A Strong Sense of Security

How to keep imports moving amidst fears of future terrorist attacks.

In an increasingly global economy, more U.S. firms are learning to navigate the shoals of import regulations. Bringing goods into the United States wasn’t simple to begin with, and today those shoals are more treacherous than ever.

Since the terrorist attacks last September, U.S. Customs has been operating on Alert Level 1, its highest state of watchfulness. The agency hasn’t changed the requirements for bringing goods into the country, but it more stringently enforces the existing rules.

Inspectors check more cargo, and they especially target imports where the accompanying paperwork isn’t completely in order.

For importers with good systems in place—those skilled at dotting every i and crossing every t—today’s customs clearance process isn’t business as usual, but it hasn’t set off a crisis either.

“I’d characterize the disruption to our supply chain as fairly minimal,” says Sam Ruda, director of global transportation at Nike in Beaverton, Ore.

Importers and their service providers are calling upon everything from collaborative international trade execution systems to old-fashioned proofreading to make sure they comply with the rules and thus avoid delay. They’re also planning for possible future disasters.

While Customs’ Alert Level 1 hasn’t brought commerce to anything like a standstill, the days right after Sept. 11 saw a genuine transportation crisis. Planes didn’t fly, seaports closed temporarily, and traffic jams at the Canadian and Mexican borders were so bad they shut down some just-in-time manufacturing operations.

Consignees and shippers are concerned that this could happen again.

“Our customers went through a period of evaluating their logistics strategies, including transportation modes,” says Lynnette McIntire, director of marketing, UPS Logistics Group, Atlanta.

With an eye toward the future in an uncertain world, companies reexamined where to source goods, where to keep inventory, and what methods are most likely to get their freight through during an emergency.

Cargo Checks Double

The most obvious change in the import process since Sept. 11 is that inspectors open and examine more cargo.

“The customs examination rate has doubled, and it actually has gone up even more at some ports,” said Peter Baish, director of product management, Clear Cross, in a teleconference last November. Before joining Clear Cross, a provider of international trade logistics technology, Baish worked for U.S. Customs for 30 years.

The higher inspection rate isn’t as bad as it sounds, Baish pointed out. Before Sept. 11, inspectors looked at only two percent of cargo that entered the country. “Now they’re hitting around four or five percent,” he said. “That still means you have a 95-percent chance of a pass without any trouble. But the odds are still significantly higher, making it all the more risky.”

Customs inspectors focus more on the vehicle and container than on the carrier, Baish said. At the Canadian and Mexican borders, some goods are stalled because the drivers are not U.S. citizens, “but the only documentation they have is their driver’s license.”

Customs agents have grown more skeptical, says Greg Stock, vice president of marketing at international trade software developer Vastera, Dulles, Va. “If something throws a red flag up, the agents are going to be more prone to open that container.”

Inaccurate or incomplete documentation would be sure to raise such a flag, he says.

Customs has also become less flexible about processing import declarations, says Beth Peterson, a licensed customs broker who was responsible for U.S. imports at Hewlett-Packard before she joined software developer Qiva as vice president of product strategy.

“If I haven’t put all the information on a piece of paper, Customs will now hold the shipment, rather than let it go through. There’s higher security, there’s much more attention to detail, and there’s little tolerance for mistakes.”

Importers that have been shipping the same products through the same ports for a long time have not seen much difference in their dealings with Customs since September, Peterson observes. “But if you’re a new customer to a port, or shipping a new type of product, a new classification that Customs has determined they want to have a commodity specialist review,” that can stall an import.

“We find those commodity specialists have been redirected to inspection and security, so they’re not at their desks to look at their shipments. There’s a much greater delay in anything that requires document review,” she says.

Low Risk

Liz Claiborne, the New York-based vendor of women’s clothes and accessories, is well known at the ports it uses. That’s part of the reason it has not seen unusual delays, says Lois Davis, the company’s vice president for global logistics. The firm also benefits from its excellent track record with U.S. Customs.

Liz Claiborne is one of only about 150 U.S. companies that Customs has designated a “low risk” importer. “It all has to do with your compliance record,” Davis explains. “We work very hard to make sure we comply with all the regulations, and have all our work done up front. We’ve been through audits in the past, so Customs knows what we do.”

Partly thanks to that, “we have not been held up, we have not been subjected to an unusual number of exams,” Davis says.

The only real delays came “the first week after Sept. 11, when we had to clear so much merchandise at once after the airports had been closed—which wasn’t really an issue for Customs as much as it was the volume,” she says. “That was the only time we had to work a lot of extra hours to get everything done.” Since then, “it has been very smooth.”

“On quota merchandise at Nike, a higher percentage of cargo will be inspected,” Ruda notes. Merchandise subject to quota includes Nike’s apparel lines, but not its primary footwear or sports equipment.

