Alternative Sea Cargo Reporting Feasibility Study Introduction to the Preferred Model

1. Alternative Sea Cargo Reporting Feasibility Study Introduction to the Preferred Model Summary Information Prepared by Cargo Projects Team, December 2006

2. Table of contents

3. Industry and Customs are working together to develop an alternative containerised sea cargo reporting model that facilitates compliance and trade while maintaining or improving Australia’s border protection Statement of Direction The development of an alternative sea cargo reporting regime is being driven by industry’s desire to reduce current reporting and data inefficiencies within the current international supply chain. Customs is working with industry to develop an alternative model in order to facilitate trade while maintaining or improving border security and community protection. • The preferred cargo reporting model should: • Facilitate industry compliance by: • Minimising dependence on upstream reporters (foreign exporters via carriers) by Australian freight forwarders and Customs brokers • Reducing processing errors and rework by achieving greater reporting discipline earlier in the supply chain • Providing flexibility to accommodate different processing models (containerised, bulk, break bulk etc) • Providing flexibility to accommodate differing levels of business sophistication from foreign reporting parties • Facilitate the import supply chain by: • Ensuring accurate shipping documentation is prepared and filed prior to vessel departure and facilitating data exchange with downstream logistics organisations • Maximising clearance status certainty for cargo prior to arrival in the discharge port, where that cargo has been correctly reported and declared with sufficient time for Customs’ and AQIS’ risk assessment processes • Maintain or improve Australia’s border security and community protection by: • Improving data accuracy and granularity in line with global standards such as the WCO and US Customs • Removing current impediments to earlier, complete reporting of all data (i.e. both the cargo report and import declaration) Document Purpose This document outlines the preferred model for alternative cargo reporting, based on the US pre-load reporting model. The model was developed jointly between Customs and industry (AFIF, CBFCA and SAL) during the latter half of 2006. The Cargo Processing Steering Committee (CPESC), chaired by Customs’ CEO, considered the model in December 2006 and has authorised further work to establish a business case and define economic impacts if the model were to proceed to implementation. This will include further work over the next six months to scope and cost the required legislative, systems and process changes. This document outlines the key elements of the preferred model and highlights areas of potential benefit, impacts and risks for further examination during the next stage. It contains process maps showing key differences between current operations and the future model, as well as further information on the US operation. Customs and industry will be working closely together during the first half of 2007 to develop the business case, and welcome comments, suggestions and feedback from interested parties. Contact details for the Alternative Cargo Reporting Project are attached at the end of this document.

4. Specifically, industry and Customs are working together to alleviate the following issues with the current cargo reporting model • Compliance • Australian based parties in the reporting chain are reliant on upstream data holders for the supply of information to meet reporting timeframes. There is often insufficient leverage to ensure that quality data is provided in a timely manner. • the availability of data for reporting within the carrier’s Australian office can be delayed by other reporting priorities at the load port (pre-load reporting requirements for other countries can take precedence). Availability of information is often on a “just in time basis” to enable the carrier’s own reporting. • information required by freight forwarders and brokers to meet reporting requirements is sometimes not available until the carrier (or other upstream reporter) has compiled the necessary information for their own cargo report lodgement. This can mean that data availability is too late to enable compliance by downstream reporters. • there is no consequence for upstream parties not providing data in sufficient time for downstream parties to report. • timeframes provided by the Impending Arrival Report are not always a reliable indicator of actual vessel arrival times. Where estimated arrival is too early, the compliance period for freight forwarders to report cargo is unnecessarily short. • Errors and rework • Import declarations that are lodged early often require re-work due to problems matching with the cargo report. • this can arise where there are keying errors in the cargo report or problems with the quality of import documentation provided to the broker. • the process of monitoring ICS to identify when the cargo report has been lodged (so that a matching import declaration can be submitted) or in checking whether a match has been achieved for a declaration that was lodged before the cargo report is unnecessarily resource intensive. • Clearance status and cargo release • The status message from Customs is not always a reliable indicator of cargo status: • the first status response appears to be provided before Customs risk assessment processes have been completed. Changes in status between lodgement of the import declaration and collection of the goods are not uncommon. • logistics planning is often disrupted as a result of changing status and this creates additional costs (transport, unused slot bookings for cargo collection). • the cascade reporting structure for cargo reports, combined with the inability to amend those reports, triggers additional screening periods and potentially delays the release of cargo.

