New security rules mandating advance cargo manifests for sea carriers went into effect this week, with significant implications for supply chain operations worldwide.

As part of a broader cargo security initiative, the U.S. Customs Service now requires all sea carriers and non-vessel operating common carriers (NVOCCs) to provide detailed descriptions of cargo containers bound for the United States 24 hours before the container is loaded on board the vessel. In the past, carriers often took from several days to two weeks after departure to file such documentation. Enforcement of the new rules began Feb. 2.

"Compliance with the 24-hour rule is a matter of national security, and essential to help secure the global supply chain," says U.S. Customs Commissioner Robert Bonner. "We applaud the efforts of those [carriers] that have taken implementation of this rule seriously. To those that have not, U.S. Customs is giving notice that non-compliance will not be tolerated."

The rule includes 15 data elements, but Customs is initially focusing on cargo descriptions. To comply, shippers, forwarders and carriers must have access to manifest data at the line-item level, and be able to communicate this information electronically to U.S. Customs.

"They've pushed the borders back, so now cargo has to be cleared before it's loaded onto the ship," says John Urban, president of GT Nexus Inc., Alameda, Calif., a logistics software company.

Non-compliant containers will not be loaded at the port of origin. Carriers that ignore do-not-load instructions will not be allowed to unload the freight at any U.S. port. Fines start at $5,000 for the first non-compliant container and $10,000 for each additional container, with possible additional penalties up to the value of the cargo.

This is not only an issue for carriers and overseas exporters. Delayed shipments could wreak havoc on U.S. manufacturers and retailers that rely on goods from overseas--much like the West Coast port lockout affected the supply chain last year. Even freight not bound for the U.S.--for instance, a shipment from Hong Kong to Canada via the U.S. port at Tacoma--must meet these requirements.

"If people don't comply, they won't get their goods," says Jonathan Gold, director of international trade policy at the International Mass Retail Association, Arlington, Va.

"Importers in the U.S. may believe this is not their problem, but in reality, Customs has created a situation in which importers are responsible to do due diligence throughout their own supply chains," says Urban.

Costs go beyond delayed shipments and fines. The Georgia Institute of Technology found that when a company announces a supply chain disruption, its stock price falls an average of 8.6% and a $120 million or more of shareholder value is lost.

"Customs will generate lists of 'white hat' and 'black hat' shippers," says Urban. "How you manage your information can make you either a more or less valuable member of the supply chain."

Communication bottleneck

The 24-hour rule technically went into effect in December, but Customs provided a 60-day grace period for shippers and carriers to become compliant. For carriers to gather the needed information in time, some are requiring documentation from shippers 48 to 72 hours in advance of loading.

Six million cargo containers, representing half the value of incoming trade in the U.S., arrive and are offloaded at U.S. ports each year. Ninety-five percent of U.S. trade moves by water, according to the ARC Advisory Group, and a typical cargo transaction involves about 25 different parties and 30 to 40 different documents. Home Depot alone sources 40,000 different SKUs from more than 40 countries, 268 vendors and 555 factories.

The biggest bottleneck, according to Gold, has been communicating with the carriers and NVOCCs, many of which aren't equipped to handle electronic documentation. While many companies already generate electronic manifest information, the bulk of the transactions handled by ocean carriers are via fax and phone. Carriers manually re-enter the documentation into their own systems, then send it to U.S. customs via the Automated Manifest System (AMS).

The challenge for shippers: how to get the bill of lading information to the carriers in time to meet the 24-hour rule. Companies operating under a just-in-time inventory model have squeezed time out of the supply chain. Now, they'll be forced in some cases to have containers in their yards three days before shipping. "Now you're adding time back into the process, because the container is sitting there for at least 24 hours, to make sure the manifest is correct," says Gold.

The upside is that more shippers will have an incentive to file their documentation electronically. This could, however, require substantial process changes for foreign manufacturing facilities that don't track goods being loaded for shipping. And, at least for the short-term, carriers may need to increase their labor force to process documentation faster.

Web portals and other solutions to help shippers are available, such as GTN (operated by GT Nexus), Cargo Smart (operated by Orient Overseas Container Line Ltd.), INTTRA, Manifest 24 (from Tradepoint Systems LLC) and Covansys Secure Supply Chain Solution. GTN, for example, is a free service for shippers. They can either use a Web form or have their own internal systems integrated to the portal, and use it to submit electronic documents to carriers.

Gold says that the eventual goal will be for shippers to file forms directly with Customs, bypassing the carriers altogether. UPS Ocean Freight Services, the freight forwarder unit of UPS Supply Chain Solutions, Atlanta, announced it has been certified to file directly with AMS.

The Customs Services' Automated Commercial Environment (ACE) program will potentially lift the burden off the carriers and permit companies to directly communicate with the agency, but Gold says this is still a few years away.

Far-reaching security programs

Several security initiatives have been put in place to fight terrorism within the supply chain, including the establishment of the Transportation Security Administration (TSA), the Customs-Trade Partnership Against Terrorism (C-TPAT) and the U.S. Customs Container Security Initiative (CSI).

The 24-hour rule is one part of CSI. The other elements include establishing security criteria to identify high-risk containers, using technology to pre-screen those containers, and developing and using "smart" containers. The Smart and Secure Trade Lanes initiative covers the latter requirement by using RFID tags as an electronic seal on the container to hold manifest information and document any container breaches. Government officials demonstrated the technology at the Port of Seattle earlier this week.

More rules are on the way. Similar manifest notification will soon be mandated for truck, air and rail cargo coming into the U.S. as well.

While many companies have complained about the new rules, one benefit will be increased collaboration across the supply chain, and increased use of automation technology (i.e., RFID, bar codes, wireless communication) that will improve efficiency and accuracy in the long run.

"This really forces companies to take more ownership of the supply chain, and requires improved communication with their supplier and logistics partners," says Gold.

New safety regulations will also provide key indicators of cargo's progress through the supply chain, says Urban. And logistics providers in the U.S. can save time at the dock because 80% of cargo clearance will be performed in advance. "These initiatives will enforce order and discipline in the industry, and I think we'll see more efficiency at the ports," he says.

A number of outstanding issues still remain, however. Will labor unions object to new technology at the ports? Who will pay for the infrastructure costs as these initiatives are put in place? How much time will these measures take to implement?

"Everyone agrees that trade security is important, but nobody wants to pay for it," says Adrian Gonzalez, analyst at ARC.

More information is available at http://www.customs.gov/.