“In the grand scheme of things, is this creating a logistics nightmare for Nike? No, it’s not,” Ruda says. “But it again raises the importance of having a comprehensive compliance program in place that is integrated into your inbound delivery process.”

Along with more inspections at the U.S. border, Ruda has noticed new security procedures in some countries of origin. “On the airfreight side, there’s maybe an additional 24- to 36-hour delay based on security holdovers of cargo,” he says. Air carriers are probably taking time to make sure each piece of cargo has an identified consignee, he speculates.

Besides added transit time from certain origins, Nike has seen some extra airfreight costs in the form of security surcharges, Ruda says. Nike understands “we’re a partner in the voyage and there is a cost associated with implementing cargo security screening,” he says.

“Nike has a role in security compliance, and we will work with our providers as it relates to real and quantifiable incremental costs.”

New costs could soon apply to marine transportation as well. With port and maritime security legislation being discussed and drafted in Congress, “I see, on the container side, some added costs possibly associated with enhanced security,” Ruda says. “But from a transportation and logistics standpoint, it would be unreasonable and naíve to expect that life will be as we knew it pre-Sept. 11.”

How can importers keep goods moving efficiently across the border in an age of heightened security?

First, avoid the kinds of errors that set off alarm bells. This can be a simple matter of double-checking paperwork. “Mistakes are made all the time when goods are being shipped, especially from one big truck depot to another,” Baish said. “You’re shipping rutabagas, but you show up with paperwork for clock radios. That makes Customs very suspicious.”

Automating Compliance

Information technology for international trade addresses the need for accurate documentation. Besides managing logistics planning and execution, international trade systems offered by companies such as Clear Cross, Qiva and Vastera, along with Open Harbor, NextLinx and others, automate customs compliance.

Before taking possession of cargo shipped to the United States, importers must fulfill a host of responsibilities. They must declare to Customs what the goods are, where they were made, and what they are worth. And they must assign the right tariff classification code from a list totaling tens of thousands.

Importers must avoid bringing in goods from prohibited manufacturers or countries. If the commodity is regulated by a government body other than Customs—perhaps the Food and Drug Administration, the U.S. Department of Agriculture or the Federal Communications Commission—the importer must also file documents to satisfy that agency’s requirements.

An international trade system can automatically:

  • Assign the correct classification code to the product.
  • Alert the shipper to any problems with prohibited parties.
  • Assemble information needed to satisfy federal agencies.
  • Calculate duties and other fees.
  • Handle currency conversions and myriad other details.

These systems not only speed the gathering of information, but by electronically transmitting data from one trading partner to another, they eliminate repeated data entry and the errors that come with it.

“If you have standard documents that are clear and easy to read, use commercial descriptions of the product, show correct values, and include the tariff classification, Customs will be able to work with you and process your shipments efficiently,” Peterson says.

To meet that goal, some importers are developing software in-house; others are turning to systems such as Qiva’s. “We’ve actually seen a lot of budgets appear after Sept. 11 for automation projects,” Peterson says.

“The ability to deliver consistent, accurate documentation, when Customs needs it, will go a long way—even in an environment of increased scrutiny—to facilitate faster activities,” says Paul Ibanez, vice president of business solutions at Open Harbor in San Carlos, Calif.

Fritz Companies, the global logistics firm and customs broker owned by United Parcel Service, urges customers to provide their customs documentation earlier in the import process.

“We need a commercial invoice, packing list, and bill of lading to do an entry anywhere in the world,” says Michael Gargaro, vice president of ocean services at Fritz in San Francisco. “We try to do that electronically with as many customers as possible—which, of course, moves things a lot faster—or just get the documents that much sooner into the pipeline.”

More importers and exporters than ever seem interested in transmitting international documents electronically, especially now that they can do it over the Internet rather than use difficult and expensive electronic data interchange (EDI) systems, Gargaro says. Fritz offers customers the means to transmit documentation over the Internet “and I think it will grow in scope,” he says.

Talking with 50 logistics professionals last year, Adrian Gonzales, senior analyst, e-business and supply chain at ARC Advisory Group, Dedham, Mass., found that 65 percent planned to conduct more international trade in the coming year.

But “70 percent of them are not automated,” he told the audience at Open Harbor’s teleconference. “They fill out paperwork by hand, they do a lot of the screening by hand. They’re setting themselves up to have delays at customs or, even worse, incurring fines and losing importing and exporting privileges.”

Go With the Document Flow

September’s transportation crisis brought a great deal of attention to the role of document flow, Ruda says. When planes stopped flying for a week, shippers could no longer rely on air couriers to carry their import documents.

“It reinforces this issue—we are not paperless, by a long shot,” he says. “There’s an enhanced need to process documentation electronically, especially for quota merchandise.

