months of the Importer Security Filing(ISF) program, trade specialists on thefront lines of ocean freight transportationsay the numbers gloss over how vulnerablethese companies will be when the currentgrace period ends and the agency goes tofull enforcement in January.

Major challenges are that small busi­nesses do not have representatives orcontacts in foreign countries to track downthe necessary information, are hamperedby working in a different time zone, and inmany cases do not even know the primarymanufacturers used by the wholesale buyerswith which they place orders.

Many mom-and-pop retailers are stillnot aware ofthe requirement or mistakenlybelieve their customs broker will take care

of the documentation without any effort ontheir part, according to industry officials.Also of concern is the potential cost of infor­mation technology systems and filing fees.

Rose-Marie Miller, owner of Atlanta­based JRM International Forwarding Inc.,said she's worried whether small importerswill be able to cope with the new regulation,and how her company will be effected ifthey decide sourcing products from foreigndestinations is no longer worth the hassle.

"I'm on the side of Customs. I under­stand the initiative and I don't want it to

fail. But the initiative itself makes it verydifficult for small importers to provide theinformation in a timely manner, especiallyif they use an NVO (non-vessel operatingcommon carrier), because often the vesselhas sailed before you get the information.

"And the NVOs are maybe not as moti­vated to take care ofthese little importers"who book 25 to 50 containers or less peryear, she said.

ISF requires importers or their agents toelectronically transmit, 24 hours prior tovessel lading in a foreign port, 10 types ofdata identifying where a container originat­ed, the cargo contents, the consolidator andbuyer. Carriers subsequently must providetwo additional data fields - hence "10+2."

CBP isnot issuing penalties for inaccurateor late filings during the first year to allowindustry to develop the infrastructure andprocess for gathering and filing the data.It has urged importers to start filing ISFs,even if they don't have all their systems inplace, so that companies can learn fromtheir mistakes.

Contrary to expectation, the vast majorityof companies filing ISFs so far are smalland medium-size enterprises (SMEs). Ofthe 52,000 importers, brokers and freightforwarders that have submitted an ISF,about50,000 have come from the small to mid-sizebusiness category, according to CBP figures.

ISF Program Manager Richard DiNucci,

By ERIC KULISCH

'10+2' complianceposes special challenge

for small importers

lngbefore u.s. Customs implemented in

January its "10+2" rule for cargo security

urposes, small and medium-size import-

ers feared complying with the stringent

advance import data filing requirements

could put them out of business.

Although Customs and Border Pro­

officials are encouraged that

smaller-type importers have

actually proven to be the most

involved sector during the initial

LOGISTICS

Source: American Shipper-BPE-ICPA ISF Benchmark Survey, 2009

Very high

• Study Average

• Large Companies

• Small/Medium Companies

High

42%

aSSOCIatIOnsand World Trade Centers

located in some cities, to help get out theword about "10+2."

"You have to look at where these peopleget their information and start developingnew channels. It will take time, but youneed to be creative," she said.

Susan Kohn Ross, international tradecounsel for Mitchell Silberberg & Knupp,said in an interview that small and mid-size

enterprises are "completely beholden towhoever their service provider is," com­pared to large companies that can developtheir own information technology linksand often have their own representativesin the city of origin. ISF success for anycompany largely depends on the qualityof the broker's or forwarder's overseas

agents, and how well they communicatewith each other.

One recommendation making therounds, she said, is for CBP to follow themodel ofthe Census Bureau's Foreign TradeDivision, which has a Web-based data en­try alternative for transmitting electronicexport information to its Automated ExportSystem called AES Direct; and the Foodand Drug Administration's Web-basedPNSI system for shippers to provide priornotice of food imports.

Companies currently file the ISF throughthe agency's Automated Broker Interface orAutomated Manifest System. As with AES,the systems require the regulated entity tocreate a computer program to interchangeelectronic data between their computersand Customs.

Ultimately, the responsibility to be aware

FairLowVery low

40%

20%

0%

30%

50%

10%

197 total respondents

Figure 1

Level of confidence ISF filings are timely I accurate and complete

"I think what we're seeing is that smalland mid-market companies that are cur­rently filing are doing so because theywork with brokers who are larger andtraditionally have been proactive on tradecompliance and regulatory issues. They'vebeen doing outreach to their customers andas aresultthose businesses are being pulledinto the ISF filing.

