What is a shipper?

What is a shipper?

After Sept. 11, Customs and Border Protection decided it needed information on incoming shipments earlier in the supply chain for screening purposes, so it created the 24-hour advance-manifest rule for ocean cargo. It followed that up with the Trade Act of 2002, in which manifests of cargo arriving by truck, rail and air are also provided in advance of the shipment's arrival at the border.

Now Customs has suggested that it wants to see an additional piece of information in advance of the cargo's arrival - the identity of the actual producer or manufacturer of the goods. That information is available to Customs in formal entry documents filed within five days after arrival of the goods. However, to get that information earlier, the information would have to be provided in the manifest, meaning that the manufacturer would have to be named as the actual "shipper" of the goods. A big problem with that, according to a broad spectrum of the trade community that has weighed in on the issue, is that the manufacturer is seldom the "shipper" - that is, the party that tenders the cargo to the carrier.

The carrier has no relationship to the manufacturer and seldom deals with that party because importers or logistics companies usually take control of the cargo soon after it's made, and arrange for it to be shipped to the U.S.

Forcing the manufacturer to be the shipper would raise a host of problems, which is why the trade community is pleading with Customs to not interpret Trade Act regulations in a way that alters well-established commercial protocols in the name of cargo security.

It would do just that if it requires carriers to report detailed information on foreign manufacturers and suppliers as part of the cargo-manifest data they report electronically before cargo goes aboard a U.S.-bound ship.

No one disputes Customs' legitimate security interest in shipment data, but private-sector critics say Customs is using the wrong tools for the job. Currently, carriers report advance cargo data from manifests and bills of lading through the Automated Manifest System. That is the primary basis for Customs' window of visibility on cargo before it's loaded on ships bound for the U.S.

But executives say that AMS is not set up to provide data on manufacturers and suppliers. Last week, four trade groups petitioned Customs to suspend the portion of the Trade Act's advance-reporting rules pertaining to shippers until all parties can work out a solution. Customs officials did not respond to requests for comment. But representatives of the World Shipping Council, National Industrial Transportation League, National Customs Brokers and Forwarders Association of America, and Retail Industry Leaders Association are confident that Customs will work with them. No one yet knows what the solution will be, but it's apparent that the agency may have to tap resources beyond the manifest and bill of lading to get the data it wants.

The basic question that Customs and the trade must answer is this: Who is the shipper? On Dec. 5, Customs published final rules that will take effect March 5, saying that carriers must identify the "foreign vendor, supplier, manufacturer or other similar party" as the shipper on the bill of lading. Customs screens the data through its Automated Targeting System to determine the shipment's risk level.

The problem is that the foreign manufacturer is not always the shipper. In some industries, such as chemicals, it often is. In others, such as retail, the shipper is rarely the manufacturer because of the widespread use of contract manufacturing. If a consolidator, trading company, forwarder or shippers' association contracts with a carrier to move a container, as it often does in today's business environment, it is legally the shipper, said Carol Fuchs, an attorney with Katten Muchin Zavis Rosenberg in Washington and a member of Customs' commercial operations advisory committee, known as COAC. That implies a host of legal obligations on the shipper and carrier arising from the bill of lading - the contract of carriage.

"The shipper has been the 'party contracting for carriage.' That's the way the shipper is defined internationally," she said. By identifying the manufacturer or supplier as the shipper, Customs could, in effect, be making the manufacturer a party to the transportation contract, when in reality it's not even remotely involved in many cases.

"Neither NVO or VO (vessel operator) bill of lading gets you to where Customs wants to go, said Chris Koch, president of the World Shipping Council. "Ocean carriers would have no idea whether or not the information is true." He said carriers have no way of verifying the information they receive about foreign manufacturers.

Carriers also are nervous about their liability exposure, Koch said. Adding manufacturers to the bill of lading means the manufacturer can legally make a damage claim against the carrier, even if they have no legal interest in the goods.

