With millions of cargo containers arriving each year in the United States by ship, truck, and rail, these universal tools of international trade could be an attractive vehicle for terrorists to ship in bombs and other weapons of mass destruction. If such a weapon, hidden in one of the tens of thousands of containers that enter the country daily, should detonate somewhere within our borders, the results would be devastating, says George Weise, vice president of global trade compliance for Vastera, a provider of international trade logistics software. "Just a single incident would cost countless lives and cause immediate panic that would halt international trade," says Weise, a former Commissioner of U.S. Customs.

Concerned about the system's vulnerability to terrorism, U.S. Customs (now known as the Bureau of Customs and Border Protection) has embarked on a multifaceted program to secure the channels of international commerce through a series of regulatory initiatives and incentive programs. Customs has focused those efforts squarely on U.S. importers, who will have to make significant changes in business processes if they are to comply with the regulations and avoid disrupting their inbound supply chains.

To meet those objectives, trade experts say, importers will need to focus their attention on four key areas:

1. Understanding the new regulations and their impact on daily operations;
2. Automating processes to provide Customs with required data;
3. Securing their import supply chains in accordance with Customs' recommended practices; and
4. Getting involved in trade security rulemaking.

Here's a look at how following these guidelines can ensure that all of the bases are covered when it comes to security compliance.

Since the events of Sept. 11, 2001, Customs' top priority has been to prevent additional terrorist attacks. The agency has implemented voluntary security-compliance programs like the Customs-Trade Partnership Against Terrorism (C-TPAT) as well as mandatory requirements like the 24-hour advance manifest rule. Initially, these programs are aimed at inbound ocean shipments, but by the end of this year, similar regulations will be in place for inbound and outbound shipments by all modes of transportation.

The first step in ensuring compliance with new security rules is to have a thorough knowledge of exactly what's in those rules and what they are intended to accomplish. Although reading trade publications such as this one is a good way to learn about new developments, there's no substitute for the original source for information—the applicable regulation or law itself. Customs' Web site (www.customs.gov), of course, is one of the best sources, and it usually includes links to the Federal Register or other sources for the full text of a proposed or final rulemaking. For requirements established by federal law, the "Thomas" online search system operated by the Library of Congress (http://thomas.loc.gov) provides access not only to the text of any law, but also lets users see the current status and most recent actions associated with bills that are wending their way through Congress.

Service providers such as customs brokers, international freight forwarders, customs attorneys and consultants, and carriers are other good sources of information. Some of these companies, along with industry organizations, trade publications, and U.S. Customs itself, are offering seminars and conferences on how to comply with trade security rules. (For a few examples, see the sidebar on Page 40.)

Once you know what the requirements are, you'll be able to analyze the impact on your company's particular import process. For example, under the 24-hour advance manifest rule, ocean carriers and freight consolidators must provide Customs with detailed data for containerized cargo bound for the United States 24 hours before it is loaded on board a vessel. Before that rule went into effect, carriers could submit general information several days after the ship sailed. The new deadline and the demand for more details will affect almost every aspect of import operations, from shipment scheduling to document preparation to information sharing between the importer and its supplier. (See "What Does the 24-Hour Rule Really Require?" below.)

With the government still working out the details, the real cost and service impacts of the 24-hour rule have yet to be felt, says John Motley, president of LOG-NET, a provider of international trade management software. But there's no doubt that compliance will be costly. To meet the filing deadline, a carrier could move its own deadline for accepting data and shipments forward, thereby raising the shipper's inventory costs. Or the carrier could add more staff to speed the data-entry process, adding costs that will be pushed back onto customers in the form of surcharges.

The only way to avoid such costly alternatives is to automate, says Motley, who also is a founder of Shippers for International Electronic Logistics Data (SHIELD), a group that promotes automation of international trade processes. He believes that with the right information systems in place, the 24-hour rule could have little impact on costs and time. If, for example, the carrier electronically received data that did not require rekeying, then cargo and data could move just prior to deadline because the carrier could "just push a button" to forward the information to Customs, Motley says.

Automating trade information also can ensure that correct product and Harmonized Tariff System (HTS) information required by Customs is transmitted in the proper format. It's important to ensure the consistency of that information from the time the U.S. importer initiates a purchase order until the overseas supplier delivers the container to the carrier.

SHIELD recommends that the importer use complete product descriptions and at least a six-digit HTS number in its international trade system. The software then uses that product information and associated HTS numbers to generate the purchase order. That information automatically appears on the shipping instructions to the carrier. Motley notes that since carriers' tariff descriptions are different from the descriptions used for customs purposes, there is a danger that the carrier could reclassify a shipment based on the Customs information. "We suggest including a separate carrier tariff classification section to avoid any chance of confusing the carrier," he says.

