Racing ahead: the United States transforms its trade processes to compete in the global economy
1st June 2018By Marcy Mason, a writer who covers trade for US Customs and Border Protection
Over the last five years, the global economy has been changing. Consumers are buying more goods online, e-commerce is flourishing, and supply chains are moving at a breakneck speed. At the same time, the number of trade agreements is growing, and countries are increasingly more focused on regulations, supply chain security, and the movement of cargo across their borders.
For US Customs and Border Protection (CBP), the effects have been staggering. “Everyone wants everything now. You order something online today; you want it at your home tomorrow,” said Todd Owen, the Executive Assistant Commissioner of CBP’s Office of Field Operations.
But with speed and immediacy come logistical challenges. The number of shipments entering the United States (US) by air, rail, truck, and sea is rapidly increasing, especially by air. In 2015, CBP inspected more than 275 million parcels at express courier hubs and international mail facilities.
Cargo coming into the US through other modes of transportation was also high. “In the last five years, the economy has grown much stronger, so we are seeing the benefits of that,” said Owen. “Trade is up, e-commerce is going through the roof, and we have far more shipments coming into the US. The numbers are huge. But that also increases our workload and our staffing has struggled to keep up.”
CBP realized that the changes had a direct impact on the US economy and the ability for American businesses to compete globally. “We don’t want to be a roadblock,” said Owen. “We want to make sure that we meet our security concerns, but to do so in a way that allows the economy to continue to prosper.”
As a consequence, over the last few years, the agency has been transforming its processes to increase efficiency, and to make CBP more nimble as a Customs organization so the country would not be left behind.
When CBP was formed in 2003 as part of the newly created Department of Homeland Security, it was an outgrowth of the events of 11 September 2001, and its primary focus was protecting the US from terrorism. This was a major shift from the agency’s roots as the US Customs Service. “Our traditional mission of facilitating and enforcing trade was not as strong as it had previously been,” said Brenda Smith, the Executive Assistant Commissioner of CBP’s Office of Trade.
But by 2010, things started changing. The worldwide recession; several new trade agreements; and a significant growth in e-commerce, where goods are bought and sold easily over the Internet, prompted CBP to elevate trade. “We took a look at the strategic gaps in how we were conducting our trade mission,” said Smith, a chief architect of the transformational plans.
One of the obvious findings was that the government was not conducting business in the same way as industry. “We weren’t operating at the same speed or technology level,” said Smith. “We were still stuck in the 20th century. There were a lot of things that we had oversight over that hadn’t kept up with the times. Business was moving very quickly to modernize supply chains, to use technology and to use information, and we weren’t there.”
A major sticking point was paper. “Our trade processes were very cumbersome because everything was done with paper,” said Smith. But it was much more than that. “It’s not just getting rid of the paper. It’s actually using the information in those documents to make decisions. We didn’t have the visibility or the tools to do that,” said Smith.
CBP identified significant gaps in other areas. For example, importers were not viewed as accounts. “We were still at the transaction level,” said Smith. “Every time we dealt with a company, even if the company had an excellent track record and we had dealt with them many times before, we looked at the company as if we had no idea who they were. It was slowing us down, and when we made our decisions about the risk of a particular transaction, we didn’t consider all of the other information that we knew about the company. So importers couldn’t bring their goods into the US quickly. We were holding their goods, trying to decide if they were safe to let into the country,” she said.
It soon became apparent that CBP needed to collaborate with the trade community to get a fresh perspective. It was not something that had typically been done. “We recognized that if we brought the trade community to the table to work with us, we could both benefit,” said Smith. “Not only could they help us define what the problems were, they could help solve what was slowing things down, and making us less efficient. It would save time, drive the economy, and better protect the American consumer.”
Automation was at the heart of CBP’s transformation efforts. “So much of what we do is driven by data, it’s essential that our trade processes are automated,” said Smith. The agency began automating its cargo processing system during the early 1980s, when the legacy US Customs Service built the Automated Commercial System.
Significant progress was made, and in 1993, the Customs Modernization Act was passed, which gave legal authority to develop the next generation of automation. Starting in the mid-1990s, plans were made for a new cargo processing system, the Automated Commercial Environment (ACE). ACE was intended to help the US government collect duties, analyse and assign risk, and process international shipments coming into and going out of the country.
