Import Compliance a Measure of Readiness for 10+2

SergioRetamalJeff Chiu, Vice President, Global4PL Supply Chain Services

In the past year, United States Customs and Border Protection (“CBP”) issued the Proposed Rule on the Importer Security Filing (“ISF” or “10+2”) to satisfy section 203 of the Security and Accountability for Every Port Act of 2006. CBP received and reviewed comments from the import community; the Office of Management and Budget officially signed off on the Proposed Rule; and on November 25, 2008, CBP published the interim Final Rule in the Federal Register.


The requirements of the Importer Security Filing - unofficially named “10+2” for the 10 data elements supplied by the importer and the two elements supplied by the ocean carrier - will take effect on January 26, 2009. The interim Final Rule allows for public comments (on six of the importer's data elements) to be received on or before June 1, 2009, and provides a compliance date of one year from the effective date.

Although much has been said and published on this subject, many have remained on the sidelines contemplating the resources in preparing for the implementation. CBP has granted a 12-month informed compliance period, during which importers are expected to gradually comply without the threat of full enforcement and monetary penalty. What do importers need to do to get ready? Who has the responsibility of gathering, validating, and transmitting this information? How will this latest security initiative affect importers' businesses?

The importer is required to submit these "10" data elements:
  • lManufacturer (or Supplier) name and address
  • lSeller name and address
  • lBuyer name and address
  • lShip-to name and address
  • lContainer stuffing location
  • lConsolidator name and address
  • lImporter of record number
  • lConsignee number
  • lCountry of origin
  • lCommodity HTSUS number (minimum 6 digits)
The vessel carrier is required to submit these "2" data elements:
  • Vessel stow plan
  • lContainer status messages
The Importer Security Filing initiative states that the electronic transmission of the data elements must be executed no later than 24 hours prior to the loading of cargo onto a vessel destined to the United States. Chronologically, this requirement shifts the transmission to an earlier stage of the supply chain. An importer may designate, with the proper power of attorney, its freight forwarder to submit the data elements. A freight forwarder normally receives shipping documents with the cargo. Thus, it has access to, and may be familiar with, six of the “10” data elements: manufacturer (or supplier) name and address, seller name and address, buyer name and address, ship-to name and address, container stuffing location, and consolidator name and address.

Many mid to large importers employ the services of a Customs broker. In the course of electronically filing a Customs entry, the broker normally transmits eight of the ten data elements: manufacturer (or supplier) name and address, seller name and address, buyer name and address, ship-to name and address, importer of record number, and consignee number, country of origin, and HTS number.

The Customs broker may be asked to submit the information to CBP. A Customs broker normally transmits electronic entry summary information to CBP while an ocean vessel is on the water. The Importer Security Filing, as noted above, would shift the transmission of data to an earlier stage of the supply chain. CBP will allow for a single transmission of the ten data elements and entry summary information by the importer or a licensed Customs broker to help in reducing the amount of data entry.

The Importer Security Filing initiative states that the importer is the party ultimately responsible for the submission of (the "10") data. Between the freight forwarder and the Customs broker, the importer should have all of the data required. It would be a simple exercise of providing the appropriate party the respective missing elements. The freight forwarder and Customs broker would require the respective balances of data elements.

CBP provides some flexibility in the reporting of four of the importer's data elements. Importers are allowed to provide a range of responses for the manufacturer / supplier, ship-to party, country of origin, and commodity HTSUS number. Although this helps in meeting the filing deadline for each shipment, it requires the additional work of submitting one or more subsequent update(s) to the original filing.

CBP provides additional flexibility in the reporting of two additional importer's data elements. Importers are allowed to provide the container stuffing location and the consolidator name and address no later than 24 hours prior to arrival of the vessel at a U.S. port.

All of the required data elements exist; that is certain. Whether the data is transmitted by the freight forwarder, the Customs broker, or the importer, there remains an uncertain level of burden in the exercise of data collection.

Taking the "10" data elements and turning them into questions is the very first step. How many suppliers / vendors do I have? How many manufacturers do my suppliers / vendors represent? With how many manufacturers do I deal directly? From how many countries do I import? What are the products' countries of origin? What are the tariff numbers for those products?

An importer must be able to answer this set of questions with practically 100% certainty as the penalty for the submission of false information to CBP would result in a penalty of 100% of the value of the shipment. That was the penalty under the Proposed Rule; the penalty under the Final Rule is $5,000 for each violation of the Importer Security Filing. (100% accuracy of the data elements has the additional benefit of contributing to overall import compliance.) Whatever the penalty amount, with which department should the responsibility lie within each importer's organization? Who will take charge?

An importer's organization may include both Customs compliance and logistics departments. These groups are heavily involved in the daily operations and generally do not have the time nor the perspective to execute this data collection. Even when the data is easily accessible, the task of validation could be daunting. For example, Accounts Payable has an address for a vendor to which it sends payment, but is that vendor the actual manufacturer? Is that vendor's mailing address the physical location at which the goods were made or stuffed into the ocean container?

Some other questions to consider are:
  • How many Customs brokers does an importer employ? Does each broker have the authority
    to classify product independently or does the importer supply all classifications?
  • Does the Customs broker have the support and coverage overseas to avoid lengthy delays
    due to time zone difference and the timing to correct those issues at origin?
  • Does the vendor know how to classify products correctly and does it provide the information
    timely and consistently?
  • Does the contract manufacturer provide support needed for its products?
  • Do the procurement, logistics, import and trade compliance groups work together to
    coordinate the information and avoid Customs delays? Is there an inefficient inbound of
    materials due to lack of information from origin?
An importer's current processes may work well, but without a clean and efficient operations model, including the documentation with the required information from contract manufacturers, vendors, suppliers, etc. at origin, not only will an importer subject itself to potential delays and penalties under the Importer Security Initiative, the import supply chain will suffer. Now is the time to assess and correct any deficiencies before they affect a company's import compliance record as well as its bottom line.
About the Author:
Jeff Chiu is Vice President at Global4PL, a supply chain management consulting company that assists clients to reduce costs and achieve their full operational potential. Mr. Chiu, a licensed US Customs Broker, possesses over 12 years of experience in import operations and compliance, with emphasis on internal Customs audits, commodity classification, tariff engineering, trade programs, and training.
January 2009
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