Winter 2015

SHIPPING / TRANSPORTATION

The Federal Maritime Commission Newsroom
Update on Port Congestion Surcharges
December 4, 2014

The Commission has been advised that the 15 ocean carrier members of the Transpacific Stabilization Agreement have individually committed to forego imposition of any port congestion surcharges until 2015.

The Federal Maritime Commission has received numerous inquiries regarding congestion surcharges for "labor unrest" as announced in various ocean carriers’ tariff rules required to be published under the Shipping Act and the Commission’s regulations. On November 17, the Commission announced that it was collecting information regarding congestion surcharge rules published in carrier tariffs and undertaking a review. Ocean carriers in the transpacific trades were asked to respond to Commission inquiries into the timing and legal sufficiency of the surcharges, and all carriers timely responded. 

During the week of November 24, following the Commission’s inquiries, many carriers announced temporary suspension of the surcharge.

Chairman Mario Cordero stated: "I welcome the individual commitments of the ocean carriers to postpone port congestion surcharges into 2015. During this time, Commission staff will further address with the carriers our concerns for the lawfulness, fairness, and adequacy of notice of implementation. The carriers’ commitment to defer the congestion surcharge offers the opportunity to continue this important dialogue and pursue greater transparency as to the timing and the need for future carrier surcharges. The monitoring by Commission staff of port congestion and related surcharges will continue."

Shippers and other affected parties are invited to submit any updates as to congestion surcharges or recent shipper advisories received from carriers to the Bureau of Trade Analysis at: mailto:tradeanalysis@fmc.gov.

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A New Ocean freight Surcharge

A global treaty agreement to reduce vessel emissions, extended limits on sulfur oxide (SOx) emissions to a 200-mile North American coastal zone covering the U.S., and Canada. Capping SOx at 1% of total emissions has required shipping lines to burn more expensive low-sulfur diesel fuel within the zone, and modify vessels to alternate between standard bunker and low-sulfur fuels as they enter and leave the zone. This regulation takes effect beginning January 1 2015.

This new surcharge will affect both exports and imports. It appears that the additional levy will amount to $50 - $95 on a 40 foot container.


West Coast Port Woes
Tuesday, November 25, 2014

 Domino Effects of West Coast Port Issues Impact Air and Ocean Transport

It is the fourth quarter and the surge is on. We want to share here some thoughts about the domino effects of the problems at North America's west coast ports. It is important that freight forwarders communicate with customers to establish realistic expectations during this volatile period.

Background: 

A variety of causes have converged to create chaos and congestion at US and Canadian West Coast ports. Labor negotiations between the ILWU and the Pacific Maritime Association are ongoing and negatively affecting all US west coast ports. Right now discussions have been postponed for 12 days due to the American Thanksgiving. Severe chassis shortages and trucking problems at Long Beach and Los Angeles add to the tension and delays. US destined cargo has been diverted north to Port Metro Vancouver and Prince Rupert. Congestion in Asia ports, larger vessels that take longer to handle in ports, and storms in the Pacific wreak havoc with vessel schedules. Some vessels are arriving 10 to 12 days late at Canadian and US ports. Dozens of vessels are anchored at ports waiting, sometimes for weeks to discharge. Volumes have not been this high in over 2 years.

Impacts:

Exports are being delayed.

  • Across North America, exports are being severely hampered. As vessels try to pick up time in their schedules, they discharge inbound containers and immediately depart, not waiting to load exports. In many cases, loaded export containers are being held at inland rail receiving terminals or held off-dock.

  • Terminals are full and there is no room on the docks for empty containers that need to be evacuated back to Asia. Vessels are not waiting to load empties.

Expect equipment shortages in Asia.

  • Every week that goes by with thousands of containers landing in North America and few being returned to Asia, the problem worsens. Soon we expect that the imbalance will be such that December and January exports from Asia will suffer as there won't be sufficient numbers of containers there to load.

Expect even more surcharges.

