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Expert Insight: Perspectives Global Trade Security

By James Giermanski,                  

President                                  

Powers International, LLC

 

Chris Giermanski

Director of International Operations
Transportation Services Inc.

Date: Aug. 13, 2012

Global Supply Chain Comment: Cargo Security Needs to Start with Contents Verification at the Shipper

One Common Element in Profit and National Security: Need for Improved Cargo Knowledge

The fusion of the private sector commercial need to enhance the bottom line and the government's need to improve security to protect our people and port system can most obviously be recognized and understood by knowing the actual cargo placed in a container or trailer and its movement into and through our nation.

Cargo knowledge is the core element impacting sales, carriage, profit and security. It is so important that there is a federal requirement to report it for all international shipments directed towards the United States.


Business Reason for Importer and Exporter to be Serious about Cargo Security


There are legal guidelines for product sales, movement and payment in the global marketplace. Whether the wrong goods were loaded and shipped or were subsequently altered during their carriage, the fundamental problem is a commercial and potentially legal problem for the importer. If the U.S. importer is unable to rectify a problematic sale, the only choice of legal action falls not within the State Uniform Commercial Code (UCC), but rather under the United Nations Convention on Contracts for the International Sale of Goods (CISG) litigated in only the U.S. Federal court system since the CISG is a treaty and therefore Federal law.

CISG is very clear with respect to the foreign sellers' obligations. Article 35 clearly states that "The seller must deliver goods which are of the quantity, quality, and description required by the contract…."

Wrong or illegal cargo can result in lost sales, lost revenue, legal action, and likely future Customs and Border Protection (CBP) problems because of inaccurate filings of cargo, inaccurate harmonized tariff issues, and more CBP inspections of future imports based on this one event. Of course, if the cargo turned out to be illegal, there would be other potential criminal issues.



Business Reason for Carriers to be Serious about Cargo Security

 

We'll start with motor carriers.

 

The motor carrier plays an essential role with respect to cargo identity because of its obligation to file e-manifests with CBP stating among other things, what cargo it is bringing into the United States or through the United States. In Mexico, for example, the carrier may not have civil liability for the cargo since the carrier may have picked up a sealed trailer or container. However, it does have the responsibility for an accurate e-manifest that it files with CBP. The discovery of un-manifested cargo or contraband poses significant consequences for U.S. Carriers, in addition to the exporter and U.S. Customs broker.

All U.S. Carriers involved in cross-border operations that take advantage of the CBP's FAST (Free and Secure Trade) lanes program are automatically and directly impacted if contraband is found in their equipment, a serious risk since in many cases U.S, carriers may contract a door-to-door shipment, one originating in Mexico with a final destination in the U.S. or Canada.

While these loads are assigned to U.S. motor carriers, they subcontract a Mexican carrier who may be partially or solely owned by the U.S. carrier to conduct the initial carriage from the Mexican origin to a drop lot on the Mexican side of the border. A drayage partner is then chosen by the carrier or broker to cross the load into the United States. Even though the U.S. carrier is subcontracting a Mexican carrier, it retains its responsibility for verifying the C-TPAT (Customs Trade Partnership Against Terrorism) status of the contracted carrier and the C-TPAT required security measures throughout the supply chain.

If contraband is discovered at the port-of-entry, the case will be assigned to an Immigrations and Customs Enforcement (ICE) agent to investigate the circumstances of the case. The U.S. carrier is at risk of losing its C-TPAT certification and FAST lane privileges, and the carrier's equipment and or freight may be seized if the carrier is found to be involved or at fault due to poor business partner verification of cargo and/or supply chain security measures. Finally, this can also and often does result in loss of the customer which can mean millions in lost revenue.

Next, let's look at vessel carriers.

Carriage by sea will also see a shift of legal responsibility from the standing 1936 Carriage of Goods by Sea Act (COGSA) to the new United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (Rotterdam Rules) to which the United States became a signatory in 2009.

