Mastering import & export management

MASTERING IMPORT &

EXPORT MANAGEMENT

SECOND EDITION

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MASTERING IMPORT &

EXPORT MANAGEMENT

SECOND EDITION

Thomas A. Cook

with

Rennie Alston and Kelly Raia

• Major Issues in Global Supply Chain Management

• Main Features of the Incoterms 2010

• New TSA Regulations

• Documents, Operations, & Procedures

• Risk Assessment & Mitigation

• Import & Export Management Tools

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Library of Congress Cataloging-in-Publication Data

Cook, Thomas A.

Mastering import & export management / Thomas A. Cook with Rennie Alston and Kelly Raia.—

2nd ed.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-8144-2026-3

ISBN-10: 0-8144-2026-5

1. Exports—Management. 2. Export controls. 3. Foreign trade promotion. 4. Imports—

Management. 5. International trade. 6. Exports—United States—Management. 7. Export

controls—United States. 8. Foreign trade promotion—United States. 9. Imports—United States—

Management. I. Alston, Rennie. II. Raia, Kelly. III. Title. IV. Title: Mastering import and export

management.

HF1414.4.C665 2012

658.84—dc23

2011035514

2012 Thomas A. Cook.

All rights reserved.

Printed in the United States of America.

This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part,

in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the

prior written permission of AMACOM, a division of American Management Association, 1601 Broadway,

New York, NY 10019

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Printing number

10 9 8 7 6 5 4 3 2 1

Contents

1 Major Issues in Global Supply Chain Management

Today 1

Section One: The Global Supply Chain 37

2 Purchasing Management Skill Sets in Foreign Markets 39

3 Freight, Logistics, and Specialized Transportation Issues

for Import/Export Managers 47

4 Risk Management in International Business 102

5 Technology in Global Trade 132

6 Global Personnel Deployment and Structure 146

7 Developing Resources in the Import/Export Supply

Chain Management 155

8 Essential Overview of Import/Export Compliance and

Security Management: Post 9/11 169

Section Two: Export Operations 185

9 Export Issues 187

10 Export Management: Incoterms, Documentation,

Compliance, Operations, and Export Supply Chain Skill

Sets 200

Section Three: Import Operations 233

11 Future Import Issues 235

12 The Import Supply Chain: Purchasing, Operations,

Documentation, and Compliance Management 252

v

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vi Contents

13 Import Strategies in Maintaining a ‘‘Compliant and

Secure’’ Inbound Supply Chain 268

14 Bureau of Customs and Border Protection: Compliance

and Security Expectations: Post 9/11 275

15 Getting on Top of the Regulatory Challenges of the

Future 280

16 Concluding Remarks 286

Appendix 289

Index 665

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MASTERING IMPORT &

EXPORT MANAGEMENT

SECOND EDITION

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1

Major Issues in Global Supply

Chain Management Today

The book opens with a view of current world events that impact global supply

chains, import and export operations, and the entire responsibilities that business

executives have in trade compliance management.

2011 and into 2012 have seen a number of shifts in world politics, Middle East

stability, and major physical occurrences that have huge short-term impacts on

global trade, and these impacts may extend into the future for years to come.

Overview

Physical Events

The earthquake in Japan has rocked the world in a number of ways. Perhaps most

important, the long-term utilization of nuclear power is very much in jeopardy.

The impact of the devastating tsunami that followed goes far beyond the tragic

loss of life that occurred. The insurance community who insured the risks

involved with both events will have to pay hundreds of million in claims, poten￾tially in excess of several billion dollars. This will impact insurance costs and the

availability of certain types of insurances in risk-prone centers of the globe as well

as for freight that moves on certain trade lanes. Cost and availability will become

major issues.

Personnel involved in international shipping and logistics who had freight

coming in and out of Japan are witnessing great delays in transit times, limited

access to transportation infrastructure, and increases in freight charges.

Shipping managers worldwide have looked at this disaster in Japan and have

already begun to access risk management alternatives not only in earthquake￾prone areas, but in all corners of the globe where there are significant physical

risks such as but not limited to:

• Earthquakes

• Floods

• Tornadoes

• Hurricanes

• Harsh changes from winter to summer weather patterns

• Tsunamis

1

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2 Mastering Import & Export Management, Second Edition

These are but a few of the major physical exposures that companies who oper￾ate globally are now assessing, and they are reevaluating their supply chain deci￾sions to avoid exposure and mitigate risk.

