On October 31, 2002 U.S. Customs published a final rule entitled “Presentation of Vessel Cargo Declaration to Customs before Cargo is Laden Aboard Vessel at Foreign Port for Transport to the United States”. The rule is scheduled to go into effect on December 2, 2002, although Customs has stated that it will not begin enforcement against non-fraudulent violations of the rule for 60 days following that date. Customs believes that, by giving the trade a total of 90 days to comply with this new rule, there should be adequate time in which to work through any problems.

The new rule requires that certain specified information about cargo destined to the United States from foreign ports be submitted to Customs in formal Cargo Declarations no later than 24 hours before that cargo is loaded on board the vessel. Failure to provide this information within the required time will subject the responsible parties to penalties and will likely delay the unloading of that cargo and, in certain instances, all other cargo on board a given vessel.

Purpose of the Rule

The purpose of the rule is to help Customs prevent the use of cargo containers and other instruments of transport from being used to commit terrorist acts in the United States. In particular, there is a real concern that cargo containers may be used to smuggle weapons of mass destruction into the United States.

This rule has been adopted in conjunction with the Container Security Initiative (“CSI”). CSI is a program in which the United States and foreign countries with ports from which U.S. bound cargoes originate reach agreements to place U.S. Customs inspectors at these ports to pre-screen cargo containers before they are shipped to the United States. Initially, Customs has targeted the countries containing the 20 major ports through which approximately 70% of all U.S. inbound containers transit. Countries, and their ports, which are already participants in the CSI program are as follows:

In addition, on October 25, 2002, the United States announced that the People’s Republic of China “has agreed in principle to join with the United States in the Container Security Initiative.”

Customs has identified four core elements of the CSI. These are: (1) identification of “high-risk” containers; (2) pre-screening of containers before they are shipped; (3) use of technology to screen high-risk containers; and (4) use of more secure containers. To accomplish these goals, Customs needs to have the cargo information at a time when the containers are still on foreign soil.

The Specific Requirements of the Rule

The rule states that, for any vessel arriving in the United States, “Customs must receive from the carrier the vessel’s Cargo Declaration, Customs Form 1302, or a Customs-approved electronic equivalent, 24 hours before such cargo is laden aboard the vessel at the foreign port.” The rule specifically exempts bulk cargo and permits carriers of break bulk cargo to apply for an exemption from the rule’s requirements. All other cargo, including military cargo, cargo from U.S. territories outside of the U.S. Customs Territory (i.e., the U.S. Virgin Islands), and foreign cargo remaining on board the vessels calling the United States (“FROB cargo”) are subject to this new requirement.

NVOCCs that are either licensed by or registered with the Federal Maritime Commission may electronically file the Cargo Declaration information with Customs rather than giving that information to the vessel operating carrier.

A number of specific data elements required on the Cargo Declaration have been added by this rule. These elements are as follows:

1. The last foreign port before the vessel departs for the United States;

2. The Standard Carrier Alpha Code (“SCAC”) assigned to the carrier;

3. The carrier-assigned voyage number;

4. The date the vessel is scheduled to arrive at the first U.S. port in Customs territory;

5. The numbers and quantities from the carrier’s ocean bill of lading, either master or house, as applicable (this means that the carrier must transmit the quantity of the lowest external packaging unit; containers and pallets are not acceptable manifested quantities; for example, a container containing 10 pallets with 200 cartons should be manifested as 200 cartons);

6. The first foreign port where the carrier takes possession of the cargo destined to the United States;

7. A precise description (or the Harmonized Tariff Schedule (HTS) numbers to the 6-digit level under which the cargo is classified if that information is received from the shipper) and weight of the cargo or, for a sealed container, the shipper’s declared description and weight of the cargo. Generic descriptions, specifically those such as “FAK” (“freight of all kinds”), “General Cargo”, and “STC” (“said to contain”) are not acceptable;

8. The shipper’s complete name and address, or identification number, from all bills of lading. (The identification number will be a unique number assigned by U.S. Customs upon the implementation of the Automated Commercial Environment);

9. The complete name and address of the consignee or the owner or owner’s representative, or identification number, from all bills of lading. (The identification number will be a unique number assigned by U.S. Customs upon implementation of the Automated Commercial Environment);

10. The vessel name, country of documentation and official vessel number. (The vessel number is the International Maritime Organization Number assigned to the vessel);

11. The foreign port where the cargo is laden on board;

12. Internationally recognized hazardous material code when such materials are being shipped;

13. Container numbers (for containerized shipments); and

14. The seal numbers fro all seals affixed to containers.

Obviously, portions of this information will not be in the possession of all parties to a shipment. Customs expects that these parties; shippers, NVOCCs, and vessel operators, will cooperate to ensure that the filer of the Cargo Declaration is able to provide all information in an accurate and timely manner.

Finally, the rule provides that a failure to file the required information accurately and 24 hours in advance of vessel loading may result in penalties for the party responsible and in cargo not being permitted to be unloaded from the vessel at U.S. ports.

