By Keith Norbury
Increasingly complex regulatory requirements are creating heavy burdens for Canada’s freight forwarders, says Ruth Snowden, Executive Director of the Canadian International Freight Forwarders Association (CIFFA).
That regulatory weight is largely fallout from security concerns in the wake of the 2001 terrorist attacks in the United States, she points out. However, adding to the challenges are the often hefty charges associated with examinations of containers entering the country, and the uneven application of complex rules and regulations at the border, Ms. Snowden said in a recent interview. She isn’t alone among followers of Canada’s freight forwarding scene in voicing such concerns or in arguing that freight forwarders should not be stuck with big bills for off-loading and reloading containers for examinations.
On the bright side, a new perimeter security agreement between Canada and the U.S., which was announced late last year, promises to help shed some of that regulatory baggage. The move to an electronic manifest system by 2014 is also expected to benefit freight forwarders, particularly by reducing paperwork. However, Ms. Snowden warns that the eManifest system will also place new burdens on freight forwarders, such as requiring extensive product codes for every item in a shipment.
Complex, dense and unevenly applied
“Ten years ago, an importer or exporter really only had to care about their product, marketing, distribution, and duties and taxes basically,” Ms. Snowden said. “Today those importers, exporters and freight forwarders face a myriad of regulations.”
Luc Labelle, a spokesperson for Canada Border Services Agency (CBSA), responded by email to say that the Agency met with a senior representative of CIFFA on June 26 to discuss such concerns. “As a result of the productive discussion, CBSA agreed to take a closer look at the national policy and to determine if it needs to be improved,” Mr. Labelle said. He also noted that CBSA “remains committed to border security and to minimize impacts of its requirements and activities on industry” and “will continue to collaborate and liaise with trade chain partners regularly to address issues that arise.”
Not only are the regulations “extremely complex” and “densely written,” Ms. Snowden said, they give individual CBSA officers a lot of discretion in what regulations to apply and how to apply them. For example, she said, a container arriving in Montreal requires a Customs seal number on a deconsolidation or re-manifest document, even when the cargo’s destination is within the country. “This seal number is not required at any other port,” Ms. Snowden said.
This is more than just a nuisance for freight forwarders, she said. A company has to devise a process to capture that number so it can be recorded and printed on documents. That requires staff training and in some cases revisions to a company’s operating system, which can be problematic for firms with multiple offices across the country. “It’s expensive,” Ms. Snowden said. “And that’s just one example.”
In Toronto, CBSA requires a freight forwarder to provide five copies of a document before a cargo can be reconsolidated, Ms. Snowden said. Montreal requires only two copies. In Vancouver, a fax is sufficient. “How can companies expect to operate efficiently if they have to train their staff in Montreal, Toronto and Vancouver differently to perform the same function?” Ms. Snowden asked.
The requirements for freight forwarders are set out in CBSA memoranda, Mr. Labelle noted. However, he added that the Agency realizes improvements to the processes are required. “The harmonization of border services across Canada to provide efficient service delivery for Canadians will continue to be one of the Agency’s key priorities as areas for improvement are identified and implemented,” Mr. Labelle said.
Masters of navigating red tape
That might be CBSA’s pledge, but as Halifax transportation consultant Dr. Mary Brooks pointed out in an email message, the regulatory burden has long been a sore point for international traders. It has only gotten worse in the last decade, she added. “And the freight forwarding community has borne that burden for the beneficial cargo owners (the importers of record) who use their services,” said Dr. Brooks, who holds the William A. Black Chair of Commerce at Dalhousie University. “A commitment from Ottawa for harmonization would be well-received.”
Dr. Barry Prentice, a professor of supply chain management at University of Manitoba’s I.H. Asper School of Business, offered a different take. He sees the regulatory worries primarily as problems of transition to new systems.
“The freight forwarding industry makes its money because it navigates red tape better than small-to-medium size companies can do themselves – more regulations just make more employment for freight forwarders. The volume of trade is not going to diminish.”