Development of the new system was slow because of multiple challenges. “It was a constantly changing environment,” said Smith. “It was no longer just about collecting revenue. We had to be able to identify and manage terrorism threats, import safety threats, and ensure compliance with free trade agreements, which have exploded over the last 10 years. At the same time, we were building the automated systems under some very challenging budget constraints.”
But over the last four years, there has been a dramatic turnaround. Buoyed by the strength of political support, additional funding, and a herculean effort by those involved, ACE has catapulted to near-completion. Working in concert with a host of other initiatives, CBP’s system has begun to shine. “ACE has given CBP the ability to look at information on shipments nationwide,” said Heidi Bray, the Manager of US Customs Compliance at Fiat Chrysler Automobiles, one of America’s top three auto manufacturers. “That helps us because we use ports all over the country.”
“When I started doing Customs work almost 30 years ago, it was all paper-driven and you had to plan ahead. It was hard to get something shipped in or out of the country without there being a slowdown at the border,” said Bray. “We have plants in Canada, so we have a lot of suppliers that cross through Detroit. It’s a major port for us, and when a driver has to hand a paper document to a CBP officer at the booth, it takes a lot of time,” she said. “In a just-in-time environment, we don’t hold a lot of our parts in the plant anymore. We don’t want to carry inventory costs. If we can bring those parts in, use them in production immediately, and not have to wait in long traffic lines at the border, that’s huge for us. The automation has helped us do that, and it really has had a positive impact.”
Another area that CBP tackled was simplifying processes, which has been a welcome relief for many importers and exporters. “There’s an increasing complexity in global trade,” said Alexandra Latham, the Director of Customs Compliance at Costco Wholesale Corporation, an American membership-based retailer with warehouse stores in nine countries around the world. “When we purchase goods, they need to meet the regulatory requirements for all nine countries that Costco is doing business with.” But as Latham pointed out, it is costly. “The increased complexity in requirements makes it prohibitive for a business to continue to import goods. It drives up the cost for consumers,” she said.
CBP addressed the issue and found a way to simplify the process for goods entering the US. “We were asking for quite a bit of data to make decisions about whether goods could come into the country,” said Smith. “Over the preceding 10 years or so we had layered many new information requirements on top of each other, and we hadn’t figured out where there was duplication. So we sat down with representatives from the trade community and asked them how we could do this more efficiently,” she said. “They put some ideas on the table, and we listened.”
In the end, CBP found a way for importers to submit a simplified version of the required entry information earlier in the importing process. “It allowed us to let importers know early on if there was a problem with their cargo, so that they had an opportunity to fix it,” said Smith. “It also gave them a greater degree of predictability with their supply chains. Were we going to stop and inspect their shipments? If so, companies could make decisions about their inventories and their logistical movements.”
In 2011, CBP introduced the Centers of Excellence and Expertise, a sweeping, transformational change in how CBP worked with the trade community. Operating on a national scale, the Centers became the primary point of processing for importers within a specific industry. Today, there are 10 Centers, focusing on a range of industries including electronics, pharmaceuticals, automotive, petroleum, consumer products, apparel, and others. Staffed by experts who are linked virtually across the country, the Centers are based at locations strategic to the industries they serve.
The idea for the Centers was one of several suggestions proposed to CBP in a 2009 paper written by the congressionally mandated trade advisory committee, known as COAC. Most of the paper’s suggestions centred on a ‘management by account’ concept, which viewed companies as accounts rather than on a transaction-by-transaction basis, where each shipment was reviewed separately. The trade community believed that the account managed process would help products enter the country more quickly, and that there would be more predictability on when merchandise would be on store shelves.
“We interact with the Automotive & Aerospace Center in Detroit almost daily,” said Bray. “If we have delays at any of the ports, they help us. The Center has visibility of all of our shipments throughout the country, which has been extremely beneficial to us.”