5. The preferred model selected by the industry working group is based on the US cargo reporting regime which mandates a pre-load sea cargo report from carriers. The preferred model also streamlines the current import declaration process to provide business benefits to both industry and Customs

6. Changes will be made to both cargo reporting and import declaration processes in this model

7. The following data elements will be considered as part of the model evaluation to see whether Australian and US reporting requirements can be better aligned • Data element detail • Even where Australia and the US require equivalent data, the US has additional requirements concerning the type and accuracy of data provided. It appears the US tests these elements and issues “Do Not Load” messages for compliance breaches. Data elements affected include: • Shipper details listed on every House Bill. Shipper cannot be a freight forwarder or consolidator and their address must be a foreign address • Ultimate consignee details (except for “to order” shipments) listed on every House Bill • More detailed goods descriptions, including mandatory piece count. Descriptions such as “FAK” or “electronic goods” are not acceptable. The US will accept tariff codes as valid descriptions. The Status Column labels each data element as: O (optional); C (conditional); or M (mandatory)

8. The following changes will be required in order to implement the preferred model

9. The preferred model achieves many of the strategic outcomes defined for the project, while resolving many of the current issues with cargo reporting. More research and quantitative analysis is required to confirm benefits.

10. An early assessment of the preferred model has identified the following costs and risks associated with its implementation and ongoing operations. High level quantification of costs and risks is still required.

11. Cargo reporting models developed for containerised cargo may also be applicable for other cargo and transportation types. Further research and analysis will be conducted on these types at a later stage • Specific areas requiring further investigation: • Bulk cargo • Break bulk cargo – motor vehicles • Break bulk cargo - other • Air freight • The working group acknowledges that, while certain elements of the containerised model will be applicable, they have unique requirements, different levels of business sophistication and stakeholders.

12. Downstream work that can also be considered • Additional future work: • Customs to Customs reporting (i.e. export reports in foreign country being sent as part of overall risk assessment). May or may not form part of cargo report, import declaration, or both • Applying the pre-load model to Australian exports (not just to the US) by requiring the same or similar levels of reporting details on Export Declarations and including the Secondary Notify Party mechanism. Reporting details could include elements such as Bill details and container number which are not currently provided.

13. Appendix One: US Model

14. Research to date has identified the following key differences between the US and Australian reporting models • Cargo Reporting • Most cargo reports are filed by the carrier, with an optional system whereby freight forwarders (“Non Vessel Operating Common Carriers” or NVOCCs) can also file electronically, subject to payment of a $50,000 bond and appropriate IT connectivity. For goods exported from Australia to the US, industry sources indicate 90% of reports are filed by carriers, with the remainder filed by NVOCCs. • A House Bill report showing the shipper and ultimate consignee (i.e. the exporter and importer, not freight forwarders or brokers) and detailed goods description is required for each unique shipment. US Customs does not appear to require cascade reporting with every level required. Cargo reports are only required at Ocean Bill level and the lowest level of House Bill (i.e. detailing the shipper and ultimate consignee). Reports detailing middle-tier freight forwarders and consolidators appear to be optional. • Carriers provide an overall manifest report, including a list of all Ocean Bills and all containers expected to be loaded. For each Ocean Bill, they provide the following information: • Where an automated NVOCC is reporting at House Bill level, they must provide the Standard Carrier Alpha Code (SCAC, the equivalent to Customs Client ID) of the reporting party and a list of the relevant containers. Carriers are not responsible for the accuracy of information filed by the automated NVOCC. • Where the carrier is reporting on behalf of a third party (e.g. Forwarding Agent), or carrying the goods on behalf of a direct exporter, they must file an individual House Bill for each shipment to an ultimate consignee (final recipient of the goods). Where containers belonging to the same consignee are discharged at different ports, multiple House Bills must be filed. Carriers are responsible for the accuracy of the information on the report and generally charge a fee for reporting to US Customs. • US Customs publish a list of automated NVOCCs as a reference to carriers (there are currently 809 automated NVOCCs) • US Customs requires cargo reports 24 hours prior to cargo loading at a foreign port. Any “Do Not Load (DNL)” messages are transmitted to the carrier up to 24 hours after receipt of the cargo report. US Customs do not issue “OK to Load” messages. • While Customs does not appear to measure strict compliance to the pre-load timing, they reserve the right to issue “Do Not Load” messages to carriers up to 24 hours after receipt of the cargo report. Given the strict penalties for carrying cargo that is subject to a DNL message, industry is generally reporting well before the 24 period. • Carriers provide an amended report 24 hours after departure showing the date and time of departure from the load port. • All parties can nominate “Secondary Notify Parties (SNP)” who are sent electronic messages concerning details of the cargo reports and all status changes, including DNL messages. Where an NVOCC files, the carrier is a mandatory SNP. We understand the US Customs Broker is often included in the SNP list, providing the broker with early access to key report data and status. • The US has mandated that the ultimate consigneedetails are required on lowest level House Bill reports (and run validation tests against the data), even where the carrier or automated NVOCC is not the source of that information. Intermediate consignee details are an optional field. • US Customs have been very prescriptive regarding the detail required in goods description. It appears they require a significantly greater level of granularity than the Australian Customs Service currently accepts. A penalty regime applies for inadequate descriptions. The purpose of this detail is to facilitate x-ray examinations, by comparing descriptions and package quantities with x-ray images. • US Customs requires carriers and NVOCCs to maintain a unique numbering scheme for House and Ocean Bills (“manifest sequence numbers”) for a period of three years. They use a combination of SCAC (identifying the reporting party) and Bill number to uniquely identify a shipment, reducing the need for other types of linking fields.

