Homeland Security Rules Heighten Need For Supply-Chain Automation

Starting next week, U.S. Customs will crack down on enforcement of rules meant to tighten security on goods arriving at the nation's ports.

The anti-terrorist regulations, part of the federal government's Homeland Security initiative, require ocean shippers to file manifests for container-packed cargo 24 hours before leaving foreign ports.

By knowing the contents of the 11 million sea containers entering U.S. waters annually, Customs hopes to prevent terrorists from hiding a radioactive bomb on a freighter and detonating it at a homeport.

The government does not require companies to adopt technology, but it expects shippers and carriers to put an efficient system in place. Industry experts believe the regulations will push adoption of international logistics systems and other applications. "Most shippers have prepared for the regulations by throwing a lot of people and assets into the problem," said Gerald McNerney, analyst for AMR Research. "That's not a sustainable kind of model. They will have to address this systematically with more technology to manage the process effectively as a long-term solution."

To build a complete "global trade management system," a company will need to integrate supply-chain event management (SCEM) software and a transportation management system (TMS) with international trade logistics software, McNerney said. SCEM enables companies to manage problems, such as shipment delays, and the TMS helps in optimizing and executing the delivery process.

Adopted in December 2002, enforcement of the "24-hour advance manifest regulation" started in February. However, starting May 4, the government will no longer just issue warnings and assist shippers in meeting the regulation's dictates. "What we're going to see next week, according to the government, is strict enforcement of the rules," McNerney said. "Where you would have received a warning, you will now be penalized or receive a do-not-ship order."

For shippers with sloppy record-keeping systems, the government could decide to halt movement of all that company's cargo. "The do-not-ship order has a potentially powerful impact for companies," McNerney said.

Preparation of export, import, and clearance documents is no small matter for shippers and carriers. High-tech researcher Aberdeen Group says 7 percent of world trade is spent on administrative costs, with most of that money directed toward document preparation, handling, and transmission. A typical air-freight shipment, for example, takes eight to 12 days, with the cargo en route only 5 percent of that time. When not traveling, shipments sit in warehouses waiting for documents and compliance checks, Aberdeen said.

To meet the 24-hour rule and other regulations associated with the initiative, industry experts are recommending shippers at least automate the documentation process. The government does allow shippers, carriers, and forwarders to file documents electronically through systems like the Census Bureau's Automated Export System and the Bureau of Export Administration's Simplified Network Application Process.

International trade logistics vendors, such as NextLinx, Open Harbor, and Vastera enable shippers to prepare all documents electronically, pulling data from product catalogs and the software's repository. Shippers can use a commercial description of every item in a container. However, Customs is less likely to delay shipments in which goods are identified using export/import codes defined by the Harmonized Tariff System adopted by the U.S. and its trading partners. Logistics software includes the codes, which a shipper can match with its freight.

In addition, all cargo must have a seal ID number that verifies the shipment has not been altered since originally packed at the warehouse. Documentation listing the names and addresses of the shipper and consignee must also follow the cargo.

"We tell our customers that the more codification you have, the less likely the government will say there aren't enough controls in place," said Beth Peterson, vice president of product solutions for Open Harbor.

Shippers usually include the required documentation within the advanced shipment notification sent to carriers at least 48 hours before cargo leaves a foreign port. The carrier packages the notifications into a manifest sent to Customs. Most of the documentation travels to the various organizations via Electronic Data Interchange (EDI).

To further avoid potential delays, shippers should include in their documentation that they are compliant with the Customs-Trade Partnership Against Terrorism requirement. For compliance, a shipper has to have on file a document showing that the ports used meet U.S. standards for security of facilities and personnel.

"Having an integrated product solution will allow you to be a lot more productive and to manage this activity a lot better," McNerney said.

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