  • It costs money to keep vessels at anchor for days waiting to discharge and to manage container imbalances. Carriers are beginning to implement congestion surcharges. For example, on Friday MSC has announced that, "With several weeks of slowdown on U.S. West Coast port operations, our vessels are being worked at a slower pace, extending the stay at the port, which consequently leads to other vessels having to wait a significant number of days outside the port. Consequently, a costly recovery program, including a multitude of services, has been orchestrated to lessen the delay of U.S. exports, Asia exports and flow of equipment into Asia." It added that it wished "to recover our expenses and mitigate our potential loss of revenue, and shall, therefore, effective Nov. 26, 2014 (gate-in date) charge a Port Congestion Surcharge. The amount of the surcharge is $800 per TEU, $1,000 per FEU and $1,125 per high-cube container".  Other carriers are following suit. This surcharge could seriously affect freight forwarders' treasuries and could substantially increase credit liabilities/ risk.

Airfreight is not necessarily the answer.

  • With weeks of delay in ocean freight, shippers desperate to have product on shelves for Black Friday and the Christmas retail season have diverted thousands of tons of ocean freight to air. Scheduled carriers are flying full and air charter rates inbound from Asia are through the roof. Importers who are trying to negotiate air cargo inbound from Asia during the next several weeks must be advised of realistic transit times, possible booking delays and cost expectations

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The PMA said it will limit the number of longshoremen
hired to unload ships.

By Chris Dupin/American Shipper | January 02, 2015 

The Pacific Maritime Association says its members are going to reduce the number of longshoremen unloading ships during night shifts in the Ports of Los Angeles and Long Beach and concentrate on hiring workers to clearing containers from clogged terminals.

PMA spokesman Wade Gates said, “The twin ports of Los Angeles and Long Beach have been struggling for some time with overall congestion issues related to a range of factors. Within this already difficult environment, the ILWU has made matters worse for weeks by refusing to dispatch qualified crane operators. These critical workers normally deliver and receive container loads from truckers, and by withholding them, the union has negatively impacted cargo-handling operations throughout Southern California.”

He continued, “To focus efforts on clearing containers from terminal yards and get them moving to their final destinations, PMA will be reducing the number of workers ordered to unload ships on night shifts, thereby avoiding the prospect of creating gridlock that the additional unloading of ships would create. Labor orders for the day shifts and night shift yard and gate will remain unchanged.”

The PMA and ILWU have been meeting to negotiate a new contract for more than seven months. Their last contract expired on July 1, 2014.

On Dec. 22, the PMA called for a federal mediator to get involved in the contract talks. It renewed that call earlier this week, saying that “given the lack of progress at the table, the ILWU’s continuation of debilitating work slowdowns and the impact those actions are having on businesses throughout America, it’s clear that mediation is required to resolve the many issues that remain at the bargaining table.”

A union spokesman said Monday, “We are in the process of considering whether or not mediation would be productive, or if other measures ... might serve the industry better. The ILWU is always open to using productive tools and ideas in obtaining a fair agreement.

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IMPORT / EXPORT

EXPORT FAQ

What purpose does an SLI
(Shipper’s Letter of Instruction) serve?

The Shipper’s Letter of Instruction (SLI) is not just another tedious form that needs to be completed for an export shipment. The SLI plays an important role in your communication with your freight forwarder or your customer’s forwarder. It indicates what you expect to have happen on your export shipment and helps ensure these requirements will be met. Specifications include but not limited to:

  • Consignee and notify party information

  • Written authorization to file EEI

  • EEI filing elements including Commerce Control information

  • Direction to forwarder regarding insurance

  • Document distribution directions

Completing an SLI for each export shipment should be incorporated into your export best practices.

CSMS# 14-000636 - Elimination of Late filed ISF transmissions
12/11/2014 09:23 AM EST

ACE Outreach Events

This is an update to CSMS #11-000149 regarding late Importer Security Filing (ISF) submissions.

