Trends—March 2008

10+2: Anything But Elementary

The Importer Security Filing mandate proposed by Customs and Border Protection (CBP) has been a hot topic of late – as much for speculation about its loose provisions as for its underlying purpose of tightening offshore supply chain links.

When CBP announced its Notice of Proposed Rule Making (NPRM) in early January 2008, its intention was clear:

"The Security Filing will improve CBP’s ability to target high-risk cargo by identifying actual cargo movements and improving the accuracy of cargo descriptions. It will also improve our ability to facilitate lawful international trade by identifying low-risk shipments much earlier in the supply chain," stated CBP Commissioner W. Ralph Basham.

The mandate would require importers to electronically submit a security filing specifying 10 data elements plus an additional two carrier requirements before cargo is permitted entry into the United States by vessel.

Importantly, "10+2" tasks consignees and carriers with gathering and communicating necessary shipment information to CBP 24 hours prior to loading at a foreign port.

CBP is currently in a request-for-comment phase – which was extended through the middle of March – as it collects input and fields questions from importers, carriers, and other supply chain partners.

While many transportation and trade interests welcome policy that aims to enhance and secure global trade, the 10+2 equation has, to date, done little more than create confusion and unease among global shippers – for good reason.

"Many shippers have always had to provide 10 data elements prior to shipment. The difference with 10+2 is the timing and methodology," says Lee Connor, president of John S. Connor, a Glen Burnie, Md., freight forwarder.

As a result of the 24-hour stipulation, many importers will have to comprehensively adapt their offshore processes to account for these expected changes.

"The security filing will change the way shippers operate their businesses," says Melissa Irmen, vice president of products and strategy at Integration Point, a global trade management software company headquartered in Charlotte, N.C.

"Providing data about a shipment prior to loading will alter how bookings are made, the timing in which information is shared with the importer or agent, and the confidence with which carriers can guarantee placement of goods on ships."

From Irmen’s perspective, one challenge in complying with 10+2 is that no single entity currently has custody of all the required information, making 24-hour advanced reporting difficult to fathom, let alone execute.

Taking Shape

As the skeletal provisions of the security filing begin to take shape, largely through the CBP’s initial proposal and subsequent discussions and conjecturing among importers, carriers, and service providers, it’s apparent that businesses and CBP need to first explore the technology necessary to aggregate and convey this information.

"So far the 10+2 mandate is very much business-oriented, but the technical support necessary to sustain such a directive is still getting up to speed," says Butch Connor, director of ocean operations for John S. Connor.

Some businesses are already flowing this data through the Automated Manifest System (AMS), a mode-specific cargo inventory control and release notification system that interfaces directly with CBP, and indirectly with the Automated Broker Interface (ABI). This allows low-risk shipments to be identified and released faster.

Ensuring that all these extra data points are incorporated into the process, and in a timely manner, demands a concerted and coordinated effort. Service providers and technology partners such as John S. Connor and Integration Point are actively keeping track of ongoing discussions as customer awareness grows.

Importers will likely turn to supply chain intermediaries to help navigate terms of the new security filing and facilitate compliance.

Of greater concern to shippers and consignees is the cost and operational disruption as the program is phased in.

"Importers and carriers are expected to fund the system and process changes their businesses need to comply with the Importer Security Filing," says Irmen. "It is still unclear how the CBP development effort is being funded."

Another issue importers will have to grapple with is sharing with third-party brokers sensitive information that could threaten competitive advantage, notes Lee Connor – especially in identifying manufacturer and supplier sources.

Shippers will have to consider whether it is in their best interest to keep data dissemination in-house, or outsource filing processes to domestic or foreign-based third-party service providers.

Sharing the Load

Carriers will have to share some of the burden as well. In addition to filing their own shipment status reports, they’ll have to work more closely with customers to understand how they plan to address the 10+2 requirements.

"According to its notice, CBP is holding the importer responsible for the data filing," says Irmen. "But each shipper may take a different approach and envision a different mechanism to meet the filing – which burdens the carrier to interact with each communication vehicle put in place by various customers."

While some inbound shippers undoubtedly perceive 10+2 as "above and beyond" necessary administrative measures, others might see an opportunity to drive greater visibility and flexibility deeper in the supply chain and build stronger relationships with offshore partners. Most opinions fall somewhere in between.

"All importers want a secure and reliable supply chain," adds Irmen. "It is unclear, however, how the Importer Security Filing will provide that.

"Many companies undertook the effort of becoming certified in CBP’s Customs-Trade Partnership Against Terrorism (C-TPAT) before the actual return on investment was quantified. That voluntary program relied upon the industry’s recognition that security is necessary."

Irmen isn’t convinced that the 10+2 mandate in its current form is the most well-informed approach to dually enhancing security compliance and cargo flow.

"When it comes to improving supply chain efficiencies, businesses prefer to decide for themselves what detailed data elements are needed, and when they are needed," she says. "They could then base these decisions on their business model and the individual stresses they see on a particular commodity or supply route."

Wait and See

Importers such as R.G. Barry are taking a wait-and-see approach. Glenn Evans, senior vice president of sourcing and logistics for the Pickerington, Ohio-based accessory footwear developer, is optimistic about its ability to interface with the new system and with partners when the rule is finally introduced.

"The 10+2 security filing regulation is in the commenting stage and could change over the next few months," he says. "We are working with our suppliers and carriers to make sure we are prepared for the implementation. We already use ABI and we expect to implement with few problems."

In theory, supply chain security and efficiency should go hand-in-hand – and 10+2 could facilitate both priorities with proper due diligence. For the time being, the verdict is still out as CBP solicits feedback from industry.

A tentative deadline for the mandate was initially projected for 2008. But given the current impasse, Butch Connor doesn’t expect anything to happen until late 2008 or more likely 2009. "CBP will likely want to get it moving, phase in implementation, work out the kinks, then roll it out," he says.

Consumer Goods Companies Still Packing Inventory

Leading retailers and consumer packaged goods manufacturers failed to significantly reduce system-wide inventory levels during 2007.

That’s despite investments in advanced supply chain planning and tracking tools, and additional spending on sales and operating planning (S&OP), according to a recent Archstone Consulting report. Many companies in the consumer goods industry are shifting their attention to incremental channel-specific and product line improvements to focus on top-line growth.

The study assessed inventory levels and productivity of 25 leading retailers and consumer packaged goods manufacturers – including Wal-Mart, Costco, Kellogg, PepsiCo, Hershey, Colgate, and Unilever – by tracking quarterly inventory turns over a six-year period beginning in 2001.

"A surge in new products across the consumer packaged goods and retail industries during the past two years, and an increase in offshore production, have absorbed any operational improvements achieved in planning and manufacturing over the last few years," says David P. Sievers, consumer products and retail practice leader at the Stamford, Conn., strategy and operations management consultancy.

"If retail spending weakens further in 2008 given our uncertain economic environment, expect an increased focus on inventory levels across the supply chain as products sit longer on shelves or in distribution centers."

Among the report’s other findings:

* After a period of improvement in retail inventory productivity, gains have moderated from mid-2006 through the third quarter of 2007.

* Wal-Mart’s recent inventory productivity gains kept pace with those of the last four years, but did not perform as well as the retailer predicted a few years ago.

* The grocery trade continues to look better, but the drug channel has seen minimal improvement with efforts likely disrupted by acquisition activity.

* Within the food and beverage sector, inventory productivity is declining slightly among large U.S. manufacturers, while mid-size companies have generally maintained performance.

* New product introductions designed to increase top-line growth have made continuous cost and inventory reductions challenging for both consumer packaged goods companies and retailers.

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