Complying with U.S Customs New 10 Plus Two Rule
Beginning in 2009, U.S. Customs and Border Protection (CBP) now requires an electronic Importer Security Filing (ISF) for every ocean import. The so-called 10 plus 2 rule requires cargo information to be transmitted to the agency at least 24 hours before goods are loaded onto an ocean vessel for shipment to the U.S. The new rule went into effect on January 26, 2009.
CBP is taking a phased-in enforcement approach. During the first 12 months, importers will be warned of infractions instead of being fined to give importers ample time to establish an electronic filing system in-house or through a forwarder or broker. After the phase-in period on January 26, 2010, ten plus two will be officially effective and importers can face fines up to $5,000 for each violation.
The 10 data elements the importer is required to provide include:
The carrier must now provide two additional data elements:
Importers have complained that the 10 plus 2 initiative represents a huge cost penalty, perhaps as high as $20 billion a year because of the need to maintain larger safety-stock inventories, keep containers at ports for longer periods of time, and upgrade their IT systems to accommodate the new requirements. While this number may be exaggerated to make a point, no one doubts that the higher cost to importers and the entire global trade management industry.
Data collection, reporting and IT costs will be significant because no importer’s trade compliance department or global trade manager has the systems or strategic reach to fully comply. The 10 data elements never reside in a single system or company. Importers and their agents must upgrade global trade management software and develop collaborative systems to bring this data together from multiple parties in the transaction.
Even existing ERP systems present a problem. The typical vendor master file in a corporate ERP system defines a supplier as the party to which the company makes invoice payments. If a supplier has 10 different factories that may fulfill an order, the import security filing will require the name and address of the actual factory that fulfilled the order. This granularity of data, and the functionality to differentiate at the specific factory level, does not exist in many ERP systems today.
In fact, the assignment of the fully qualified harmonized tariff codes is often made after the creation of the commercial invoice, but before the shipment enters a U.S. port. This time gap gives the importer or its broker weeks to classify all the imported items and assign the appropriate hts codes. To comply with the importer security filing, however, importers must create and maintain a parts master file complete with fully qualified harmonized codes assigned to every item. Many companies have tens or even hundreds of thousands of imported parts. The parts master file data will need to be integrated into software that will be used to electronically transmit the Importer Security Filing 24 hours prior to loading the U.S.-bound vessel. No doubt, systems upgrading will be the most challenging, and expensive, aspect of dealing with the 10 plus two rule.
How CBP Arrived At The 10 Plus Two Rule
The U.S. Customs and Border Protection Agency’s new Importer Security Filing (ISF) rule, better known as “10 plus 2.” is the latest in a long list of initiatives that CBP has implemented to improve efficient and security in global trade management. The new rule, which requires additional cargo information to be transmitted to the agency at least 24 hours before goods are loaded onto an ocean vessel for shipment to the U.S. reflects the agency’s new security focus.
Back in the 1980s, however, CBP had a different focus. It began developing two electronic filing systems: the Automated Broker Interface (ABI) with customs brokers and the Automated Manifest System (AMS) with carriers to automate procedures and improve the speed and accuracy of customs entry. The agency’s priorities and urgency changed overnight with the 9/11 tragedy when CBP became part of the new Department of Homeland Security. Instead of focusing just on customs compliance and efficiency, the CBP became the lead agency to lessen the risk that terrorists may exploit the global transportation system to deliver a weapon of mass destruction to the U.S. inside an ocean container. Among the initiatives CBP developed after 9/11was advanced import data screening, so the contents of ocean containers could be reviewed before a vessel came arrived at a U.S. port. The first step was implementation of the “24-hour Manifest Rule” in 2003, which required carriers to electronically file their cargo manifests with the CBP 24 hours before a ship left a foreign port headed for the U.S. While the 24-hour rule proved that import data could be gathered and transmitted in advance of a carrier departure, the effectiveness of the initiative suffered from inconsistent data quality. The 10 plus two rule squarely places responsibility on the U.S. importer to provide accurate cargo descriptions, along with the real threat of substantial penalties for non-compliance.
To meet the security needs that CBP requires, importers will have to dramatically increase the level of data granularity reported. For example, 10-2 requires the importer to provide both the country of origin for each item and the commodity harmonized tariff schedule number. The country of origin needs to be linked to each hs code number at the line-item level--not at the invoice, container, parts or bill of lading level. Those hts codes may be just six digits if that is the importer’s best available data available at the time. However, the filing must be updated as soon as more precise or more accurate information is available, and in no event less than 24 hours prior to arrival at a U.S. port (or upon lading at a foreign port that is less than a 24 hour voyage to the closest U.S. port).
Despite the time and cost of complying with 10+2, best-of-class importers now see the rule as a hidden opportunity to optimize inefficient business processes in their global trade management operations and create competitive advantage. More effective management and visibility of additional trade data can:
For example, an industry rule of thumb estimates that the cost of each additional day ‘in transit’ is equal to half of one percent of the value of goods. Improving supply chain speed by just one day would be worth $500,000 per year for a company importing $100 million annually. Thus, the challenge for U.S. importers is to maximize the potential benefits of 10 plus two, while minimizing supply chain cost and disruption.