15. Research to date has identified the following key differences between the US and Australian reporting models (2) • Cargo Reporting (2) • The US does not have a single reporting window: bio-terrorism and quarantine reports are filed separately to the Food and Drug Administration (FDA), although US Customs and the FDA are working towards a single filing system using Customs’ Automated Commercial System (ACS) and Automated Commercial Environment (ACE). • While further detailed analysis is required, initial studies have shown the US requires more data elements in their cargo report than Australian Customs. The US cargo report contains 100 individual data elements, of which 31 are mandatory, 48 conditional (required if certain conditions or other data elements are present) and 21 optional. This compares with the Australian cargo report which has 74 data elements (19 mandatory, 27 conditional and 28 optional). • Compliance is managed through the following mechanisms: • “Do Not Load” messages can be issued to carriers. Carriers are refused permission to unload containers in the USA that are subject to a DNL message or have not been properly reported. Research has shown the overwhelming majority of DNL messages are issued due to insufficient or inaccurate goods descriptions and/or ultimate consignee details. Very few DNL messages (<10 over 3 years) have been issued because of security concerns relating to the cargo. • Fines are levied on reporters (both carriers and NVOCCs) for failure to report, late reporting or inaccurate/insufficient reporting. These fines are generally taken from the bond provided by local and foreign reporters. Fines are $5,000 for a first offence and $10,000 for subsequent offences. • Empty containers are reported on a special Ocean Bill (not a separate report). However, they are not required to be reported until 24 hours prior to arrival in the first US port. • Carriers and NVOCCs can amend cargo reports by withdrawing and re-submitting the report. Where a report is resubmitted, it requires additional codes showing it is an amended report and the reasons for the amendment. US Customs reserve the right to penalise reporters for frequent amendments or amendments for which US Customs do not believe there is sufficient justification. • The US requires pre-load cargo reports for “non-exempt” break bulk cargo (we are waiting for a definition of “exempt”). Exempt break bulk and bulk cargo are required to report 24-48 hours prior to arrival. The US has a series of specialised data fields required for motor vehicle break bulk cargo, including VIN. • Import Declarations • US Customs use a split Import Declaration model, instead of the single declaration used in Australia: • An entry declaration showing broker and ultimate consignee details, goods description, tariff code, country of origin, manufacturer details, quantities, total value and various details to link with the cargo report (including Bill number etc). This declaration is submitted by the broker on arrival at port of discharge, although C-TPAT brokers are required to file 24 hours prior to arrival at port of discharge. The US has indicated they will move to a model mandating all entry declarations be filed 24 hours prior to arrival, although timing for this mandate is unknown. • An entry summary also containing detailed quantities and weights, as well as duty calculations and some further statistical data (i.e. exporting country), which is filed up to ten days after clearance into home consumption. • US Brokers pay duty on the fifteenth day of each month.