Effective January 10, 2015, late ISF submissions will no longer be exempt from the bond requirement and most ISF transactions will require a bond when they are filed. To avoid delay or examination upon arrival, importers should ensure that bonds are in place to cover the ISF transaction prior to the cargo being loaded on the vessel destined for the United States.

To electronically enforce this requirement, ISF Types 5 and 6 (Late ISF-10- No Bond and Late ISF-5- No Bond, respectively) will no longer be accepted as of January 3, 2015. Updated IG documentation will be published to the CBP website shortly and has been attached to this message.

If you have any questions, please submit an email to security_filing_general@cbp.dhs.gov

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Search U.S. Government Consolidated Screening List

Industry will soon be able to search for a proscribed party on an expanded U.S. Government Consolidated Screening List (CSL) consisting of nine screening lists as easily as doing a Google search!  Four U.S. Government agencies/bureaus from three Departments have built a simpler and faster way for industry to get important screening information. This will help exporting companies stay in compliance, ease exporting, save time, and save money. In February 2010, as part of the President's Export Control Reform initiative, the Departments of Commerce, State and the Treasury created a downloadable CSL in the form of a spreadsheet on www.export.gov/ecr that contains entities from seven screening lists as an aide to industry in conducting electronic screens of potential parties to regulated transactions.

In the past six months, these Departments have reviewed the screening list utility and made improvements for the benefit of small and medium sized exporting companies and software developers. In particular, the agencies have put all the names and related information in a CSL "data feed." From this data feed, any company can build a search engine to find names, aliases, and other screening information quickly that exporters may be looking for. The Departments have built a CSL Search Engine that works with the CSL Data Feed and lets exporters type in a name, country, or source agency to perform the search.

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NAFTA CERTIFICATE OF ORIGIN – VALID CERTIFICATES ONLY!

To claim NAFTA (duty free), the importer must have a “VALID NAFTA CERTIFICATE OF ORIGIN” in their possession at the time the claim is made. A Valid NAFTA Certificate must have the following 4 data elements: 

  1. Lists the good being entered

  2. Covers the period during which the good was entered

  3. Includes the exporter’s or his agent’s signature in block 11a “Authorized Signature”

  4. Was the NAFTA Certificate in the importer’s possession at the time of the claim, as demonstrated by:

       A) a block 11e “Authorized Signature” date prior to the date of the preference claim,

       B) and, submission upon request of a CBP official

A NAFTA Certificate of Origin is invalid if it does not meet the aforementioned requirements.  The consequences then are at the very least denial of the NAFTA duty preference. 

A NAFTA Certificate of Origin might only be defective. That is, it can be fixed/repaired to transform it into a ‘VALID NAFTA CERTIFICATE OF ORIGIN”. It must of course meet the conditions noted above for a “Valid NAFTA Certificate of Origin,” while at the same time it may contain other errors or omissions. These include, but are not limited to the following: illegibility, misclassification, incorrect or missing preference criteria, signature by an individual who cannot legally bind the company, typed or stamped signature, 3rd-country goods (in addition to NAFTA goods), Net Cost field error, single entry Certificate without an invoice or other unique reference numbers, or other similar errors or omissions.

This posting seeks to clarify the meaning of the terms “valid NAFTA Certificate of Origin,” “invalid NAFTA Certificate of Origin” and “defective NAFTA Certificate of Origin”. Additionally, CBP reminds importers that preference will be denied when possession of a valid NAFTA Certificate of Origin at the time of the claim cannot be substantiated.

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“Principal Use” and “Actual Use”
Considerations in the Classification of Imported Merchandise

Classification Based on Principal Use

When the tariff classification of imported articles is based on function (as opposed to material composition), the classification is generally based on the item’s principal use. U.S. Customs & Border Protection (CBP) has stated that principal use is defined as “that use which exceeds each other single use in the United States for merchandise of the same class or kind as the imported product. The form of the article as imported is the most important criterion for determining class or kind which determines principal use”.

