24-hour rule will affect competition

24-hour rule will affect competition

Within hours of this issue's deadline last week, Customs issued its final regulation requiring vessel manifests to be submitted 24 hours before an inbound container ship is loaded at a foreign port. The timing of the announcement was not a surprise; It had become clear in recent weeks that Customs Commissioner Robert Bonner was moving ahead with this landmark regulation, despite importers' objections that their supply chains could not endure the additional transit time that in many cases will be required for carriers to comply with the rule.

Bonner had insisted that the Automated Manifest System for electronic filing of vessel manifests represents the quickest way for Customs to screen containers at the foreign port, and that the agency has no time to lose in putting such a system in place. If terrorists were to strike again and the government could not convincingly demonstrate that it has a cargo security system in place, even one that's imperfect, the public would be within its rights to demand the entire system be shut down until one is in place. As Customs stated in the publication of the final rule last week, "Al Qaeda and other terrorist organizations pose an immediate and substantial threat. And the threat is not just to harm and kill American citizens, it is a threat to damage and destroy the U.S. and the world economy."

The final rule, which runs over 70 pages, includes several direct responses to concerns raised in the 78 comments Customs received in response to its Aug. 8 proposed rule. Acknowledging the complexity of implementing the rule, Customs gives the trade a total of 90 days to comply. Customs also defends the rule as achieving the dual goals of protecting the nation while allowing for a continued smooth flow of international trade. For example, Customs said, "once a cargo container is pre-screened in a foreign port, in the absence of additional information affecting Customs risk analysis, Customs will rarely need to again screen the container or inspect its contents for security purposes upon arrival in the United States."

Reading through the rule, it was clear that there could be important competitive ramifications. For example, Customs noted that "it is the information about the contents of a shipping container, not the container itself, that must be presented to Customs 24 hours prior to lading at a foreign seaport. Under this rule, so long as the required information is provided to Customs 24 hours in advance of lading, the container itself may be brought to the seaport at a later time."

It further noted that at many foreign ports, cargo already is stored at terminals for several hours or days before loading. But ocean carriers have pointed out, correctly, that manifests are compiled using bill of lading information, and the carrier doesn't have that data until the container is in its possession. This could give ocean carriers an advantage over intermediaries by encouraging shippers to use container lines for end-to-end intermodal moves, rather than using an intermediary to deliver the container to the marine terminal at the foreign port. If the cargo is delivered to the carrier by a third party, it will need to arrive at the terminal perhaps 48 hours or more before the start of loading. This will add to transit time and, ac-cording to trade groups critical of the 24-hour rule, increase the risk of pilferage. But if the shipper contracts with the carrier to pick up the cargo at its point of origin, it won't be necessary to accelerate the delivery. That's because the cargo, and the information needed for the manifest, will already be in the carrier's possession.

Customs says the practice of al-lowing last-minute containers to be loaded could be continued as long as the information was manifested 24 hours in advance of loading.

One issue that Customs did not appear to touch on in the final rule: What happens when Customs wants to inspect cargo that is originating at a port not participating in the Container Security Initiative and therefore likely to lack the inspection devices and personnel necessary to screen containers that Customs deems risky? The world's top 20 ports, 14 of which have signed on to the CSI program, account for only about 70 percent of the 6 million containers that entered the U.S. last year. Bonner says he wants to perform non-invasive screening procedures on 5 to 10 percent of all incoming containers. Somehow Customs will have to get in place screening procedures at the non-CSI ports.

The issuance of this rule is a landmark development, the first government action that will significantly affect how international trade is handled following the Sept. 11 attacks.

Peter Tirschwell is editor of JoC Week. He can be reached at (973) 848-7158, or via e-mail at ptirschwell@joc.com.