To make sure the right information gets to carriers and Customs on time, importers should assemble complete, accurate product data long before it is needed for customs purposes, says Larry Christensen, vice president of international trade content at Vastera. "We build those databases with proper classifications and product descriptions well in advance of needing them for actual commercial transactions," he says. Importers also should have some way of ensuring that customs information is updated whenever there is a change, he recommends.

In addition to mandating information requirements, Customs is asking importers and other international traders to voluntarily secure their supply chains through a program called the Customs-Trade Partnership Against Terrorism (C-TPAT). Although it is a voluntary program, Commissioner Robert Bonner has made it clear that importers that do not participate in C-TPAT are likely to encounter delays and a higher rate of inspections.

To join, importers fill out an extensive questionnaire, providing a detailed analysis of each link in their supply chain from production to international transportation and on through customs entry. The questionnaire focuses on physical security, employee screening, and access control.

The importer is asked to vouch for the security of each of its trading partners, so it's important to conduct due diligence before making that commitment. Customs reviews the completed application, then provides feedback and suggestions. If the importer's processes and those of its supply chain partners meet Customs' standards, it is certified as a member of C-TPAT and its internal security processes will be validated. (A copy of the questionnaire and answers to frequently asked questions about the application process can be found at www.customs.gov.)

In exchange for meeting all of C-TPAT's requirements, a compliant importer's containers are supposed to receive more expeditious treatment by Customs. However, the exact benefits of C-TPAT certification remain unclear, says Robert J. Pisani, a former U.S. Customs attorney and head of the Global Trade Advisory Group at the Washington law firm of KMZ Rosenman. "It is quite an undertaking to go through the C-TPAT certification and validation process. It would be a boost to the program and an incentive to join if the benefits were better defined," he says.

C-TPAT applications are supposed to be reviewed and certified or rejected in 30 to 60 days, but the process is taking much longer. "We applied in September of last year and have not yet been certified," says Rita Mihalek, traffic manager for Scott Corporation in Yonkers, N.Y. She believes the potential benefits of the program are worth the wait. "We treat the program like an ISO 9000 quality program. It is an ongoing process that needs to be constantly improved," she says. "When we see a way to improve our trade security, we update our plan and procedures. It is just good business."

If security rules are impractical or overly complex, it will be nearly impossible for importers to comply with them no matter how hard they try. By getting involved in the federal rulemaking process, importers may be able to influence Customs to adopt the least disruptive approach to addressing security concerns, says Pisani.

Additional regulations requiring advance collection of information for inbound and outbound rail, truck, air, and ocean shipments are now in the draft stages, and Customs has asked for informal input from the trade community. Within the next few months, those regulations will be published in the Federal Register as a notice of proposed rulemaking (NPRM) and will be open for official comment. The government plans to implement them by October 1, 2003.

One avenue for expressing the trade community's concerns is the Commercial Operations Advisory Committee (COAC), a group established by statute that counsels Customs on the commercial impact of its regulations. The group has already begun funneling shippers' and carriers' comments to government officials, based on input gathered by working groups representing each of the four modes. By speaking out now, importers may be able to influence the shape of the final rules, says Carol Fuchs, government relations counsel with KMZ Rosenman and chair of COAC's security committee. "When the NPRM comes out, we want them to be very close to what is workable, but we need input from the trade," she says.

Peggy Louie Chaplin, an attorney with the Baltimore law firm Sandler, Travis and Rosenberg, agrees that it is vital for companies to get involved through COAC or by filing comments directly with Customs. Still, she says, success isn't guaranteed. The NPRM process for the 24-hour advance manifest rule made industry groups unhappy. "There were more than 70 comments sent in questioning the workability of the rule, but Customs ignored nearly all of them," she observes. "I hope there is a very different approach for the other modes."

The increasing burdens of security compliance are daunting, and there is potential for those requirements to disrupt business practices. Yet many importers believe that minimizing the risk of shipment delays and inspections is well worth the cost. And there's an unexpected "silver lining" for compliant importers, say some industry observers.

"Everybody is talking about the extra expense being caused by more trade security regulations, but everybody is really benefiting," says Darren Maynard, COO of Nextlinx, a provider of international trade software in Rockville, Md. By complying with the new rules and implementing technologies such as electronic seals, he says, importers are improving the timeliness and accuracy of shipment information. With more detailed, accurate data in hand before a shipment arrives, he adds, the import process will be more efficient and less costly.

Compliance with the government's security initiatives is already giving some importers a clearer view of their supply chains, says Beth Peterson, vice president for product strategy at Qiva, a provider of Web-based trade management solutions in San Francisco. "Companies such as Liz Claiborne and Neiman Marcus are getting better, more timely inventory information because of the new rule," she says. "They know exactly what merchandise is in which container, where it is, and when it will arrive. That's powerful for high-end retailers that have 12 to 15 seasons throughout the year."

Such benefits aren't limited to retailers, of course. As Peterson points out, importers in all industries are starting to see the business benefits of better data resulting from trade security compliance.