Rules Could Force Shippers To ModernizeRules Could Force Shippers To Modernize

The Department of Homeland Security's Bureau of Customs and Border Protection last week published a proposed regulation that would require carriers to electronically notify customs officials of cargo destined for the United States hours before it crosses the border. "Advance cargo information is essential to not only preventing instruments of terrorism from being shipped into this country but also to speed the flow of legitimate cargo across our borders," Homeland Security secretary Tom Ridge said in announcing the proposed rules.

Besides letting customs identify suspicious cargo, the data will be run through an automated system linked to various law-enforcement databases to help officials identify suspicious or terrorist-related connections. Current regulations let most carriers file paper copies of cargo information when cargo arrives at the border, though some larger carriers have filed electronically for years. The proposed regulations also would require notification before goods leave the country.

Customs will use existing EDI and Web technologies to transfer data, but the proposed changes could still be costly to shippers. The bureau estimates it would cost a large air carrier $5,000 to $25,000 for a one-time license, plus $6,000 a year in maintenance costs, for software to transmit cargo information. If the carrier develops the software itself, it will cost $100,000, plus annual operating costs of $400,000. The cheapest alternative: $500 to $2,000 in a one-time subscription fee to a service provider, plus at least $6,000 in annual costs. These costs could prove prohibitive for some small regional trucking companies, so the bureau will allow them to fax the cargo manifests.

Compared with many industries, transport carriers are behind in automating supply-chain processes, and government actions could expedite adoption of IT to track goods, says Larry LaPide, an AMR Research analyst. "What this does is put more pressure on the carriers to really provide information to shippers--information the government now wants also," he says.

Global trade-compliance apps from vendors such as Open Harbor and NextLinx are designed to help businesses deal with customs laws. VF Corp., a $5 billion-a-year apparel maker, will use NextLinx to automate preparation of documents required for cross-border shipments. VF hopes to cut costs, including fees it pays to customs brokers to ensure compliance with federal rules. The app should also help VF deal with the increased regulations.

DHL Worldwide Express Inc. already electronically files many of its customs documents. Now it's in the midst of implementing a Worldwide Clearance System, designed to standardize and centralize its customs processes. Built on top of Open Harbor's global trade-management software, which collects and updates regulatory data and holds more than 8 million trade rules, the system could boost productivity by as much as 35%. "We will have one system, as opposed to multiple systems, and that will give us consistency of information in all our locations and greater visibility of how much we spend on preparing declarations, clearing customs, and filing," says Jeffrey Bass, DHL's global program director. The new system will also let DHL meet the proposed customs regs "to the highest degree of accuracy," Bass says.

The system will be implemented in the top 60 countries in which DHL does business--representing 90% to 95% of DHL's business--within the next five years.