In their petition to Customs, the four trade groups noted that bestowing legal rights on the new "shipper" would remove the real shipper - the party from whom the carrier receives the cargo - from coverage under the Carriage of Goods by Sea Act and similar liability laws in other countries. "This is the case because the bill of lading is the touchstone for applicability of COGSA," the petition said. "Allocation of risk through limitation of liability is a major factor in setting transportation rates and obtaining insurance coverage."

Ironically, the petition notes, naming the foreign supplier as the shipper could undermine Customs security efforts - the whole reason it's interested in the information in the first place. Naming the foreign supplier as the shipper renders the actual tenderer of the cargo invisible to Customs' screening and targeting systems. The Advanced Targeting System screens the data on the manifest, but the new rules would prohibit listing a consolidator or forwarder as the shipper. In effect, Customs would be plugging one security hole, but opening another.

Koch and Peter Gatti, the NIT League's executive vice president, said that Customs already receives detailed information on foreign suppliers - at a later time and through a different channel. "That's entry data, not transportation data," Koch said.

"The bill of lading is not the best means," Gatti said, "but it's what's available to the trade."

That raises a question central to the post-Sept. 11 security debate, which is how best to get cargo information into the hands of Customs, where it can be used for security screening. The manifest emerged as the best option because a change in procedure could be effected quickly, through the 24-hour rule and the subsequent Trade Act. But supplier information is a different animal. What Customs wants to know about foreign suppliers, it's getting already in the importer's invoice. Historically, an importer or broker files an entry within five days after Customs releases the cargo. Entry data goes to Customs through the Automated Broker Interface (ABI). Like AMS, it's a component of Customs' 20-year-old Automated Commercial System that will be replaced within the next three years by ACE, the Automated Commercial Environment. ACE, some believe, provides unexploited opportunities.

Koch said if Customs could make rules to advance the reporting of cargo manifest data, why couldn't it require entry data in advance? The four petitioners make their case by citing the 2002 Trade Act, the law that calls for advance electronic data reporting. Congress told Customs, when it was drafting its rules, "the requirement to provide particular information shall be imposed on the party most likely to have direct knowledge of that information."

In the ideal world, carriers would report transportation data and importers would provide trade data. In practice, it fell to the carriers to provide the information through AMS, because it was all Customs had to meet Congress's tight deadline, said Peter Powell Sr., president of the C.H. Powell customs broker and forwarder and chairman of the NCBFAA.

"We scream at Customs, but the problem starts with Congress," Powell said. "Customs is trying to do this under the ticking clock. It's not like they're not listening to us. They're under such time constraints, they have to use what's available." In March 2003 the NCBFAA proposed the idea of "pre-shipment entry declarations" that importers would file through ABI. Customs would get the details it needs for security, and importers would not lose the confidentiality in their transactions with foreign suppliers.

A year earlier, C.H. Powell tried its own novel idea. Working with one of its clients and a consolidator in China, the broker used the importer's purchase-order data to extract exporter, country of origin, and tariff classification, and sent them to Customs before the goods were produced. The idea satisfied the security requirements set down in the Maritime Transportation Security Act, and would give Customs some confidence in the shipments that would be headed for the U.S.

Customs looked with some favor on the experiment, but neither that nor pre-shipment entries have taken root. In some cases, importers are not willing to disclose trade data any earlier than they are now. Powell said he discussed the ideas before different audiences, and the reaction has been mixed. No one has stepped forward with an enthusiastic endorsement.

Whether or not the ideas will have a second life is something Customs and the trade community must decide. Using the cargo manifest for security screening was an idea that Customs could implement quickly and using existing systems. As Customs wants to make the supply chain more visible, the Automated Manifest System's shortcomings are more apparent.

It's a complex issue, and there is going to be no unanimity within the trade community about how to solve the problem. "This is a multifaceted issue," Fuchs said. "You're going to see a lot of fragmentation in the trade. They want to support security, but there are a lot of practical matters to consider."