If you've been thinking of Customs' proposed importer Security Filing (ISF) rule as just another post-9/11 exercise in information gathering, think again.
On the face of it, the proposed rule—popularly known as "10 + 2" because it requires 10 data sets from importers and two additional sets from ocean carriers—is indeed about collecting information for security purposes. When it issued the proposal, U.S. Customs and Border Protection (CBP) said its aim was to learn more about imports and their origins, intermediate stops, and final destinations in order to screen cargo for security risks.
But data collection may be just the tip of the regulatory iceberg. Although the final rule has not yet been issued, most observers agree that 10 + 2 will lead to big changes in importers' day-to-day operations as well as their supply chain relationships.Here's a look at what may lie ahead, and what you can do now to be ready when the rule does take effect.
What? You should be worried
Although the trade community fully supports CBP's efforts to improve security, some aspects of 10 + 2 are making people nervous. In fact, CBP received some 500 comments after its proposal was published.
Under the proposed "10 + 2" rule, importers would have to electronically file information along with the bill of lading number at least 24 hours before their cargo is loaded on board a ship. Carriers would have to file container status reports daily and stow plans no later than 48 hours after departure from the last foreign port.
Importers would be required to provide the following information:
1. Manufacturer or supplier name and address
2. Seller name and address
3. Buyer name and address
4. Ship-to name and address
5. Container stuffing location name and address
6. Consolidator name and address
7. Importer of record number/foreign trade zone applicant identification number
8. Consignee number(s)
9. Country of origin
10. Commodity classification number to at least six digits under the Harmonized Tariff Schedule of the United States (HTSUS)
Carriers would be required to provide the following data:
1. Vessel stow plan
2. Container status messages
The complete Notice of Proposed Rulemaking can be found here (pdf).
What is everyone worried about? The data elements (see sidebar) are nothing unusual, and the process itself seems relatively straightforward: Importers will be required to collect the information, format it in whatever way CBP eventually specifies, and transmit it at least 24 hours before cargo is loaded on board a vessel. (Carriers have different deadlines.)
That may sound simple, but the commercial realities of international trade will make it difficult to achieve—and that's what has people worried. One problem is that different parties in a supply chain "own" the required information, and they're not always willing to share what they consider to be confidential, says Melissa Irmen, vice president of products and strategy for Integration Point, a company that provides global trade management (GTM) systems. For example, suppliers may not want to reveal the names of subcontracted manufacturers.
Timing is also an issue. Importers provide some information to CBP when goods arrive in the United States and send the rest 10 days later. Once the rule goes into effect, they will have to submit some of that same information— and some data they've never had to provide before—weeks before the goods arrive in the United States, Irmen notes.
Another complication: CBP will require the manufacturer's or supplier's name and address, country of origin, and tariff classification to be linked for each commodity at the line-item level. That will be a special challenge for the many companies that routinely classify or resell products while they're en route, says Philip J. Sutter, vice president of import compliance at JPMorgan Chase. "What will happen when you make a sale while the shipment is on the water, and the shipment is broken up and sold to five different parties? ... How do you show that and track it? How do you modify the ISF?"
Arthur Litman, who was formerly vice president of regulatory affairs and compliance for FedEx Trade Networks and now heads his own consulting firm, Customs Advice, is concerned that the tidal wave of additional data might overwhelm CBP's information systems. The agency's new Automated Commercial Environment (ACE) system is still under development, and the existing systems are already overburdened, he said at the Coalition of New England Companies for Trade (CONECT) Northeast Trade and Transportation Conference in March. It's likely that "a system that is on its last legs is going to have to support 10 + 2."
At the conference, Litman raised a number of other questions that Customs has yet to address, including the following: Will CBP compare the Importer Security Filing to its related entry filing? Why may importers batch-file entry summaries but must submit a separate ISF for each shipment? And why does CBP plan to acknowledge receipt but not indicate approval or provide a unique identifier so importers can track and amend their submissions?
Many people question why the rule does not consider importers' involvement in existing security programs. "What about parties participating in C-TPAT (the Customs-Trade Partnership Against Terrorism)?" asks Sutter. "They're already tasked with ensuring the security of their supply chains. As of right now, they will be treated like everyone else."
Officials are taking the trade community's questions and comments seriously."There will be some adjustments based on the comments. ... Some of them, frankly, brought up things we had not considered," said Richard DiNucci, director of security filing in CBP's Secure Freight Initiative Office, at the CONECT conference.
Get the ball rolling
Though it's likely to be months before the final rule is in place, the experts consulted for this article say there is still much that importers can do to get the compliance ball rolling. Among their recommendations:
- Learn more about your sources. Compliance with 10 + 2 will require more knowledge about what happens at the point of origin than many importers currently have, says Nathan Pieri, senior vice president of marketing and product management at Management Dynamics, a provider of GTM systems. If you aren't fully familiar with your supply and manufacturing base, this is a good time to verify that the information you have is current, he says. Even if you buy from overseas distributors, find out what you can about the chain of custody prior to the point where you take control.
- Classify products as early as possible and share the information with your supply chain partners. Including the classification on the purchase order is an effective way to accomplish that. (To read about one importer that's using this strategy, see "central command," below.) One of the most helpful steps you can take is to establish a classification database that trusted brokers, forwarders, and suppliers can access, says Sutter. The aim is to assure accurate, consistent data throughout every import transaction.