Economic Events

As of this writing, most professional assessments and benchmarks in world trade

have shown a betterment in most market segments in the overall economy. Most

manufacturing, inventory, and trade indexes have shown increases of 3 to 6 per￾cent in 2011 into 2012.

While most sectors have shown improvement, there is still serious concern over

the following areas:

• Stability of global banking and financial infrastructure.

• Housing and unemployment in the United States.

• Political instability in the Middle East.

• Financial issues in an array of countries, such as but not limited to Greece,

Poland, Brazil, Venezuela, and the United States.

• The rise in government bailouts and increase in debt worldwide.

All of this impacts global supply chains.

It impacts cost, risk, and choice of global sourcing and offshore manufacturing,

and it potentially retards the growth of globalization.

A good example of this in the United States is shown by the number of compa￾nies who had sent manufacturing overseas to Asia and the Near East but have

moved some or all of it back here to America or to Mexico or Canada (referred to

as ‘‘near-shoring’’).

Near-shoring makes a huge statement to the world. It says that from a competi￾tive standpoint there may be better places to locate operations than Asia and the

Near East (primarily India and Pakistan)—reversing a major trend of the past

thirty years.

In logistics, these economic woes have reduced capacity in the ocean freight

market, causing pricing instability and difficulties in locating available containers

and chassis for timely, reliable, and consistent bookings.

Companies relying on the ocean freight mode to fulfill a time-sensitive supply

chain have been hugely disappointed in 2011 and have had to make major com￾promises in risk, cost, and choice of carriers.

Political Instability

The events in the Middle East—in Tunisia, Libya, Egypt, and Bahrain to name a

few—have rocked the traditional world of dictatorship and kingdoms in terms of

historic attitudes in the Muslim community in that part of the globe.

The West, led by the United States, has taken a fairly aggressive role in support￾ing the move to democratic governments, including military action.

There are costs to supporting these uprisings that add to the economic turmoil,

tied into the instability which has caused the price of crude oil to climb in excess

of $100.00 US.

This will impact every aspect of the supply chain cost models, from manufac￾turing, to plastics, freight, and security surcharges due to gasoline increases.

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Major Issues in Global Supply Chain Management Today 3

The threat of an increase in terrorism promised from the more radical corners

of that circle will place additional stresses on security and oil costs.

Many security analysts also see the West’s proactive engagement in these Mus￾lim democratic turnovers as another reason for terrorists to mount more aggres￾sive and frequent attacks, which will include exposure for global supply chains.

The continued presence of the United States and its allies in Iraq and Afghani￾stan has also increased political stress among the West and the Muslim countries.

These stresses impact politics—here and in those countries—which in turn impact

the decision-making process as to where and how to ship, source, deliver, and

partner.

These issues increase risk and cost.

Airfreight: TSA/Transportation Security Administration and

Hazardous Materials

100 percent cargo screening, not just for Americans anymore!

The screening rules of 2010–2012 affected all air cargo destined for a passenger

aircraft originating in the United States or being shipped from overseas to the

United States. The TSA was charged with this daunting task. While the shipping

community doubted the TSA would be able to accomplish the 100 percent screen￾ing rule by the initial 2010 deadlines, the TSA proved us wrong. They have accom￾plished this task and have done it without too many hiccups in the process. This

process is still a work-in-process and is being tweaked and modified as we enter

2012.

The fear and overall concern were mainly twofold: the issue of higher costs

and the issue of serious delays in the movement of air cargo.

While there has been a cost increase due to the additional layer of security that

has been imposed, it has not been dramatic. Nor have the anticipated delays been

as serious as we first thought they would be. The program seems to be a success

so far.

As the air freight community just began to breathe easy again, here comes

another directive. All foreign origin inbound air cargo must be screened at 100

percent. This issue of screening foreign air cargo is not a new development. The

primary goal of the U.S. government was to enact the rule for screening of cargo

that originates in the United States, and then to ultimately include foreign origin

air freight, with a deadline of Y2013 for such foreign origin freight movement.

Then it happened! While we were focused heavily on cargo originating in

America that was booked to fly aboard a passenger aircraft, terrorists were focus￾ing on freight originating in a foreign country that was intended to fly on an all￾cargo aircraft. UPS and FedEx both recently discovered explosive devices in cargo

shipments that were ultimately addressed to a synagogue in Chicago. Fortu￾nately, these devices were found prior to the final flight to the United States.