"When the larger brokers have prettymuch exhausted their outreach efforts to

their existing small business base, I thinkwe'll see those numbers level off. Then all

those small and mid-size companies thatdon't work with proactive filers, those arethe ones that are going to be problems comeJanuary," she said after the meeting.

The difficulty is that no one knows howmany importers and brokers are still in thedark because the traditional channels foroutreach don't work for them.

To reach further down and increaseawareness among small brokers and import­ers that are not as engaged in regulatorymatters, CBP plans to distribute brochuresand hang posters about the pending" 10+2"deadline at customs houses where brokers

often walk in to manually submit importdeclarations, DiNucci said.

The brochures, which were undergoinginternal review as of early June, spell out therequirements in simple, concise terms thatare easy to understand and contain contactnumbers to obtain further information.

Lobdell suggested that CBP shouldalso collaborate with the Small BusinessAdministration, which has traditionallyfocused on exports, small business trade

at a May 6 meeting of the CommercialOperations Advisory Committee (COAC),attributed the good participation so far to theagency's extensive number of educationalseminars at various U.S. ports, as well as ap­pearances at industryconferences, and thelikelihood that smaller

companies have lessof a compliance chal­lenge because theirsupply chains are notcomplex.

CBP's results areconsistent with the DiNuccifindings of arecent survey of more than 220companies conducted by American Ship­per and trade compliance consultant BPE.

In fact, the study shows that smaller com­panies are managing to file all their ISFs,while large companies are struggling to doso. The survey also indicated that smallercompanies have a higher confidence levelin the timeliness, accuracy and complete­ness of their filings right now, but expressless certainty about their ability to meet the2010 enforcement deadline compared totheir larger brethren.

"The concern is if

this isthe best they cando," BPE PresidentBeth Peterson said.

An importer that isable to successfullyfile ISFs for three­

quarters of its ship-ments, for example, Petersoncan expect penalties on the remainingshipments once enforcement begins.

"Then they're out of business. If theyhave to pay a penalty of $5,000 for everyimport they do, how can a small companysurvive?" she said.

How one defines a small-to-medium-size

company can also colorresults. Small com­panies were labeled in the survey as havingless than $100 million in annual revenue,while mid-size firms were characterized

as having less than $1 billion in revenue.Some consider a small business as one thathas 500 employees or less. CBP categorizesan importer's size based on its volume ofcustoms entries and ISF submissions, aspokesperson said.

COAC member Karen Lobdell, directorof trade security and supply chain servicesfor Chicago-based law firm Drinker Biddle& Reath, cautioned that most small trad­ing firms complying so far probably havetheir documentation filed by agents whoare active in trade associations or largetrade management firms who stay on topof customs issues and have engaged theircustomers to prepare for "10+2."10 AMERICAN SHIPPER: JULY 2009

ISF software for small importers

LOGISTICS

of any rule changes lies with the importerwho wants the privilege of bringing goodsinto the country, DiNucci said a week laterat the Virginia Maritime Association's an­nual conference in Norfolk, Va.

Miller,the broker-forwarder whose clientbase mostly comprises small shippers, hasattended outreach seminars but said she

is concerned that there is no help desk orway to get procedural questions answered.

"A lot of people are trying to comply, butI've got importers coming to me saying that,'Until Customs starts to take fines I can't

deal with this.' It's too daunting and theydon't want to begin to attack it," she said.

"They're not used to speaking to theirsuppliers in such intimate terms until maybemonies have been exchanged to pay for thegoods. When the goods have been produced,packed, shipped and are on the water, thenthey talk," Miller explained.

Don Woods, brokerage division managerfor UPS Supply Chain Solutions, agreedwith CBP in an interview that small to

medium-size importers have less of acompliance challenge than big shipperswho have to integrate data from multiplemanufacturers, transactions, trade lanes,freight forwarders and carriers.

More than half the data required on theISF is already contained on the commercialinvoice and there are many Web-based toolsavailable to help small companies collectadditional pieces of information and pullthem all together for the filing, he said.

A less complex supply chain is a benefit- to a point - Peterson observed. The di­lemma for the small business, she noted, isthat it has no leverage with foreign supplierswho do not understand the regulatory re­quirement or don't care to do the extra workto help their customer. Large companies,by comparison, are putting clauses in theircontracts requiring foreign manufacturersand other vendors to supply their missingdata elements in an accurate and timelymanner or face monetary penalties or lossof the contract.

And many small companies still do nothave a good grasp of their supply chains,their process flows or the source of requiredinformation, such as the container stuffinglocation or harmonized tariff code.