Nevertheless, Dr. Prentice said, inconsistencies in applying regulations should be brought to the attention of the federal minister responsible. “This is a single federal state and the laws must be applied as evenly as possible, leaving sufficient discretion to the enforcement officers to waive insignificant issues,” Dr. Prentice said. “The problem always is drawing that line, but transparency is the only answer in a democracy.”
Gavin Magrath, a Toronto lawyer specializing in freight-forwarding law and who is General Editor of Forwarderlaw.com, called regulations “a substantial driver” of costs and uncertainty in the industry. “Currently, inspections are mandated by many branches of government, overseen by CBSA, and carried out mainly by third party private contractors,” Mr. Magrath said by email. “This makes it very difficult to manage costs, risk, service quality, and customer expectations.”
He added that security requirements are expected to become even tighter. That will include screening 100 per cent of cargo, as well as “advance information requirements,” which he says will result in “a new service standard the industry will be required to meet.” Mr. Magrath agreed also that Montreal’s seal number requirement is an impractical security requirement that seemed to him like it was imposed “without input from industry.” Aside from increasing uncertainty and costs, such practices also degrade the system, Mr. Magrath said.
The system works that way, however, because the Customs Act gives officers wide discretion, said Harmeet Kohli, an instructor in the international business management program at George Brown College in Toronto. In a customs course he teaches, he tells his students that next to God, customs agents are God. “Don’t argue. Work with them. They are powerful,” said Mr. Kohli, who teaches a post-graduate diploma program that incorporates freight-forwarding certification as an option. “Yes, they can discriminate … but they’ll apply the laws to their discretion.”
Costly container exams cause headaches
Discretion is also exercised when it comes to examining containers for contraband, hazards or security threats. In that respect, Canada is no different than other trading countries, said Mr. Kohli, who has been teaching international trade for about 25 years and whose father was in the import/export business in India. “I did work in Singapore and India. I was just in China a few weeks back. It’s absolutely the same,” Mr. Kohli said in a telephone interview.
As CBSA’s Mr. Labelle pointed out, Canada’s Customs Act requires exporters and importers to bear the responsibility for any costs associated with off-loading cargo for examination. In Canada, those costs for a single container can add up to $3,000, says Ms. Snowden. That can exceed the value of a container’s content, a big cost for a small importer.
Bonnie Gee, Vice-President of the Chamber of Shipping of British Columbia, said via email that most containers reaching the $3,000 point for fees “are tightly packed and require a significant amount of manpower to off-load and reload.” A schedule of tariffs for Vancouver, for example, shows fees for a full examination of a 40-foot container of about $1,200 to $1,600 at most terminals. That fee covers 24 worker hours, Ms. Gee noted.
“Each piece of cargo is off-loaded, scanned by CBSA and then staged for reloading. The time sheets of what happened and how long the Customs exam took are essential in proving the invoiced amount. These variable charges for excess hours will not be tolerated in future tariffs. Vancouver is the only facility with the excess hour charge.”
While CBSA staff perform the examinations themselves at no cost, the Customs Act requires carriers to present the goods to Customs for examination, should an agent demand that. Such an examination requires the services of an off-loading contractor to unload the cargo for examination and reload it afterward. The shipping lines pay for and hire the off-loader, which must meet security standards, Mr. Labelle explained.
After an examination, the off-loading contractor sends the bill to the shipping line, which then passes it along to the freight forwarder, who must then collect that fee from the owner of the cargo. That has created a problem for freight forwarders, who have complained to the Shipping Federation of Canada and the Chamber of Shipping of B.C. about long delays in receiving those invoices. “The cost of collection from the cargo owner is prohibitive when carrier invoices are received many weeks after the vessel has sailed and the accounts with both the carrier and the client have been settled,” CIFFA said in a letter to the shipping organizations in August 2011. The letter cited a case of a CIFFA member who received an invoice for US$680 31 days after the vessel had departed.
In response, Ms. Gee said invoices are sent in most cases before the container is released after the examination. “The only exception that I’m aware of when the invoice may be delayed is if an examination is done on the dock rather than at the off-dock facility,” Ms Gee said. “We addressed CIFFA’ concerns and requested specific examples in order to isolate the problem.”
Who should bear the cost of container exams?