16. The following data elements are required by US Customs and the Food and Drug Administration. Please note this is a high level summary and not all data elements are shown. Pre-load Pre-arrival Arrival & Unload Post-release into Home Consumption • Manifest Details • (Form 1302) • Carrier SCAC number • Vessel name, country & IMO number • Voyage number • Port of discharge & ETA • Number of bills per discharge port • House Bill issuer SCAC (if NVOCC to report) • Bill of lading number • Foreign port of loading • Mode of transportation to foreign port • Method of payment for transportation • Last foreign port before US arrival • Foreign place of receipt (by pre-carrier) • Shipper name, address & phone • Consignee name, address & phone (must be at least one ultimate consignee per bill/port) • Secondary Notify party (SCAC or details) • FDA BTA indicator • Inbond entry type & carrier code • US port of destination or foreign port (if FROB) • Value of inbond movement • Container number • Container seal number • Container details (H/W/L/Type) • Container load/empty status • Goods description • Goods harmonised tariff code (req. for exports) • Quantity & units (i.e. cartons) • Gross weight • Packaging Marks & Numbers • Hazmat code • Departure date/time of load port • Manifest amendment reason code • Filed by carrier 24 hours prior to cargo loading • FDA Bioterrorism Act (BTA) Details • (FDA Form 3540) • Filer name & address • Entry type and Customs identifier (linking field) • FDA Product code • Goods description • Quantity and units • Packaging marks & numbers • Manufacturer name, address & registration no. • Grower name & location • Country of origin • Shipper name, address & registration no. • Exporting country • Discharge port • Expected date of arrival • Carrier name & type (e.g. vessel, rail etc) • Bill of Lading number • Importer/owner name & address • Ultimate consignee name & address • Filed by broker or importer 8 hours prior to arrival at port of discharge (or first US port for transhipments). Only applies to food imports. Other forms are not included here (refer www.fda.gov for more information) • Entry Details • (Form 3461) • Vessel arrival date & port • US port of unlading • Entry date, type & number • Goods location • Broker, importer & consignee codes • Ultimate consignee name & address • Carrier, vessel & voyage details • General Order Number • Total Value of shipment • Bill of Lading number • Goods quantity • Harmonised tariff code • Country of origin • Manufacturer code • Filed by broker or importer on arrival. C-TPAT members required to file 24 hours prior to arrival at port of discharge. US considering move to mandate 100% pre-arrival filing. • Entry Summary • (Form 7501) • Importing carrier details • Bill of Lading number • Import date • Manufacturer code • Country of origin • Exporting country & date • Foreign port of loading • US port of unlading • Broker, importer & consignee codes • Ultimate consignee name & address • Goods description • Harmonised tariff codes • Gross weight & quantities • Net qty in harmonised tariff units • Goods entered value • Freight & insurance charges • Related party transaction (Y/N) • Approval/certificate details • Duty, tax and other govt charges • Filed by broker or importer up to 10 days after release into home consumption • Application for Permit to Unlade • (Form 3171) • Vessel name, country and owner details • Port of arrival • Last foreign port • Date/time of arrival • Unloading port & terminal • Shipping agent contact details • SCAC number of all carriers & slot charterers with cargo onboard (not NVOCCs) • Bond and billing details • Filed by carrier 24-48 hours prior to arrival • Possible pre-load data elements (10+2) from carriers and importers/brokers • Manufacturer name & address • Buyer & seller name & address • Consolidator name & address • Container stuffing location • Importer of record & ultimate consignee • Country of origin • Vessel bay plan Sources: US Customs’ web site, US FDA web site, industry sources (e.g. SAL, CBFCA, WSC, American Shipper magazine)

17. Appendix Two: Business Process Diagrams

18. Legend: Physical goods movement Commercial documents ACS/AQIS reporting & activities Current Import Process – Containerised Sea Cargo Version 0.9 Pre-load Vessel Loading Vessel Depart 96hr prior 48hr prior 24hr prior Actual arrival Release THC Release to HC Local Freight Forwarder Receive goods Prepare HBL Submit SCR (HBL) Organise freight Foreign Freight Forwarder/Exporter Prepare HBL Send goods Organise freight Forward shipping docs to carrier Carrier Submit actual arrival Accept Goods Load Goods Vessel departs Send bay plan Submit IAR Submit SCR (OBL) Prepare OBL & manifest Broker/Importer Pay Duty Receive HBL/import docs Prepare FID Lodge FID VBS ACS ACS Receive SCR & FID Paid = release Receive IAR Risk Assess and Hold $YYY status CEF/Exam MATCH AQIS Assess Bay Plan (GAS) Risk Assess and Hold Stevedore Unload, submit PDR Release or conditional release Receive Bay Plan Move to CEF Note that a conditional release may still involve compliance with AQIS directives before actual delivery into home consumption