Miller said one of her customers who

supplies Pottery Barn constantly changessuppliers in China and India to keep mer­chandise fresh, and is hard pressed to pro­vide origin information in a timely manner.

She questioned the validity of CBPfigures showing high participation andon-time filing rates of about 50 percent.

"We see the truth. We're getting theinformation, but it's always late. And someimporters have discovered that it's so dif-12 AMERICAN SHIPPER: JULY 2009

Several trade management andcustoms software vendors have

developed tools to specificallyhelp smaller companies comply with theImporter Security Filing (lSF) program

Boston-based TradeMerit recentlyannounced a basic Web-based service

that allows importers to fill in a tem­plate with the required data elements,maintain a master parts database andreceive updates on their ISF status for99 cents per filing. Customers can alsomake amendments to the filing whenmore accurate data becomes, availablefor no extra charge. Premium services,such as a platform where multiple trad­ing partners can enter some elements forthe importer, are available at extra cost.

The rules allowimporters to update fourtypes of information, such as the ship-toparty and country of origin, indefinitelyand two pieces of data (consolidator andcontainer stuffing location), until 24 hoursbefore arrival in the United States. Cus­

toms and Border Protection officials saythat most companies not taking advantageof that flexibilityand instead are fil­

ing complete docu­ments the first time.

Sandra Scott,TradeMerit's vice

president of tradecompliance, saidone possible reasonfor the low number Scottof amendments is that many thir~-partysystems providers don't have the capabil­ity in place yet to do amendments, and arerequiring their customers to enter all 10data elements up front. Many providersalso charge a fee to file amendments.

Bryn Heimbech, president of TradeTech, said his company can act as theon-scene facilitator for small U.S.-based

brokers and infrequent importers thatdon't have the overseas pre~ence, lan­guage skills or compatible office hours toround up the necessary ISF informationfrom local vendors.

Trade Tech, headquartered in Bellevue,Wash., specializes in logistics software

ficult that they've completely given up,"she said.

Importers and logistics providers arepaying brokers and forwarders an averageof about $30 in transaction fees to compileand file the ISF, with some fees reported in

and service for non-vessel-operatingcommon carriers. It has offices in Shang­hai, China; Hong Kong, Taipei, Taiwan;Hamburg, Germany; Lyon, France; andGenoa, Italy. The staffin those cities pullstogether the loose strands of informationthat don't reside on the purchase order andsend it onto data input stations in Vietnamand India, which have already keyed in thenecessary data elements from the carrierbooking. The information is combinedand sent onto Customs.

"Our offices work with the shipper,get the information, get it into the sys­tem and then the broker has access to

the data through work flow technology.They review it, classify it, add anythingthey need to and file it," Heimbech said.

"The broker continues to be the agentfor the importer. We're just providing afront office for them."

Other companies offering ISF soft­ware include:

• Descartes. The Waterloo, Ontario­based company has a basic ISF servicethat allows customers to enter data viathe Web and then files it directly to CBP.Other tiers of service are set up to handleelectronic data interchange transmissions.

• TRSDirect. Anothercost-effective

software product geared to smaller busi­ness entities with infrequent shipments.The company promotes direct filing as away for the importer to make sure infor­mation filed is timely and accurate. TheISF is not considered "customs business"

by CBP and therefore requires no licenseor special filing code to participate.

• Management Dynamics. Thecompany has an ISF component within itsautomated import management product,and has designed a smaller ISF applica­tion for manual filers. The key benefit isthe customer can download it and workoffline without having to be connectedto the Internet while preparing the ISFform, according to Nathan Pieri, seniorvice president of marketing and productmanagement. Users can prepare multipleISF files and submit them all together ina batch. The program will then connectonline to Customs and transmit the file.

the $50-to-$100 range, according to a widerange of industry feedback. Those additionalcosts have a greater impact on smaller com­panies that operate on thin profit margins.

The American Association of Export­ers and Importers, in comments recently

LOGISTICS

Figure 2

Percentage of ISFs filed for ocean imports by company size35%

Source: American Shipper-BPE-ICPA ISF Benchmark Survey, 2009.

232 total respondentsPercentages do not add up to 100% due to rounding.

year to make sure duties, penalties and othercharges are paid. Small volume shipperstend to secure a bond for each customs entrytransaction because it is cheaper.

Miller said customers who bring in eightto 10shipments per year don't want to switchto a continuous bond .