When an item’s principal use is not immediately obvious, different rules and section notes in the Harmonized Tariff Schedule of the United States should be consulted, along with binding rulings issued by CBP for similar merchandise (available in the CROSS rulings database - http://rulings.cbp.gov/), and the Explanatory Notes, reference books that comment on the scope of each heading in the tariff schedule. The Explanatory Notes are not legally binding, but CBP recommends their use and often cites them in classification rulings. Any competent customs broker will have a set in their office for classification research. If the principal use and classification of a particular product is still subject to interpretation after these sources have been exhausted, it is advisable to request a classification ruling from CBP.

Many importers have undoubtedly been surprised by the conclusions regarding principal use reached by CBP in classification rulings, either because the importer overlooked a crucial rule, section note, or passage in the Explanatory Notes, or because they did not take into account how their product was used by others in the general marketplace. For example, strings of indoor/outdoor lights that many consumers might use as decorative lighting throughout the year have been classified by CBP in ruling after ruling under a heading for lights “of kind used for Christmas trees”, and therefore dutiable at the rather high rate of 8%. The phrase “of a kind used for”, when it appears in the Harmonized Tariff Schedule” is intended to alert the trade community that a heading will not only cover the item described therein - in this case Christmas tree lights - but also comparable items used under other circumstances or in different applications. Some other examples:

Importers of empty glass containers that would be sold empty for use as storage containers in the home have sought rulings from CBP in which they suggest classification under one of the duty-free tariff numbers for glassware “of a kind used for the conveyance or packing of goods”. This might seem like a reasonable tariff heading to apply to glass storage jars, yet CBP has repeatedly taken the position that the heading for glassware “for the conveyance or packing of goods” is limited to articles that are used commercially to ship merchandise to consumers and businesses. Glass containers used for storage or display can have duty rates as high as 22.5%, depending on the type and unit value of the container.

In several rulings, CBP has reached the conclusion that used railroad ties, imported for use as landscaping timbers could not be classified under the duty-free heading for “railway or tramway sleepers (cross ties) of wood”. They repeatedly cited Additional U.S. Rule of Interpretation, Rule 1(a), which states:

“A tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use.”

CBP did not dispute that the used railroad ties were previously classifiable under the specific tariff heading for railway cross ties; but used ties generally don’t conform to American Railway Engineering Association standards, and are therefore rarely used in railroad construction or rehabilitation. As a result, classification under the heading for railway cross ties was denied, and the used ties were to be classified under headings 4407 or 4409 (depending on the type of wood and method of manufacture) , headings subject to Canadian export permit requirements and fees in accordance with the United States Canada Softwood Lumber Agreement.

Classification Based on Actual Use

Certain tariff classifications are controlled by the actual use of the article after importation into the United States. Language in the tariff schedule heading that would alert an importer that a particular tariff number depends on actual use would include “imported for use with”, “to be used in”, “to be installed in” and “for use as”. Duty-free treatment is sometimes given to otherwise dutiable items if they are ultimately used for a particular purpose, but certain conditions must be met, and additional recordkeeping requirements will apply.

The Regulations, provides details about the actual use provisions and the obligations taken on by any importer who takes advantage of them:

CFR10.13:

Conditions required to be met: When the tariff classification of any article is controlled by its actual use in the USA, three conditions must be met in order to qualify for free entry or a lower rate of duty unless the language of the particular subheading of the HTSUS states otherwise.

Conditions for filing for actual use:

(a) Such use is intended at the time of importation.

(b) The article is so used.

(c) Proof of use is furnished within 3 years after the date the article is entered or withdrawn from warehouse for consumption.

Declaration of intent - showing of intent by the importer as to the actual use of imported merchandise shall be filed with the entry.

Suspension of liquidation - Liquidation of an actual use entry is suspended until proof of use is furnished or the 3-year period allowed has expired.

Records - The importer shall maintain accurate and detailed records showing the use or other disposition of the imported merchandise. The burden shall be on the importer to keep records so that the claim of actual use can be readily established.