19. Legend: Physical goods movement Commercial documents ACS/AQIS reporting & activities Current Import Process – Containerised Sea Cargo Reporting difficulties exacerbated by reporting “traffic jam” in last 24 hours pre-arrival Pre-load Vessel Loading Vessel Depart 96hr prior 48hr prior 24hr prior Actual arrival Release THC Release to HC Local Freight Forwarder Receive goods Prepare HBL Submit SCR (HBL) Organise freight No consequences for late shipping data Foreign Freight Forwarder/Exporter No diagnostics for IAR which drives HBOL time frames Prepare HBL Send goods Organise freight Forward shipping docs to carrier High levels of rework due to cascade matching and lack of effective diagnostics VBS schedule incompatible with risk assessment timeframes Carrier Submit actual arrival Accept Goods Load Goods Vessel departs Send bay plan Submit IAR Submit SCR (OBL) Prepare OBL & manifest Broker/Importer Pay Duty Receive HBL/import docs Prepare FID Lodge FID VBS Delay preparing manifest impacts invoicing & Customs obligations ACS ACS Receive SCR & FID Paid = release Receive IAR Risk Assess and Hold $YYY status CEF/Exam MATCH AQIS Hold messages not pro-active so brokers not aware of status changes Assess Bay Plan (GAS) Risk Assess and Hold $YYY status before risk assessment complete Stevedore Unload, submit PDR Release or conditional release Receive Bay Plan Move to CEF Note that a conditional release may still involve compliance with AQIS directives before actual delivery into home consumption

20. Legend: Physical goods movement Commercial documents ACS/AQIS reporting & activities Proposed New Import Process – Containerised Sea Cargo Pre-load 24hrs pre-load Vessel Loading Vessel Depart 96hr prior 48hr prior 24hr prior Actual arrival Release THC Release to HC Local Freight Forwarder Receive goods Prepare HBL & agree reporting arrangements Submit SCR (optional) Organise freight Overseas Freight Forwarder/Exporter Prepare HBL & agree reporting arrangements Submit SCR (optional) Send goods Organise freight Carrier Submit IAR Submit actual arrival Accept Goods Load Goods Vessel depart Prepare OBL & manifest Submit SCR DNL Notify Send bay plan Broker Receive HBL/import docs Prepare FID Lodge FID VBS Pay Duty Notify ACS Receive SCR Clear status ACS Paid = release Certain status Receive FID -match to SCR bay plan & IAR Receive IAR CEF/ EXAM Profile DNL & resolve Receive Bay Plan Risk Assess AQIS Risk Assess Receive Bay Plan Stevedore Unload, submit PDR Release or conditional release Receive Bay Plan Move to CEF Note that a conditional release may still involve compliance with AQIS directives before actual delivery into home consumption

21. Legend: Physical goods movement Commercial documents ACS/AQIS reporting & activities Proposed New Import Process – Containerised Sea Cargo Significant time window between cargo report, FID and arrival Pre-load 24hrs pre-load Vessel Loading Vessel Depart 96hr prior 48hr prior 24hr prior Actual arrival Release THC Release to HC Local Freight Forwarder Receive goods Prepare HBL & agree reporting arrangements Submit SCR (optional) Organise freight Overseas Freight Forwarder/Exporter Invoice earlier Prepare HBL & agree reporting arrangements Submit SCR (optional) Send goods Organise freight Improved management of logistics Carrier Submit IAR Submit actual arrival Accept Goods Load Goods Vessel depart Prepare OBL & manifest Submit SCR DNL Notify Send bay plan Streamlined exam due to better info and targeting Fewer match issues Broker Manifest earlier Receive HBL/import docs Prepare FID VBS Pay Duty Lodge FID Notify ACS Receive SCR Clear status ACS Paid = release Broker access to diagnostics facilitates lodgement Certain status Receive FID -match to SCR bay plan & IAR Receive IAR CEF/ EXAM Profile DNL & resolve Receive Bay Plan Risk Assess Earlier release Earlier risk assess AQIS Risk Assess Receive Bay Plan Stevedore Unload, submit PDR Release or conditional release Receive Bay Plan Move to CEF Note that a conditional release may still involve compliance with AQIS directives before actual delivery into home consumption

22. Appendix Three: ACR Project Working Group Contact Details