Feature: Customs regulations push tech adoption

In the storm of “what ifs” that raged on U.S. airwaves in the aftermath of the Sept. 11, 2001,  attacks, one of the most persistent scenarios envisioned terrorists smuggling a weapon of mass destruction into the U.S. in one of the approximately 5.7 million sea containers processed by the U.S. Customs Service each year.

This scenario was so gut-wrenchingly plausible that, to guard against it, Customs instituted the Container Security Initiative (CSI) in January 2002.

In the 18 months since the Sept. 11 attacks, CSI and newer regulations from Customs have shaken the dust off a labor intensive and technologically lax shipping industry, forcing major changes in the way ocean carriers and their customers do business.

Ocean carriers, freight forwarders and logistics firms are responding to the changing regulatory environment with technology, including desktop applications and Web portals.

The question remains, however, whether the short-term pain of tightened security will turn into long-term gain for shippers and their customers, transforming a technologically moribund ocean shipping industry, or whether it will add complexity to an industry dominated by differing priorities of nations.

By all accounts, the oceanic transportation industry was in need of modernization.

With paper transactions still common, the industry in many ways ran the same way in 2001 as it had for generations, said John Little, compliance director of freight forwarder The Elite Group Inc. in Houston.

“Just as an example, I was up in Salem (Massachusetts), visiting the Customs House and there were documents there from Nathaniel Hawthorne’s time. I could look at those documents and they were very recognizable today, 150 years later,” Little said.

Domestic security was not even a primary concern of Customs, which was historically focused on collecting tariffs and thwarting illegal traffickers, said Patricia McCauley, director of container security initiatives at Customs.

“Pre-9/11, nobody paid much attention to container security,” said Gordon Fuller, director for eBusiness at Covansys Corp., a technology services company based in Farmington Hills, Michigan.

In particular, lax regulations governed how and when information on a ship’s cargo, the “manifest,” was relayed from the shipping line to Customs. Documentation supplied to ocean carriers by importers or their overseas export agents, known as the “bill of lading,” was often cursory.

Parties sending and receiving goods were not named or that information was not accurate. Goods  were frequently described using customary designations such as “FAK,” standing for “freight of all kinds,” or “general department store merchandise,” Fuller said.

Exporters did not have to relay information on what was in a container until after it was loaded onto a ship, and the ship’s manifest could be forwarded to Customs up to two weeks after the vessel left port, said Robin Kirby, director of business systems design at Oakland, California-based company APL Ltd.

“At a basic level, we wouldn’t get complete information on the shipper and consignee, the buyer and seller. You might get a name, but not an address, or a bank (might be) listed as the consignee,” Kirby said.

Making matters worse, bill of lading information was used by shipping companies to build their own vessel cargo lists, making those documents inaccurate. Bill of lading information might also be given to others in the supply chain, such as freight forwarders, customs house brokers and third-party logistics companies, said John Urban, president of Alameda, California-based GT Nexus Inc., a shipping industry Web portal.

Tight supply-chain integration and the requirement to share information meant mistakes were often passed from party to party, he said.

The introduction of new Customs regulations, including CSI, put pressure on companies to clean up their operations, according to one industry analyst. In particular, CSI instituted tough new reporting requirements that require shippers to have detailed descriptions of exactly what goods they ship, as well as names of the sender and recipient.

Customs also pushed importers, freight forwarders and ocean carriers to provide more information on what they were transporting and to provide that information earlier than before, adopting electronic standards for information exchange to speed the process.

Other regulations have also prodded the shipping industry to change.

Customs’ Advance Manifest Regulation, which is separate from CSI, requires shippers and ocean carriers to electronically submit complete container manifests through Customs’ Automated Manifest System (AMS) 24 hours before a container is loaded onto a vessel.

Also known as the “24-hour rule,” the Advanced Manifest Regulation has mandated electronic information exchange in an industry that, until recently, was driven by phone, fax and courier-based communication, Urban said.

“CSI and the 24-hour rule are forcing everyone to take a real hard look at their systems,” said Jeff Woods, a senior analyst at Gartner Inc. “I’ve spoken to a number of shippers who are looking at their systems and saying ‘They’re not adequate’.”

Responding to the new regulations, APL and other carriers are encouraging shippers to submit documents electronically, using desktop-based applications and company-run Web portals that provide interfaces for submitting information.

APL’s portal, HomePort, enables shippers to request bookings online, submit bill of lading instructions and create custom reports based on their shipping data.

Getting its customers to use HomePort or direct Electronic Data Interchange (EDI) links to its back-end systems allows APL to process orders more quickly, feeding shipping instructions directly into the company’s core systems without requiring staff to manually key in the information, Kirby said.

Major ocean carriers have also partnered with each other to host business-to-business (B-to-B) Web portals that give shippers the ability to submit documents to a wide range of shipping companies from one location.

One B-to-B portal, GTN, is backed by a consortium of European, Asian and North American ocean carriers, including APL, representing more than 40 percent of the global market for container shipping.