Packages with explosives were found in Dubai and in the United Kingdom. The

Prime Minister of England stated that it appears the device they discovered was

intended to go off in midair, en route to the United States.

The publicity, hype, and exposure of the 100-percent passenger air cargo

screening rule was a clear indicator to terrorists that there is a big black hole in

the screening program: foreign-origin air cargo coming into our country is not

subjected to rigorous screening. While U.S. Customs and Border Protection con￾trols the security of inbound cargo through the C-TPAT program (Customs Trade

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4 Mastering Import & Export Management, Second Edition

Partnership Against Terrorism), the program is heavily focused on ocean freight.

And the program is only in effect for commercial import companies who volun￾tarily join the program.

Remember that goal of Y2013 for screening of foreign inbound cargo? Well,

that date was moved to a goal of December 2011, and as of this writing in fall

2011, it looks like it will be achieved.

What should we do if we import air cargo? Will this requirement be a detri￾ment to our ability to import goods timely and cost effectively? Maybe—and

maybe not.

How can the importing community proactively respond to this requirement?

There are several things we can do to prepare for this monumental task. A good

start would be to discuss this pending issue with your freight forwarder/customs

broker. The U.S. forwarding and brokerage community must act quickly to ensure

a smooth flow of goods across our borders. Service providers here in the states

should be advising their foreign agents of this new directive. They should work

with their foreign counterparts to ensure that all screening options are reviewed,

and to ensure that the options presented are viable for particular business models.

For example, how will shipments of perishables and dangerous goods be

screened? Will the foreign agent or carrier be responsible for any damage that

may occur to the cargo during the screening process, or does additional insurance

need to be purchased for this risk?

It is strongly recommended that the import community approach this issue

before the rule goes into effect. The proactive approach that we all took regarding

the 100-percent screening deadline related to U.S. origin air shipments must be

the same approach we take now, as our borders are being pushed back even

further. After all, that approach certainly eased the pain here in the United States.

When the first day that the mandatory screening of 100 percent of air cargo

destined for a passenger aircraft goes into effect, every single package, prior to

being loaded on a passenger aircraft, will have to go through security screening.

That is, every single package at the piece level. For example, you tender a skid

containing twenty-five packages. The skid will be broken down and each package

on the skid will be individually screened.

There are various methods of screening that are authorized by the TSA. There

are also various points in the supply chain where screening can take place.

There are very strict regulations regarding the sharing of information about the

programs that are in place to screen packages. Therefore, the information that

follows will be basic.

Currently, according to TSA statistics, the air carriers are at their capacity

regarding their capability to screen cargo. And currently they are not screening at

the 100-percent level. That translates to big delays on the near horizon. The bottle￾neck is anticipated to hinder the current flow of exports and domestic ‘‘just in

time’’ distribution systems. In anticipation of this dilemma, the TSA developed a

program to allow businesses other than air carriers to perform the screening of

air cargo prior to the cargo being tendered to the carrier. Thus, when you deliver

the cargo that you have had screened by one of these alternate businesses, the

carrier is permitted to proceed with loading of that cargo. BIG time saver! The

key is to have an alternate plan. The key is to not rely on the carrier to fulfill the

screening requirements.

Even this late in the game, it is not too late to put a screening program in place.

This is particularly wise for the shippers of air cargo. A shipper is eligible to

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Major Issues in Global Supply Chain Management Today 5

participate in the Certified Cargo Screening Program (CCSP). Under the program,

a shipper’s place of packaging can become a Certified Cargo Screening Facility

(CCSF). You may sometimes hear this program referred to as ‘‘reverse screening.’’

This name comes from the idea that the screening occurs at time of packaging, and

not after it is packaged and en route to carrier, a reversal of the usual carrier￾performed screening.

This screening program has been available to the community and I find it hard

to believe that more shippers have not joined the program. Companies, in tight

financial straits due to the faltering economy, fear the cost and labor would be

too heavy a financial burden right now. I must say that this line of thinking does

not square with the actuality. In my consulting capacity, I have personally assisted

many clients with their application to become a screening facility and I can assure

you that in almost all cases, the costs were minimal—and the benefit tremendous!

Many freight forwarders are becoming Certified Cargo Screening Facilities to

provide their customers yet another option. The concern with having a third￾party service provider responsible for screening is the increased risk of damage

of the contents of the packages. Some freight forwarders and smaller service pro￾viders are performing physical screening, opening every single package to check

the entire contents. Naturally, this gives cause for reasonable concerns of in￾creased incidents of damage and subsequent insurance claims.

