't be consolidated. What is that consolidation process and is it a smart consolidation process or just easiest for the forwarder,' for example, to consolidate Chinese-made goods at greater expense in Singapore, Woodard said.
TRG officials promote the fact that importers who self-file have the benefit of directly receiving their progress reports from CBP and knowing whether it has issued confirmation receipts for their ISFs because they don't have to wait for a third-party to relay the information.
Bonds. Bond requirements are another area of uncertainty for importers. CBP has long stated that ISF filings are covered by an importer's continuous entry bond, but the rules surrounding the use of a single entry bond for infrequent importer were still being finalized in late 2008.
Continuous bonds are purchased to cover a company's entire importations for a full year to make sure duties, penalties and other charges are paid. Small-volume shippers tend to secure a bond for each customs entry transaction because it is cheaper.
CBP officials are working with surety companies to develop the form for a special ISF bond, called an Appendix D bond. They have also unofficially indicated to industry groups that the continuous bond requirement will remain at $50,000, but is subject to increase based on a filer's violation history. The single transaction bonds must have a value of $10,000.
An importer can utilize its existing continuous bond to cover both customs entries and ISFs. Companies have the option of obtaining an additional bond for the ISF in order to split their liability for infractions as the extra ISF transaction increases their exposure to potential customs violations. Reaching the bond limits with penalties could jeopardize their ability to file entries.
The NCBFAA's Allen predicted that most traders won't take that route during the first year of enforcement, but may start to purchase dual bonds once they see penalties being assessed.
An importer that chooses to file a unified filing ' a way to submit a customs entry early and append two extra data elements required by '10+2' so they don't have to file similar documentation twice ' can apply the single transaction bond to the ISF as well. Otherwise, to file a standalone ISF will require use of the special ISF bond and either a single or continuous bond for the entry.
Officials are also indicating that importers must obtain the special ISF bond within 12 hours of receiving an ISF confirmation, despite appeals from industry groups for an 18-to-24-hour window to complete the bond. CBP's reasoning is that the ISF transaction number that has to go on the bond is sent back to the filer within 10 to 15 seconds and should not slow down the bond filing process.
CBP plans to publish a final ISF rule by early January to address the flexible data elements.