Built on a Java 2 Enterprise Edition (J2EE) platform, using software from BEA Systems’sWebLogic and Vitria Technology’s BPM (business process management) in addition to proprietary technology from GT Nexus, GTN’s Web-based front-end links directly into each carrier’s back-end proprietary system.

Another portal, Inttra, is backed by a different group of 15 major ocean carriers, including MaerskSealand, part of A.P. Møller of Copenhagen, and MSC Mediterranean Shipping Company, SA of Geneva, accounting for 46 percent of the ocean-going transportation market.

Inttra offers a Web-based portal, Inttra-ACT, and an integrated enterprise-level service, Inttra-LINK, that uses EDI to link customers’ supply chain directly to Inttra’s transportation network.

Both Inttra’s and GTN’s products enable shippers, as well as other parties such as importers and freight forwarders, to book cargo on multiple shipping lines through a single interface, removing the Babel of terminology, processes and procedures that previously characterized the shipping industry.

In an industry already driven by schedules, the new Customs regulations have put a higher premium on logistics. Among other things, carriers have to adjust to new uncertainties in the cargo loading process resulting from Customs’ increased scrutiny.

“One of the challenges that we have in operations is that the operations folks can no longer plan the vessel based on what’s been booked. Now you can’t do a final load plan until 24 hours” (after submitting a manifest to Customs), APL’s Kirby said.

APL internally developed and deployed new reporting tools for its mainframe operational and commercial information systems that help the company deal with the new requirement.

The new reports identify everything that was booked for a vessel and indicate when those shipping instructions were transmitted to Customs. If 24 hours have passed since transmission, a report will indicate that APL can load the cargo, Kirby said.

Other companies also are rushing to meet the demand for better logistics.

In addition to providing the technology behind the GTN shipping portal, GT Nexus markets a number of hosted applications that can help companies manage the flow of goods and information from point of origin to destination.

The Home Depot uses GT Nexus’s Transportation Management application to optimize its use of trade lanes, based on the capacities of different ocean carriers and varying shipping rates, according to a spokesman for Home Depot’s global logistics operation.

The application, hosted by GT Nexus on a private logistics network, connects Home Depot’s international logistics operations to the systems of ocean carriers worldwide, said GT Nexus.

With GT Nexus, Home Depot replaced an internally developed spreadsheet-based system, using GT Nexus’s more powerful algorithms to more efficiently move more than 100,000 containers Home Depot brings to the U.S. annually, the spokesman said.

For Covansys, new regulations have provided business opportunities, helping its customers, which are major retailers, revamp business applications and processes, Fuller said.

In January, Covansys announced the completion of a project to help Cabela’s Retail, a supplier of outdoor clothing and gear, implement a Universal Product Code (UPC) system that enables the Sidney, Nebraska, company to comply with the CSI regulations governing asset tracking and cargo reconciliation.

Looking down the road, Fuller is keen on the changes from Customs, seeing in them the regulatory foundation for a transportation industry revolution.

“The government, unwittingly, has commoditized logistics,” Fuller said of the new Customs regulations. “They’ve standardized transactions, standardized the data and standardized geographic and temporal check points.”

With fewer idiosyncrasies in the systems and processes for shipping goods, companies will seek to move cargo at the lowest cost.

“Once everybody is exchanging the same data in the same format at the same time, operational excellence comes from getting the lowest marginal cost per transaction,” Fuller said.

Earl Agron, director of port and container security at APL, agreed.

“Security and efficiency don’t necessarily work in different directions,” Agron said. “If you can look a bit down the road, the fact that carriers get information on (cargo) before it begins loading, knowing how many containers there are and where they’re going, is a huge advantage.”

Compliance with the 24-hour rule has already become a competitive differentiator for some U.S. importers in choosing their overseas suppliers. Increasingly, APL is being asked to report back to importers about their suppliers’ compliance with the new Customs regulations, Kirby said.

The drive for better border security means that Customs will keep pushing to know more about the parties and transactions bringing goods to U.S. shores, shining a light on formerly opaque areas of many importers’ supply chains.

“The beauty of (CSI) is that when we’re working with foreign customs, looking at what’s coming in to ports, we have a better look at the supply chain. We begin to know the supply chain from start to finish. Having that flow of information allows Customs to make risk assessments,” said Customs’ McCauley.

Despite a generally hopeful attitude in the ocean shipping industry and among importers, the true effect of the new regulations has yet to be seen. Major ports that send goods to the U.S., such as those in mainland China, are not yet following CSI.

It is unclear what the effect of the CSI and other initiatives will be on the flow of goods from such ports, but The Elite Group’s Little said to expect changes as regulations take hold.

“At least initially, the ease and rapidity of how things ship are going to change,” Little said. “Time is money and there are invisible costs associated with this change as well as the visible ones.”

In all its dealings, Customs must walk a fine line between providing better security and maintaining the free flow of goods in an industry ruled by different policies and national priorities.

While the increased use of technology and electronic information exchange may provide more visibility and help streamline inspections for U.S. Customs, it will take time to truly change the centuries-old ocean shipping system, said Michael Nielsen, senior vice president of global commercial sales at Inttra.

“Shipping is an international industry, but it’s still working at the local level.”