However, freight forwarders and other transportation service providers are not

required to be a screening facility in order to transport screened cargo. That opens

the door to yet another program that involves the chain of custody of screened

cargo. Transportation service providers can work with the TSA to develop a pro￾gram that insures the integrity and security of cargo from point of screening to

point of delivery to the air carrier. This would probably be the most cost-effective,

time-saving option. The shipper should become a screening facility and, at a mini￾mum, the chain of custody program should be in place for their providers.

And just as a side note to all those shippers who are already C-TPAT members,

you already meet most of the minimum security criterion. Much of the battle has

already been won for you.

Shippers are strongly encouraged to reach out and grab hold of this program.

You will be very thankful you did!

What can shippers do to avoid the huge delays that can be incurred by carriers

and service providers as they work at meeting this 100-percent screening rule?

Become a Certified Screening Facility. The discussion below gives a brief overview

of the program. If you wish to obtain more information, or wish to inquire about

becoming your own screening facility, contact the TSA through their website:

www.tsa.gov.

The Certified Cargo Screening Program

The Certified Cargo Screening Program (CCSP) is a voluntary program—facilities

that seek approval as certified cargo screening facilities will be required to meet

a variety of rigorous security standards and will be regulated by the TSA.

For example, a CCSP would be required to submit to security threat assess￾ments of personnel, adhere to specified physical security standards, and maintain

a strict chain of custody for cargo they screen and forward to the air carrier as a

condition of its acceptance as screened cargo by the air carrier.

A key characteristic of the system will be rigorous tracking of the chain of

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6 Mastering Import & Export Management, Second Edition

custody, including the use of tamper-evident technology to assure that, once

screened, cargo remains secured in transit to the aircraft. Under CCSP, air carriers

will continue to have ultimate responsibility for ensuring that cargo has been

screened prior to flight. If an air carrier cannot verify that cargo has been screened,

the carrier must screen it before allowing it to be transported.

CCSP shippers will benefit from participation in several ways. By screening

their own shipments, shippers can significantly reduce the possibility that their

cargo may be physically opened. Additionally, they can bypass the potential

delays that could occur if all screening is performed only at the airport.

Similarly, Indirect Air Carriers (IACs) benefit by these same measures, and may

also continue to take advantage of typical airline reduced rates for cargo tendered

in bulk.

By focusing outreach on IACs and shippers using the airports with the highest

volume of cargo we have been able to maximize the impact of the pilots and to

date we have validated over 200 facilities in the pilot program. TSA plans to ulti￾mately roll out the program nationwide.

Any facility that sends cargo directly to an air carrier or indirect air carrier

(IAC) may apply to become a CCSP. This includes:

• Manufacturers

• Warehouses

• Distribution centers

• Third-party logistics providers

• Indirect air carriers

• Airport cargo handlers

TSA Cargo Screening in 2011/12

Have you caught the SNL video of the TSA Enhanced Pat Downs on YouTube?

Pretty funny stuff. The TSA certainly has its challenges these days between deal￾ing with air travelers, underwear bombers, ink cartridges, and other cargo. The

TSA gave a recent presentation at SUNY Old Westbury on the CCSP program and

provided an overview as to what they’ve done but more importantly as to where

they appear to be going. It’s pretty obvious to any of us involved in supply chain

the future holds only more stringent regulations and screening.

If we look back at the recommendations of the 9/11 Commission that were put

in place in August of 2010, Congress required that cargo be screened at a level of

security commensurate with checked baggage. In order to accomplish this, the

TSA established the Certified Cargo Screening Program (CCSP) described above,

and as of November 2010 has certified over 1100 entities. Under this voluntary

program, a shipper may screen its own cargo utilizing one or more of several

different screening methods as outlined under the screening mandate. Under the

program, a shipper could be a shipping facility, warehouse, freight forwarder,

3PL, manufacturer, or independent cargo screening facility.

The TSA accomplished this through various forms of outreach to the shipping

community including town hall meetings, webinars, and conferences. The TSA

also increased the number of approved pieces of technology and also assisted

some facilities in obtaining the equipment for screening.

As August 1, 2010, came around, the deadline was found to be met without

too many problems, but was still moved to the end of 2011, beginning of 2012.

This was largely due to the airlines preparing for additional screening in the

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