Freight forwarders have also complained about a lack of transparency in how the examination fees are calculated, Ms. Snowden said. “There’s no oversight; there’s no accountability,” she said. However, Ms. Gee noted that tariff schedules for Vancouver and Prince Rupert are available on the Chamber’s website. They are also been made available to CIFFA members on request. That said, Ms. Gee added: “The container examination program has evolved over the years and there really is no consistent approach to the governance of these facilities across Canada. The tariff will depend on the arrangement established with the facility operator in each region.”
Also causing friction is the fact that while the government requires the shipping lines to hire the off-loading contractors, it is the freight forwarders who have to collect the bill. Mr. Magrath said that would be considered anti-competitive in most industries. That makes it difficult to resolve any issues because the government can blame the contractor, while the contractor can claim it is only doing what is legally required. Ms. Snowden says that is exactly what has been happening.
CBSA’s Mr. Labelle confirmed that when he said, “Any transparency issue would be between the steamship line and the freight forwarder, not the Government of Canada.”
Ms. Gee said a suggestion has been put forward to CBSA to “consider adopting the Australian model for container exams.” In Australia, Customs oversees the entire program and charges a flat fee on all containers. Members of the Chamber of Shipping support such a fee, which would require an amendment of the Customs Act, so long as CBSA levies it on a “cost-recovery basis,” she said.
“Other models are being looked at by Customs and industry working groups to ensure consistency in governance and performance,” Ms. Gee added.
The examinations also cause headaches for carriers in the form of invoicing, collections, and “chasing up” the exams themselves. Delays can occur when the facility becomes congested. That puts carriers in a precarious situation because “they are not permitted to receive any status update on the container due to the security and interdiction issues surrounding the examination program,” Ms. Gee said. “Our members spend a great deal of time trying to explain the program and the invoiced amounts,” she added. “Invoices from the Vancouver facility are the most difficult ones to explain as there are hourly charges in excess of those included in the standard rates. Obtaining time sheets and backup documentation to verify the work performed by the facility operator is a challenge.”
Container inspections enhance security
No one questions the need for container examinations. According to CBSA’s website, the agency conducted some 200,000 commercial examinations in 2007-2008. They resulted in 20,884 drug seizures, 5,700 weapon seizures, 3,939 seizures of tobacco and $39.6 million in undeclared currency. “CBSA also intercepted 7,357 items of child pornography, obscene material and hate propaganda, as well as 91,973 food, plant and animal products.”
But since it’s a matter of national security, the cost of the examinations should be borne by all Canadians, not just by those importers and exporters who have containers singled out for inspection, Ms. Snowden and others argue.
“With the vast majority of these, there’s no contravention or non-compliance identified. So it’s an unjust costing model,” Ms. Snowden said.
Mr. Kohli agrees that a blanket charge of, say, $30 for every container, whether inspected or not, would be much fairer. “Unfortunately, three out of 15 containers may be inspected and those are the three unlucky ones,” he said. “They may be in full compliance, but they still have to pay.” It is also an issue that there aren’t enough personnel to carry out the inspections, Mr. Kohli added.
Peter Wallis, President of Calgary-based The Van Horne Institute, noted that air travellers already pay a security fee at airports. Unlike with container exams, all passengers are searched and they each pay the same certain fee. On the other hand, he noted, one could argue that since examination of containers is a national security matter, the fees should be covered by government revenues funded by all taxpayers. That’s an opinion Mr. Magrath shares: “No one pays the cost of the auditor when Canada Revenue Agency decides to conduct an audit!” he said. Among the possible options would be a tax on all cargo, he noted.
Big changes coming as eManifest introduced
At the same time that freight forwarders are wrangling with increasing regulations and figuring out how to avoid getting stuck with container examination fees, they are also bracing for the introduction of electronic manifests. This will represent a sea change from the paper-heavy systems now in place, says Ms. Snowden.
“For the freight forwarders, what this means is basically we will be reconsolidating our cargo electronically before the goods are loaded on a vessel overseas,” Ms. Snowden said. “It’s a big, big change for us.”
