Shipping Companies Brace for New Rule

Importers are bracing for potentially costly delays at crowded ports in Asia this weekend when the U.S. begins enforcing a tough regulation aimed at preventing terrorists from turning cargo containers into deadly weapons.

Firms that do not provide U.S. Customs with an accurate list of cargo 24 hours before departure will not be allowed to load their containers onto ships bound for the U.S. By pre-screening cargo, the agency hopes to catch suspicious shipments before they leave foreign ports.

Customs Commissioner Robert Bonner warns that a failure to tighten port security could have devastating consequences for U.S. citizens -- and the economy. If there were a terrorist incident on the docks, it could do great damage to the commercial and industrial supply chain. Last fall, U.S. retailers, farmers, factories and shipping lines incurred millions of dollars in costs when a labor dispute closed West Coast ports for 10 days.

“The data required under the 24-hour rule is essential to ... homeland security efforts,” Bonner said.

With shipping lines clamoring for more time, the U.S. said Friday that it would not begin fully enforcing the rule this weekend. Customs official Charles Bartoldus said the agency would send out “do not load” messages to those that provide inaccurate cargo descriptions but would give them more time to comply with other parts of the new rule. Some freight forwarders in Asia have balked at the U.S. demand that they provide the name of the original shipping firm, which they don’t want to disclose for competitive reasons.

The new 24-hour rule took effect in December, but shipping companies were given until today. to comply. A violation can result in a fine of $5,000 the first time and $10,000 for subsequent offenses. But Customs said it would not begin imposing those penalties until a later date. “We are beginning full enforcement for the most egregious errors,” Bartoldus said.

Freight forwarders are worried that foreign manufacturers accustomed to delivering their merchandise to the docks at the last minute will literally miss the boat. The port of greatest concern is Hong Kong, the main gateway for Chinese manufacturers that supply U.S. customers dependent on “just in time” delivery of products or components. One thing in their favor: The new rule will start being enforced during the Chinese New Year holiday, and most factories will be closed for the week.

“Today, goods are so time-sensitive that customers could lose their orders if they can’t deliver something on time to a retailer,” said Robert Krieger of Norman Krieger Inc., a Los Angeles freight forwarder with offices in Mexico and Asia.

Securing America’s seaports is a challenging and expensive task that is being felt across a complex global supply network. Twelve million containers pass through U.S. seaports each year, and one ship could carry 3,000 containers requiring more than 100,000 documents, according to APL, the Singapore-based transportation giant.

Complying with the new security measures is proving costly, raising fears that the anti-terrorism effort could place additional strain on a weak U.S. economy.

Ron Widdows, acting chief executive for APL in Singapore, said his firm has centralized its document processing in Shenzhen, China, to make it easier to track containers and documents. APL also is working with customers to provide greater container security, including stepped-up protection for cargo facilities and supervision of container loading and verification of tamper-proof seals.

One big question is whether the U.S. will increase its physical inspections of cargo containers, a time-consuming and expensive process. In the past, Customs kept a paper trail on all containers but conducted physical inspections on less than 4% of containers entering the U.S.

“At the end of the day, we’re going to look to our customers to bear a fair share of the cost,” Widdows said.

That’s more bad news for U.S. importers such as Lonnie Kane, president of Karen Kane, the L.A.-based apparel company. Besides higher shipping costs, he fears the tightened security will further strain Southern California ports still struggling to reach full speed after last fall’s labor dispute. “If we don’t deliver our goods in time, that contract is canceled,” he said.