“The document pack needed to support inbound delivery and clear customs is not insignificant,” Ruda observes.

Since September, Nike has run simulations to determine how it can best transport its documents if, once again, air space into the United States is closed. The company has considered “everything, including having ocean carriers hand-carry the documents—having them travel with the cargo,” he says. “It’s not efficient, but you have to go through all the plausible scenarios as part of developing a comprehensive contingency plan.”

Ruda is not the only one looking at a wide range of solutions—low-tech as well as electronic—for avoiding customs delays. Thinking creatively about when and where to cross the border might help.

While shippers might experience delays during standard business hours, “at 4 a.m. there aren’t any delays. On the weekends there aren’t any delays,” Stock says.

Shippers with goods traveling by truck from Canada and Mexico can check a list of border-crossing wait times on the U.S. Customs web site at www.customs.ustreas.gov. This can help them find alternatives if one crossing has heavy traffic or is shut down by a bomb scare or other emergency, Baish said.

“In Detroit, for example, if the Ambassador Bridge or the Detroit-Windsor Tunnel is shut down, maybe you’d better use the Blue Water Bridge in Port Huron, Michigan,” he suggested.

Higher Consciousness

Despite the obvious horror of the terrorist attacks, the new atmosphere they engendered carries some positive consequences.

For one thing, it has raised consciousness about the crucial roles of customs compliance and transportation planning. The people who run corporate customs departments have understood their obligations to the government all along, but now they have company in high places, Peterson notes.

“After Sept. 11, their senior executives all of a sudden understand how critical this is.” Their concerns include “making sure that the parties to an international trade transaction are known parties; making sure the products being shipped are legally allowed to be shipped and you’re not breaking any regulations by moving those products; and making sure all the correct declarations are made so your rights to import or export are not restricted,” she says.

“Everybody’s breathing a sigh of relief to see, finally, that this compliance function is getting up into the mind space of senior executives,” Peterson says.

“In some ways, it has made life easier, because people now understand what all these arcane rules and regulations are about, or at least the impact of what happens if they’re not followed,” says Ken Kormanak, director for global distribution and traffic at Aspect Communications, San Jose, Calif. Aspect, a vendor of hardware and software packages for customer contact centers, uses Qiva’s system mainly to manage exports.

But, like an importer, Kormanak feels new pressure to get the details right before he moves his products. “Fortunately for Aspect, we were able to automate the compliance screening process a year and a half ago through the Qiva software product,” he says.

Transportation management as a whole has gained new visibility since September, Ruda says. “Within Nike, logistics is not product design, so we’re not the cool crowd in the organization.”

But September’s sudden interruption in the transportation network “has really highlighted that logistics is front and center in terms of a company’s ability to get the product on customers’ shelves,” he says.

“When things can go wrong, or senior management knows there are vulnerabilities in the supply chain, logistics quickly becomes very prominent within the organization. I met a lot of new faces at Nike in September.”

Planning for the Future

Once Sept. 11 and its aftermath awakened companies to the vulnerabilities in their transportation networks, some started to plan for possible future emergencies.

Although the initial crises caused problems for companies that rely on frequent deliveries, “the vast majority of our customers are sticking with the economic benefits of just-in-time inventory,” says McIntire at UPS Logistics. “Some customers, however, have decided to deploy their inventory closer to their customers around the world, so they’d have more flexibility in case air lift went down again, or they couldn’t move products.”

Concern about possible future transportation shutdowns has led some customers to rethink their preferred transportation modes.

“Some transport buyers are switching from air to ocean because they think there’s less chance of an interruption when the time is not as critical,” McIntire says. “Others want to make sure the products get there faster, so they switch from ocean to air.”

Prioritizing Shipments

Also, McIntire says, “we’re working more closely with customers to prioritize their shipments.”

When the borders were severely backed up, a company might have had a few critical items sitting on a shipping dock in a pallet, mixed with other items that could afford to move more slowly. “Now, we break down those pallets a little bit more to make sure those critical items are moving by the express mode they need.”

Nike went into serious contingency planning mode after Sept. 11. People drawn from different parts of the organization came together to discuss how product travels and where those movements are most vulnerable, Ruda says.

Events following the terrorist attacks “also led to a secondary review of the risks associated with where we source, and how much we source from a particular country,” he says. Planners looked at how civil unrest, blockades, and other interruptions might affect Nike’s ability to get product out of certain countries.

“Rather than being caught by surprise, quantifying and managing risk is really the focus,” Ruda notes.

“Going through the motions of connecting the dots in a large, global company is a very good exercise,” Ruda says. “You don’t want necessarily to look at a national crisis as something that produces a benefit. But I believe the crisis brought a lot of cross-functional departments together at the same time.

“That’s always healthy in a large organization,” he says.