The eManifest program is the third phase of the Advance Commercial Information program, or ACI, according to CBSA’s website. ACI “introduces more effective risk management processes and tools to identify threats to our health, safety and security prior to the arrival of cargo and conveyances in Canada,” says the posting. As for eManifest, it will be “a virtually paperless process that starts before shipments reach the border.” It will require freight forwarders and others involved in transporting goods to transmit electronically “cargo, conveyance, house bill / supplementary cargo and importer data to CBSA prior to loading marine cargo and prior to arrival of cargo by air, rail or highway.”
For freight forwarders, the 18-month timeline for implementation of eManifest was scheduled to begin in 2012. It was not clear at deadline whether that implementation period had begun.
Ms. Snowden said that under their security bonds, freight forwarders will have to start providing additional information by March 2013, a point that Mr. Labelle seemed to confirm. He said freight forwarders “will be able to transmit house bill / supplementary cargo data to CBSA” on that date. By 2014 or 2015, importers will have to provide as many as 24 data elements, Ms. Snowden said. These include descriptions of the goods, such as Harmonized System (HS) product codes, possibly to ten digits, which is a much finer level of detail than the U.S. now requires, Ms. Snowden said. “That’s still in dispute,” she said. “Right now the thought is that it’s going to have to be ten digits but the Americans only require six. So that’s up for discussion with the Beyond the Border perimeter initiative. We’re trying to harmonize Canada’s data requirements with those of the U.S.”
CBSA’s Mr. Labelle said, though, that while freight forwarders will be required to submit electronic pre-arrival house bills (the bills of lading they issue to customers), HS codes are optional on those house bills. “If the information is available, it should be provided,” he said. ”If provided, the HS code must be at least six digits.”
New system promises less paper, faster service
Despite a steep learning curve, eManifest should benefit freight forwarders in the long run. It will reduce paper handling, enable companies to redeploy staff more efficiently, and give firms a better handle on their business further in advance.
“You’re going to know what’s coming. So I think, yes, there are some real opportunities there,” Ms. Snowden said.
The downside is that freight forwarders have to deal with learning a new system while also having to navigate obstacles such as those unevenly applied regulations, she said. At George Brown College, Harmeet Kohli envisions only good things coming from eManifest. For one thing, it will enable customs to be much faster in approving or denying entry of a shipment into the country, or to point out to the shipper that there’s an issue. “It’s highly efficient,” he said.
The eManifest system and its benefits will also apply to the B13A shipper’s export declaration form, which is required for shipments over $2,000 exported to countries other than the U.S., Kohli pointed out. “Because it’s electronic, storage is easier,” he said. “And it’s faster to retrieve.”
Dr. Prentice said it’s a logical idea to make trade data between Canada and the U.S. more comparable. However, he added, “The U.S. will never choose to harmonize with Canada, but I see no reason not to just adopt their HS codes.”
Meanwhile, legal expert Gavin Magrath noted that the problems of developing security and electronic standards are simply too complicated to discuss in brief. Nevertheless, he added, “Certainly the ability to interface with American electronic requirements will be highly relevant to the vast preponderance of Canadian cargo that crosses that border.”
The Van Horne Institute’s Peter Wallis said the greatest regulatory challenges involve Canada’s relationship with the U.S., which is still Canada’s largest trading partner. He noted that the perimeter security agreement is supposed to bring certainty about charges, fees and processes. “And the devil is in the details,” Mr. Wallis said. “Work is still being done on the regulations. We don’t know what the complete regulatory framework is going to look like yet.”
Work on the border security joint action plan has been successfully completed, according to the Canadian government’s economic action plan website. On June 21, a Beyond the Border executive steering committee met for the first time in Ottawa. The committee is overseeing implementation of the action plan.
Freight forwarders also have to deal with a plethora of surcharges, some levied by government agencies and others by carriers. For example, several carriers on the St. Lawrence Seaway recently brought in low-water surcharges because their vessels cannot carry as much cargo as when the water is higher. And Maersk Line recently introduced a fog surcharge at the Chinese port of Quingdao, Ms. Snowden noted.
“We have steamship lines that issue bill of lading fees.” she said. “You have to issue a bill of lading because that’s the contract of carriage, but still they charge $25 or $35 for a bill of lading. It really is silly.”