Proof of use-Within 3 years from the date of entry or withdrawal from warehouse for consumption, the importer shall submit in duplicate in support of his claim for free entry or for a reduced rate of duty a certificate executed by (1) the superintendent or manager of the manufacturing plant, or (2) the individual end-user or other person having knowledge of the actual use of the imported article. The certificate shall include a description of the processing in sufficient detail to show that the use contemplated by the law has actually taken place. A blanket certificate covering all purchases of a given type of merchandise from a particular importer during a given period, or all such purchases with specified exceptions, may be accepted for this purpose, provided the importer shall furnish a statement showing in detail, in such manner as to be readily identified with each entry, the merchandise which he sold to such manufacturer or end-user during such period.

Actual Use Provisions for Agricultural Machinery, Equipment, and Implements

The most common actual use provisions pertain to machinery, equipment, implements, and parts to be used for agricultural or horticultural purposes. Most tariff headings that pertain to agricultural or horticultural machinery are already unconditionally duty-free, but certain products used with such machinery are not. Two tariff numbers have been created so that the importer can still claim duty-free treatment for otherwise dutiable products used with agricultural or horticultural machinery or equipment – 9817.00.50 (machinery, equipment, and implements), and 9817.00.60 (parts to be used in articles of headings 8432, 8433, 8434, and 8436). The same requirements from Federal Regulations 10.133 through 10.138 will apply when importers report either of these tariff numbers on an entry.

Before making a duty-free claim under either of these provisions, it is advisable to consult the CBP Informed Compliance Publication entitled “What Every Member of the Trade Community Should Know About: The Agricultural Actual Use Provisions”, available on the CBP website at:  http://www.cbp.gov/sites/default/files/documents/act_use_prov_3.pdf

The importer must refer to the long list of exclusions that appears at the beginning of Subchapter XVII in the tariff schedule, since many products listed in the tariff schedule will not be eligible for classification under 9817.00.50 or 9817.00.60. For tariff number 9817.00.50 (“Machinery, equipment and implements to be used for agricultural or horticultural purposes”), articles under consideration must also meet the definition of “machine”, “equipment”, or “implement”, and must be used in agriculture or horticulture.

Here are the definitions provided in the Informed Compliance Publication:

Machine - A mechanically, electrically, or electronically operated device for performing a task.

Equipment – The set of articles or physical resources serving to equip a person or thing such as the implements used in an operation or activity.

Implement – An article serving to equip a device used in performance of a task.

Agriculture – The science, art, and practice of cultivating the soil, producing crops, and raising livestock.

Horticulture – The science and art of growing fruits, vegetables, flowers, or ornamental plants.

The Informed Compliance Publication gives useful examples of articles that failed to meet the definition of these terms. Fish tanks imported for use in aquaculture, “the farming of fish for commercial purposes”, were not eligible for the duty-free actual use provision because aquaculture did not meet the specific definition of agriculture. A sap evaporator used to process maple syrup, was not eligible, despite the fact that the collection of sap was an agricultural activity. The processing of the sap into syrup was considered to be an industrial process for preparing a food product for market.

It is important to note that the actual use provision 9817.00.60 is limited to parts that are used for machinery of only 4 headings:

8432 – Agricultural, horticultural, or forestry machinery for soil preparation or cultivation; parts thereof;

8433 – Harvesting or threshing machinery, including straw or fodder balers; grass or hay mowers; machines for cleaning, sorting, and grading eggs, fruit or other agricultural products, parts thereof;

8434 – Milking machines and dairy machinery, and parts thereof;

8436 – Other agricultural, horticultural, forestry, poultry-keeping, or bee-keeping machinery, including germination plant fitted with mechanical or thermal equipment; poultry incubators and brooders; parts thereof.

An importer might conceivably be importing a product that is used in machinery that falls under these 4 headings, but is also used in machinery that would be classified elsewhere. When considerable duties are at stake a binding ruling is always in the importers best interest.

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