The new rules when signed by the U.S. President with the "Advice and Consent" of the Senate, will change the vessel carrier's liability from its current responsibility for the cargo from the time it was laden onto the vessel at the departure port to its arrival at the destination port, the "tackle-to-tackle" mode, into a new single contract for door-to-door carriage.

In other words, the vessel carrier will have liability of cargo from stuffing into the container at the shipper's facilities to the U.S. destination where it is unloaded or transported in-bond. Simply put, the vessel carrier will be responsible for what's in the container from point of origin to destination including the entry of any illegal or falsely filed cargo into the United States. If illegal or incorrect cargo is discovered, the carrier and the shipper would have serious problems resulting in lost time, revenue and negative CBP consequences.


The Security Needs


TCBP also has an obvious need to know the contents of containers and trailers moving through our ports. They need to know, not only because of the business aspect of collecting appropriate duties depending tariff classifications, but also for our personal safety and the continued functioning of our economy which is inextricably linked to global trade and cargo movement.

CBP claims that they can know and do know the cargo because of the use of the Automated Commercial Environment System (ACE), which requires electronic filings describing the cargo among other e-manifest elements. At the present time, importers through the Importer Security Filing (ISF), motor carriers through the e-manifest, and customs brokers through the Automated Broker Interface (ABI) file cargo data into the ACE system. On September 29, 2012, vessel and rail carriers will also be required to file an e-manifest.

Unfortunately, these ACE filers have no "direct" knowledge of cargo. With respect to cargo identity and quantity, they are merely filing information that some other entity said was in the conveyance, simply taking the word of not the actual person who supervised, and certified the cargo and quantity at loading the container at origin, but what the bill of lading says is in the conveyance.

The Automated Commercial Environment System is a good development in attempting to modernize and improve homeland security with respect to the commercial entry of foreign conveyances carrying merchandise. It facilitates trade and presumably pleases the private sector. But it does not come close to guaranteeing the cargo's identity and quantity. The problem is that CPB only knows what someone (shipper) told to someone else (carrier) who told to someone else (Customs Broker) that these conveyances are said to carry something.

Imagine in the case of rail and vessel carriage where there is an additional "someone else." Of the shipper, motor carrier, rail carrier, vessel carrier, and Customs Broker, only the shipper really knows what is in the conveyance.

Unless CBP has the identity of the actual individual verifying the loading, and certifying the cargo and its quantity in a specific, identified conveyance at origin, it has no more than hearsay.


A Reasonable Fix


It is possible to solve all of these business, legal, and security problems relating to cargo knowledge. First, there are international firms that verify cargo loaded into containers and trailers at origin. Cotecna, SGS, and Intertek are examples. The costs of their services would turn out to be increased revenue for the importer if it avoided all the commercial, legal, and security costs cited above. There are also the off-the-shelf container security devices (CSDs) that offer a chain-of-custody process which requires the identification of the individual who actually verifies the cargo and its quantity at the time the container is loaded at origin and monitored for breaches and appropriate movement through the supply chain.

CBP should concentrate on knowing the actual cargo loaded in the container at origin and then monitor that container for breaches and location throughout its movement through the supply chain. Unfortunately, that does not happen. Unless we use authorized and identified persons to verify the cargo and its quantity and monitor the container from origin to destination, we have a make-believe system of security, fraught with additional commercial and legal liability issues. It's a no-brainer except for those at DHS and CBP.


Agree or disagree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

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About the Author

Dr. James Giermanski regularly writes the Global Trade Security Column for SCDigest. He is the Chairman of Powers Global Holdings, Inc. and President of Powers International, LLC, an international transportation security company.  He served as Regents Professor at Texas A&M International University, and as an adjunct graduate faculty member at the University of North Carolina at Charlotte.  He was Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University.

He has authored over 150 articles, books, and monographs with most focusing on container and supply chain security, international transportation and trade issues.

 


 

Chris Giermanski is Director of International Operations
Transportation Services Inc.

 

Giermanski Says:


It is possible to solve all of these business, legal, and security problems relating to cargo knowledge. 


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