New 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 Inc.’s WebLogic and Vitria Technology Inc.’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 Maersk Sealand, part of A.P. M