One of the Centers’ goals was consistency. “The lack of uniformity at the ports has been a huge complaint of the trade community,” said Bray. “We’ve had shipments that come in through a port and a Customs officer there will ask us a question. Then a week later, a different Customs officer at a different port will ask the same question. No one has time to answer the same question over and over again at different ports. It’s burdensome, and it’s costly for any business to duplicate its efforts,” she said.
“But the beauty is – now the Centers are addressing this. For Fiat Chrysler, the lack of uniformity has virtually been eliminated. They know us now. We’re treated as an account instead of having each of our transactions processed separately,” said Bray. “So, when we have shipments that come through Baltimore or Los Angeles or any other port and we need help with something, the Centers can go into ACE and look at the shipment, and help us troubleshoot. They give us guidance on what needs to occur in order to expedite the release of our goods.”
Single Window solution
Satisfying requirements for the multitude of regulating agencies is a major hurdle. “Even if CBP would say, ‘Your shipment looks good,’ one of 47 agencies with regulatory responsibilities could stop the shipment and tell us, ‘You can’t bring this into the country,’” said Bray.
The underlying problem is a lack of unity. “We see the inconsistencies across government agencies because we work with different cargo processing systems. Some still use paper and faxes,” said Ted Sherman, Senior Director of Global Trade Services at Target, one of the largest mass merchandizing retailers in the US, and importers of containerized freight.
“The fact that a company has to navigate 47 agencies to get goods into the US is very problematic and challenging. The way it’s been done historically will not work going forward. You can’t efficiently move freight across borders when you’re running the gauntlet of 47 agencies acting independently,” said Sherman. “If we’re going to compete, if we’re going to get goods into the country at a reasonable cost and expect to export to foreign markets, the government has to develop a more consistent, customer-friendly approach. CBP has done a great job with that. Now, it’s just extending it out to the rest of the government.”
One of the ways CBP proposed to solve the problem was to build an information system that enabled all of the agencies to view the information simultaneously. “We recognized that there really needed to be a guiding vision for the whole of government,” said Smith. “But, that was something that could not be driven solely by CBP. It needed to come from the government because it required the agreement and support of 47 different government agencies that had a stake in the project.”
The support came through in February 2014, when President Obama signed an Executive Order to streamline the US import/export process, creating a single window (SW) for businesses to electronically transmit the data required by the US government to import or export cargo. The new system would speed up exports of American-made goods, so that the US could compete more effectively in the world marketplace. Completion of the SW system was set for December 2016 when the Obama administration ended.
In March 2014, CBP Commissioner R. Gil Kerlikowske took over the reins of the agency. He understood President Obama’s vision, and within weeks reached out to industry to listen to their concerns. At the top of the list were worries about how other government agencies were going to implement the SW. The trade community was concerned that the agencies might start asking for more information. They also had concerns about how the timing of the new system would impact their supply chains and the economy. Furthermore, they questioned whether the system would be useful, and fit in with their operations.
“Because of his former position as the Director of the Office of National Drug Control Policy at the White House, Commissioner Kerlikowske was able to leverage his relationships to open doors for industry to have a better dialogue with the agencies implementing the project,” said Maria Luisa Boyce, CBP’s Senior Advisor for Trade and Public Engagement. “He asked the head of the Food and Drug Administration (FDA) and other agency chiefs if their agencies could meet with COAC to talk directly with industry about the changes that were needed to modernize the process so the new system would be successful.”
In 2015, when the FDA met with COAC, the discussion was fruitful. “We opened up more to industry about how we do things than I think we have ever done before,” said Douglas Stearn, Director of the FDA’s Office of Enforcement and Import Operations. “We talked about our struggles, and they gave us a lot of advice, a lot of recommendations to consider. Mainly what they wanted was more guidance and information about our requirements,” he said. “We have endeavoured to do a lot more in that area, and within the SW effort, we have been extremely explicit about our requirements – probably to a greater degree than we have ever been before.”
Exports were another key area of focus. In 2010, shortly after President Obama launched a National Export Initiative to revitalize and promote American exports abroad, CBP asked COAC to help the agency improve the country’s export process. From an industry perspective, members of the trade advisory committee mapped out the obstacles to a smooth, flowing process. Eighty were identified.