"Small importers feel pressured as ifthe government is coming down on themand saying, 'Hey, we don't want you toimport,''' she said.

JRM has decided to help some customers,in spite of their indifference, by gatheringinformation behind their back and filingan ISF to keep them in compliance, Millerconfided. If an e-mail confirming shipmentis received she uses the track-and-trace

capabilities of ocean carrier booking sys­tems to find the master bill of lading forthe container holding the shipment, butoften can't find the house bill of ladingwith the specific shipment details. Evenwhen successful, the information aboutthe shipment consolidator and location ofthe warehouse that packed the containeris still missing. Complicating that effort isthe fact that many customers use data-richletters of credit (which often have bills oflading and commercial invoices attached)to finance their shipments, but banks oftendon't release copies of the documents untilafter the goods have been shipped.

"Right now I've got three files andthe vessel sails today," Miller said. "I'vegot all the information I need, except thehouse bill, so I can't identify the portion ofthe container with my 100 cartons. And,therefore, I can't file the ISF. I asked theimporter for the house B/L, and his suppliercan't provide it to him. So the lack of com­munication with the supplier is a problem."

The ISF filing has strained the smallbrokerage company, which drops other taskssuch as preparing customs entries to filethe ISF because by the time it gets all thenecessary information the goods are alreadymoving toward the port, she explained.

Miller says she charges her customersfor the ISF work even if they aren't com­missioning such service.

"If I have to play Sherlock Holmes, I'mgoing to charge more. It's their job. I'mdoing them a favor. I want my importersto be in compliance.

"My importers come here and there'sa place in the market for us because wehold their hands, and we teach them whatit takes. We have the patience to get themto comply with all the initiatives. A biggerbroker may not have all the time," she said.

The Importer Security Filing Bench­mark Study, co-produced by AmericanShipper, BPE and ICPA, is available atwww.AmericanShipper.com/ISF. •

33%

• Large Companies

• Small/Medium

Companies

almost at the same time to impact the mar­ketplace. They said between the economyand Customs' demands they've decided todo something else.

"So it's very sad for a small company likeours because we need all of our customersto survive," she said.

The interim rule's flexibility allowingimporters to submit a range of acceptableresponses for data elements, such as themanufacturer and ship-to-party, is criticalfor smaller importers, according to CindyAllen, director of the National CustomsBrokers and Forwarders Association ofAmerica's Educational Institute.

Importers are required to update theirfilings as soon as more precise informationis available.

The extra time is important because smallimporters typically use third and fourth­party suppliers, making it difficult to trackdown the actual manufacturer.

"Ifthey (CBP) don't maintain that flex­ibility it's going to impact sourcing patterns,which will have huge commercial ramifica­tions in the end," she said.

CBP has not yet clarified what customsbond requirements it will impose on im­porters to guarantee proper ISF filing. Theagency has waived the bond requirementfor the first year, but officials have indi­cated that companies can cover their ISFactivity with existing continuous bonds.An infrequent importer that uses a singleentry bond likely will need to obtain aspecial ISF bond.

Continuous bonds are purchased to covera company's entire importations for a full

0%

5%

30%

25%

20%

15%

10%

filed with CBP as part of the interim finalrulemaking process, expressed its beliefthat filing fees will increase as more smalland mid-market companies participate inthe ISF process.

"SMEs do not have the leverage to negoti­ate pricing with their service providers asthe larger companies do. Also, since theytend to have smaller shipments in volumeand dollar value, these fixed costs will hitSMEs much harder and be debilitating muchmore quickly than they will for the largerimporters," the pro-trade organization said.

But AAEI and others note that filing feesare a minor cost of compliance comparedwith programming computer systems, man­ually tracking down overseas data and dataentry. The biggest cost of all, they say, couldbe from self-imposed delays or slowdownsin the supply chain as cargo shipments areheld up to make sure all the data elementsare available to file a complete ISF.

CBP has indicated it plans to deal withinaccurate, incomplete or late ISF filingsthrough the penalty process, but depend­ing on the risk assigned to a shipment orthe ISF compliance history of a shipper,CBP could issue "do not load" messagesto carriers for certain containers once full

enforcement kicks in next January."We're worried about what's going to

happen next year," Miller lamented. "Wehad two importers who decided to sourcelocally instead of import from China becausegetting the information was too difficult.Their profit margins went down. Everysingle initiative - the 24-hour (manifest)rule, clean truck programs - have come

14 AMERICAN SHIPPER: JULY 2009