- Think about who should submit 10 + 2 data. If the required information resides with different parties—parties who may or may not be willing to share it with you—will you be comfortable if they submit it, perhaps to a neutral third party? Irmen says her customers are divided into three camps: Some want total control, some want suppliers to submit data under their supervision, and others are willing to leave it entirely up to their suppliers. To accommodate different scenarios, GTM systems providers are developing tools that will collect transmissions from disparate sources and combine the data into a single ISF submission.
- Reconsider your terms of sale. If you're buying under Incoterms that leave control in suppliers' hands, you could have trouble getting data on transactions that fall outside of your contractual responsibility, says Pieri. Under DDP (Delivered Duty Paid), for example, the seller controls every step right through customs clearance and duty payment, yet the U.S. importer will be held responsible for information it may never have been privy to. "That's the kind of situation that might cause a decision to change relationships or let someone else be responsible," Pieri says. For example, some large importers might shift to FOB (Free On Board) terms to gain more control and visibility, while smaller ones might buy through distributors rather than be the importer of record.
- Strengthen relationships with supply chain partners. Importers will be asking overseas agents, suppliers, and freight forwarders to provide more information than ever before, points out Wayne Slossberg, vice president of GTM provider QuestaWeb. Nobody enjoys added burdens, but they will have to be service-oriented and cooperative if they want to maintain their status as preferred vendors, he says. Be sensitive to the fact that the proposed rule will change your partners' business processes, too. For example, customs brokers primarily are involved with events at the destination, but most of the 10 + 2 information relates to the point of origin. As a result, they may need to forge closer relationships with freight forwarders and logistics service providers at the point of origin, Pieri says.
- Clarify and formalize changing responsibilities. Some companies include broad enough wording in their supplier contracts to cover almost any additional responsibilities that may arise, Sutter says. But not all contracts are written in such a way. If your contracts don't allow for such contingencies, add them in and specify what happens if someone fails to perform his or her new duties properly.
- Take advantage of technology. The complexity of CBP's requirements and the fact that submissions must be in an as-yet-undetermined electronic format mean that it will be "almost impossible" to comply without an assist from technology, Slossberg says.
Web-based solutions will make it feasible for different parties to populate the data fields while maintaining control over who can access what information and who has rights to modify it. The GTM vendors consulted for this article agree that any solution should be able to repurpose the data for both the ISF and the entry. For the systems to provide optimal control over information, they should provide visibility from the initial purchase order (PO) to final delivery. "If everything flows from a central point and if you have a good process for your POs, then everything does fall into place," Pieri says.
Still unclear is how well the pieces of this puzzle will fit together. Just how the importer's data will marry up electronically with the carrier's information is a burning question. Irmen also notes that many importers have no idea which information their suppliers handle manually and which is completely electronic. She recommends finding out how they currently handle the data you'll need for 10 + 2.And if you plan to have suppliers—especially those in developing countries—enter ISF data directly, verify that they have the necessary security safeguards, computing power, and process management standards in place.
Start now
Compliance with 10 + 2 will be a challenge for just about every company. Large importers might have an easier time of it than their smaller counterparts because they usually have established procedural hierarchies, considerable internal resources, and plenty of clout with their suppliers. The downside, Irmen says, is that they have so many suppliers to deal with.
Small importers, on the other hand, are unlikely to have much leverage with suppliers. They face the same compliance challenges as bigger companies, but most will need extra help, perhaps in the form of a third party to gather and submit the data. Or they may need simpler, more affordable versions of GTM solutions than are currently on the market—something GTM vendors are working on right now, Slossberg says.
Although the nitty-gritty details of the final rule won't be revealed for many months, experts say it's time to act on what we know so far. As Litman urged the audience at his CONECT conference session, "Every one of us has to stop thinking about 'what if ' and start thinking about 'how.'"
It's a good thing John Wainwright is a bit of a control freak. Because of that, Wainwright, who is the vice president of customs compliance for Leggett & Platt Inc., can be fairly certain that his company is ahead of the curve when it comes to compliance with the proposed Importer Security Filing, better known as the "10 + 2" rule.
A few years back, Leggett & Platt, a manufacturer of furniture and bedding parts, store display shelves, and a variety of other items, installed a global trade management (GTM) system from Management Dynamics and tightened controls over its import procedures. "Little did we know back then that we were putting in place a lot of what we'll need for 10 + 2," Wainwright says.
At the center of Leggett's compliance strategy is a tight relationship between international trade and purchasing. In fact, Wainwright's Global Services Group reports to purchasing. "If Customs comes in for an audit, they won't be asking for the entry data," he says. "They'll be looking for the purchase order, the invoice, what you paid, and the receipt so they can compare it to the entry."
That's why Leggett incorporates customs information for each line item into its purchase orders. "A purchase order can't even be given to a supplier until all the data is there, including the classification," Wainwright says. "In fact, everything is classified before it's even ordered."
As it turns out, much of the data on the purchase orders (POs) will be needed for the Importer Security Filing. Examples include the seller's address, the importer's identification number, and the 10-digit Harmonized Tariff System classification (though 10 + 2 will only require six digits).
Holding all the compliance cards in one hand ensures that customs authorities here and abroad receive accurate— and consistent—information. "All the suppliers can do is tell us what they are shipping against a PO," says Wainwright. "It's the one thing that gives me confidence. More hands tend to make more mistakes."
Although there's still more work to do, Wainwright says he's being cautious about how much time and money he'll invest before he knows for sure "what's coming and when it's coming." Customs could still revise its requirements, he points out. "The ... final [rule] may not be what we're looking at right now."