“We discovered that paper documents are a major reason that shipments are held up,” said Julie Ann Parks, the Director of Global Trade Organization for the Raytheon Company, a defence, civil government, and cybersecurity firm headquartered in Waltham, Massachusetts. “As a defense company, most of the exporting challenges that we face relate to manual processes with licences.”
For security purposes, the US Department of State regulates and issues licences for military-related shipments sent overseas. “Depending upon the licence type, we have to get paper documents signed by CBP before we can import and export shipments,” said Parks.
“This can become very problematic and time-consuming in terms of logistics. For example, we’ve shipped cargo out of the port of Los Angeles, and then brought the shipments back through the port of Phoenix because it made logistical sense. The paper licence needed to travel between the two locations before the shipments were signed-off. This is probably the biggest pain point in our industry,” said Parks.
However, all of that is changing. “The government is now using the SW to share licensing information between agencies,” said Parks. “It started in December 2015, and it was a beautiful thing.”
Efficient movement of exports is critical from an economic standpoint too. “It’s important that we keep commerce moving,” said Bray. “We have customers overseas and we need to meet their needs. We can’t do that if our parts and our vehicles are stopped at a port because Customs doesn’t know what we’re shipping out of the country, and they don’t have any information on us.”
“If we don’t meet a certain sailing schedule, then we have to wait another week or two until we can get space on another boat,” said Bray. “The bottom line is we need to compete economically. And, if we don’t have efficiencies in our supply chain, then it’s just not going to happen. If we can’t get goods out of the country to meet the demands of our global customers, then we’re not going to be able to compete, and they will buy cars from someone else.”
CBP is also updating some initiatives. The Customs-Trade Partnership Against Terrorism (C-TPAT) programme is one of them. Launched in the wake of 11 September, C-TPAT was created in partnership with seven major companies to ensure that America’s supply chains are secure.
Internationally, the programme has had a significant impact, providing the world with supply chain security protocols. It also is the prototype for an “authorized economic operator (AEO),” or trusted trader programme that voluntarily works with corporate citizens to help ensure the highest degree of supply chain security.
Today, nearly 12,000 companies participate in C-TPAT voluntarily. Those who participate in the programme are considered low-risk and enjoy fast-track privileges at the US’s border crossings and ports. In return, companies which are certified by CBP must agree to enforce security throughout their supplier networks, provide a profile on the security measures their companies have in place, and undergo a risk assessment by CBP.
“We’re retooling the programme so that it stays current. There are a lot of factors that have changed throughout the years,” said Elizabeth Schmelzinger, CBP’s C-TPAT Director. “We wanted to make sure that the minimum standards are still relevant. We’re also restructuring the programme so that it’s more in line with the structure of other countries’ programmes that have security and compliance components.”
C-TPAT will also include exporters. “Our supply chain programme initially only focused on imports. Now, we’ve added other entities such as exports,” said Schmelzinger, noting the benefits this will bring. “We have agreements with countries that have similar supply chain security programmes. As part of those agreements, those countries will honour a commitment to our exporters who are low-risk,” she said. “What that means is that we will look at their trusted exporters less and they will look at US trusted exporters less, in terms of inspections. Our goal is to create conditions that will help US exporters establish a foothold in other markets.”
Some aspects of the programme have not changed. C-TPAT’s standards remain high. “It’s not all about joining the programme. We also suspend companies, and remove them from the programme. So there is a constant churn of evaluation that goes on,” said Schmelzinger. “Americans want to know that the companies they buy merchandise from are not supporting terrorist activities. They want to know that companies are looking at their supply chains, vetting their suppliers, and not buying trinkets from somewhere in the world blindly.”
C-TPAT also continues to help CBP with enforcement. “If we’ve invested our time, our energy, and our resources to prove to CBP that we are trustworthy, then they don’t have to worry about us. They can focus their limited resources on who they don’t know,” said Bray. “We know our supply chain. We’ve got it secured. We know what’s coming in. Don’t worry about us. Worry about the unknown.”
According to CBP’s Smith, enforcement is another way the initiatives are helping US businesses compete. “It’s not just about moving trade. It’s important to have a level playing field to ensure everyone is adhering to the same rules,” said Smith. “So those with the best product at the lowest prices eventually win.”