The truth about 10+2

One of the useful things about the passage of time is that it has a way of bringing out the truth (as Alex Rodriguez learned last week). Given the barrage of criticism heaped on Customs and Border Protection about the potential impact on importers from its 10+2 security filing rule, the next several months will expose the reality one way or another.

Will the requirement on importers to transmit extensive, never-before-collected data on imports prior to cargo loading at a foreign port add days to supply chains, as critics allege, and saddle U.S. industry with billions in losses in the process? Or will the uproar be remembered as yet another in a long line of flare-ups that dissipated once everyone got on with business?

Depending on the answer, Customs will come off either as brazenly cavalier in its pursuit of additional cargo security, undermining trust between the agency and the importing public and members of Congress, or farsighted in its ability to balance the need for greater security against an economic impact that's even more acutely felt during the current recession.

With the rule now final, subject to some possible revisions later this year, we will not be left hanging for long. The National Association of Manufacturers, the leading critic of the Importer Security Filing rule, or 10+2, thinks it knows how the story will turn out. Saying that Customs "grossly underestimated the costs" of 10+2, the NAM anticipates a delay of two to five days before goods can leave the port of origin, in other words, during the segment of the supply chain between the factory and the port of departure.

The association cites independent studies concluding that importers of manufactured goods incur a collective cost of $8.5 billion for each additional day added to the supply chain, partly related to additional inventory carrying costs. According to the NAM, A Purdue University and USAID study independently estimated that each day of shipping time saved is worth 0.8 percent ad-valorem tariff for manufactured goods. Based on the value of total manufactured imports carried by sea vessels in 2007 ($1.04 trillion), a one-day delay would collectively increase the costs for U.S. manufacturers by $8.5 billion annually. Manufacturers estimate at least a two-day delay, or $17 billion annually.

The group disagrees with Customs that added time in the supply chain will decline over time and that the 24-hour advance manifest rule implemented in 2002, the precursor to 10+2, did not create lasting delays in the supply chain. It believes that importers will incur additional millions in expenses to prepare their IT systems to capture and transmit the required data items to Customs.

It cites one NAM member that says it will spend $142 million to reconfigure its IT system, while others estimate the cost to range from $5 million to $100 million. In addition, NAM says, containers delayed in the origin country will incur charges for warehousing and storage, amounting to millions in additional costs per year, per company.

How true is all of this? One thing for sure is that the private sector will do whatever is humanly, technologically and logistically possible to minimize the impact. There is a frenzy of activity as importers figure out the most efficient way to comply, either by working through an origin 3PL filing through an AMS connection or a customs broker filing through its ABI link, and determining the benefits of using a neutral supply chain visibility technology provider.

Webinars, conference calls and other meetings held by various groups have been jammed with attendees; more than 500 people have already signed up for a virtual trade show The Journal of Commerce will organize on Feb. 17. There are indications that the question of impact is not as straightforward as may be believed. Some shippers believe 10+2 will actually accelerate certain aspects of the importing process.

For example, EDI document 856, the Advance Shipment Notice, in many cases will be transmitted earlier than before, supplying the shipper with details about what exactly is in which container and thereby aiding the importer in determining distribution and retail store destination as well as providing data used to build the formal Customs entry.

The issue of how much 10+2 will cost importers is unfortunately viewed with added credibility because of the recession. Economics is trumping national security, at least in this debate. The potential impact on the importing public has pushed aside the question that should really be at the heart of debate over this issue -- that being whether Customs needs the additional data for targeting. If there is debate on 10+2, that is where it should be focused.

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