Various Issues Arising From This Rule

Questions Regarding the Data Elements on the Cargo Declaration

There are a number of issues pertaining to the various data elements that must be included on the Cargo Declaration, whether it is transmitted to Customs electronically or in paper form. These will be dealt with separately below.

Commodity Descriptions

The rule requires “precise” descriptions of the commodities in the Cargo Declaration. It is not perfectly clear what Customs means by this requirement. On the one hand, we know that a description to the six-digit level under the Harmonized Tariff Schedule would meet the requirements. On the other hand, Customs has specifically forbidden generic descriptions such as FAK, General Cargo and Said to Contain. This is one of the issues that has been raised with Commissioner Bonner and we are hopeful of obtaining a clearer response in the near future.

In providing the commodity description on the Cargo Declaration, the vessel operator or NVOCC is entitled to rely on information provided by the shipper if the carrier receives the cargo in a sealed container. In such cases, the vessel operator or NVOCC is required to alert Customs to this fact by including a statement on the Cargo Declaration. In this regard, there are two alternatives. If the Cargo Declaration only covers containerized or palletized cargo, the NVOCC or vessel operator may include the following statement on the declaration:

The information appearing on the declaration relating to the quantity

and description of the cargo is in each instance based on the shipper’s

load and count. I have no knowledge or information which would

lead me to believe or to suspect that the information furnished by the

shipper is incomplete, inaccurate, or false in any way.

If the Cargo Declaration covers conventional cargo and containerized or palletized cargo, or both, the carrier should put the abbreviation “SLAC” next to each container or palletized shipment on the Cargo Declaration to which the statement applied and put the following statement at the end of the declaration:

The information appearing on this declaration relating to the quantity

and description of cargo preceded by the abbreviation “SLAC” is in

each instance based on the shipper’s load and count. I have no

information which would lead me to believe or to suspect that the

information furnished by the shipper is incomplete, inaccurate, or

false in any way.

Finally, there is a distinction between the Customs requirement that cargo not be described on the Cargo Declaration as “FAK,” “general Cargo,” or by any other generic term, and the use of these descriptions for rating purposes.

The Consignee, Owner or Owner’s Representative

Customs has made it clear that the consignee’s name is to be provided on all Cargo Declarations except in the case of “To Order” shipments. For such shipments, where the carrier knows the name of the true consignee (as opposed to a nominal consignee such as a bank) the true consignee’s name must be shown on the Cargo Declaration. If the true consignee’s name is not known, the carrier must show the owner of the goods or the owner’s representative on the Cargo Declaration.

Container Seal

Customs has clarified that, for all sealed containers, the seal number of the last person/company to load the container must be shown on the Cargo Declaration.

Second Notify Party

There is a field in the AMS system identified as the “Second Notify Party.” All NVOCC and slot charterers using the AMS system to file the Cargo Declaration will be required to put the name of the vessel operator in this field. This will enable the vessel operator to know that a Cargo Declaration has been filed for that container and will also alert the vessel operator to any hold messages from Customs so that it will know whether the container is prohibited from being loaded on the vessel.

How Will This Rule Affect NVOCC Co-Loading?

According to Customs, the rule will not affect co-loading at all. Given the need to transmit data from co-loading NVOCCs to the master loaders, however, it is not so clear that there will not be an indirect effect, at least on co-loading activity overseas.

What Are the Differences Between Cargo Declaration Reporting in CSI Countries and Non-CSI Countries?

There are no differences between CSI and non-CSI countries for Cargo Declarations filed electronically via the AMS system. Paper Cargo Declarations, however, will be filed differently depending on whether the cargo originates in a CSI or non-CSI country.

All paper Cargo Declarations will have to be filed directly with the U.S. Customs inspectors at the ports in the CSI countries. The rules for filing in each country will vary according to the CSI agreement between that country and the United States. For cargo originating in non-CSI countries, all paper Cargo Declaration will have to be filed in the United States in the Customs district where the cargo is destined to be unloaded. All such paper Cargo Declarations must still be filed at least 24 hours in advance of vessel loading. For carriers located overseas, this obviously presents some operational difficulties. Paper Cargo Declarations will have to be filed via an agent and communications with Customs regarding containers subject to these Cargo Declarations will be between Customs and the Agent who will then have responsibility for communicating Custom’s instructions to the carrier.

In addition to the issues discussed above, it is inevitable that other issues will arise that will need to be discussed with Customs and resolved in a satisfactory manner. If you have any such questions or issues that have not been addressed in the materials you have seen, please do not hesitate to get in touch with us.

All Importers need to be fully informed about these new procedures. Steamship Lines are still developing their policies but it appears that Shippers will be required to supply certain manifest details well before sailing. This could require substantial changes in shipping processes for some overseas suppliers. It will be important that suppliers know and comply with the advance information requirements for each carrier that is moving their cargo.