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A "Black Hole" on the Border.

We academics are sometimes guilty of preaching the value of supply chain management without digging down into the details of what actually makes a supply chain work. Yet everyone--both inside and outside the classroom--needs to recognize that without the steady and reliable execution of those key activities that collectively make up the sup ply chain process, even the best-conceived strategy will falter.

This is evident at many points across the supply chain. One of the clearest examples can be seen right here in North America in the movement of freight across the borders. Cargo shipped between Canada and the United States usually moves easily, with the chain of custody clearly established. That's not always the case, however, with cargo destined for Mexico. The absence of a North American bill of lading, combined with existing forwarding and brokering practices, creates substantial border-crossing risks for both shippers and their carriers. In addition to the financial exposure, these risks have the potential to disrupt a company's North American supply chain.

Accountability Needed

U.S. shippers already moving goods into Mexico are well aware of the problems associated with border crossing. And those planning to enter this burgeoning market soon will be. The present method of draying (or transferring) cargo from one side of the border to the other is one of the most inefficient and costly logistics practices found anywhere. For U.S. companies and the longhaul carriers that serve them, cross-border drayage constitutes a "black hole" with respect to cargo integrity and responsibility. The practice of hauling cargo from a freight forwarder on the U.S. side of the border to a customs broker in Mexico not only brings unnecessary costs but also invites unnecessary risks. The shipper has no documentation to establish clear custody should its goods be damaged or lost during the cross-border movement.

In the transfer of cargo from one side of the border to the other, there is a missing link in the chain of legal responsibility from shipper to carrier to consignee. That link is the bill of lading (B/L). For all carriers subject to the jurisdiction of the U.S. Department of Transportation, this is the legal document that serves as a receipt, a contract for carriage, and, in some cases, the title. The U.S. Supreme Court has confirmed that the B/L is the basic transportation contract between the shipper and carrier. Ordinarily, this document is created by the shipper but does not become the actual bill of lading until signed by the carrier's representative (in the case of trucking, the driver).

Once the B/L is signed, the carrier becomes responsible for any actual loss or damage to the cargo caused by the receiving carrier, the delivering carrier, or another carrier over whose line or route the property is transported within the United States or Mexico. This is covered by the Carmack Amendment in Section 14706 of the U.S. Code. The bill-of-lading statutory provisions are spelled out in Chapter 801 of Title 49 of the U.S. Code. In addition, the Interstate Commerce Commission Termination Act (ICCTA), which took effect in 1996, reaffirmed the mandatory requirement that a motor carrier issue a receipt or B/L for property received for transportation. The act further relieves the shipper from the burden of discovering which carrier is responsible for cargo loss or damage.

On the southern border crossing, however, the use of the bill of lading is almost nonexistent. The U.S. or Canadian longhaul carrier delivers the shipper's cargo to a freight forwarder, who usually signs a copy of the carrier's bill of lading to acknowledge receipt of the property. It is at this point where the chain of custody may terminate, especially when the shipper is responsible for delivery of the freight to (in the case of Laredo, Texas) "the middle of the bridge." This term of sale, common with drayage on the border, adds costs and increases risk in the event of loss or damage. Alternative terms of sale, discussed later in this column, are far more advantageous to the shipper.

Drayage-may be even more onerous to the U.S. carrier that provides a through-bill to its U.S. customer. It is not uncommon for the border freight forwarder to transfer the shipper's cargo from the carrier's trailer to another trailer for crossing into Mexico. This practice puts into question the validity of the through-bill. At least one court has said that if goods are taken out of the original trailer and reloaded onto another, the contiguous shipment of a through-bill is broken. When authorized by the Mexican customs broker, a drayage motor carrier (which could possibly be a Mexican operator) picks up the cargo from the freight forwarder without executing or providing a bill of lading to the freight forwarder for the cross-border haul. Who's now responsible for the cargo? Some say it's the freight forwarder. Others believe it's the drayage carrier. Still others say that if a through-bill was issued, it is the longhaul carrier. The bottom line: uncertainty and confusion.

U.S. law is very clear on where the responsibility lies. According to the ICCTA, the transfer or drayage trucker on the southern border is an interstate carrier and, as such, is required to provide a bill of lading. Section 13501 of the U.S. Code further dictates that any motor carrier providing commercial transportation of property between the United States and a foreign country is subject to the ICCTA's jurisdiction. This provision extends to carriers domiciled in a contiguous foreign country that enter the United States, such as Mexican drayage companies that pick up cargo at freight forwarder facilities on the U.S. side.

Freight forwarders also are subject to the act's provisions. A freight forwarder is defined under Public Law 104-88 as a carrier and is required to meet bill-of-lading requirements. Specifically, Section 14706 states: "When a freight forwarder provides service and uses a motor carrier providing transportation subject to jurisdiction under Subchapter I of Chapter 135 to receive property from a consignor, the motor carrier may execute the bill of lading or shipping receipt for the freight forwarder with its consent. With the consent of the freight forwarder, a motor carrier may deliver property for a freight forwarder on the freight forwarder's bill of lading, freight bill, or shipping receipt to the consignee named in it, and receipt for the property may be made on the freight forwarder's delivery receipt."

Clearly, the freight forwarder must issue an appropriate transport document. The law goes further, cautioning that failure to issue the bill of lading does not relieve the freight forwarder of its liability.

Need for Self Protection

Given the risk potential at the southern border, what can shippers do to help protect themselves and ensure the steady flow of goods through their supply chain? Here are three suggestions:

1. Use the appropriate term of sale as contained in "Incoterms 2000" that reduces or eliminates the risks and costs of a border crossing. Terms like DAF (delivered at frontier) or FCA (free carrier), among others, ensure that delivery of the freight takes place on the U.S. side. Under such terms, the shipper's responsibility clearly ends at the freight forwarder's facility--before the drayage takes place.

2. State the cargo's full value on the bill of lading's face. This obligates the carrier to that value, even in Mexico. Note, however, that the obligation ends with the Mexican customs broker. For the full-value protection to continue through to the consignee, the Mexican customs broker would have to state it on the bill of lading's face. The reason: In Mexico, the Mexican customs broker is the shipper to the Mexican longhaul carrier.

3. Independently insure the shipment from the freight forwarder to the Mexican consignee. Though this practice adds costs, insurance covers the shipper in the case of cargo loss, damage, or theft.

Taking these kinds of precautions is an important first step in protecting the integrity of freight as it moves across the border into Mexico. But if companies are to achieve any real measure of logistics or supply chain efficiency, even more needs to happen.

For one thing, the freight forwarder on the U.S. side must be made to comply with the law with respect to the bill of lading. Forwarders are considered to be carriers and must abide by the applicable B/L laws. The same holds true for the drayage companies.

Next, the existing drayage system must be radically revised or even eliminated. It is costly, risky, and inefficient. Shippers and the carriers that serve them need to be able to establish a clear chain of cargo accountability all the way to the consignee in Mexico. That is exceedingly difficult with the drayage practices in place across our southern border.

Finally, it may be time for a unified North American bill of lading that is accepted and adhered to in Canada, Mexico, and the United States. This may be the ray of light that illuminates--and ultimately eradicates--the black hole on the border.

Dr. Giermanski is professor and director of International Business Studies at Belmont Abbey College in Belmont N.C.
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Title Annotation:Absence of a bill of lading creates problems for goods shipped from U.S. across the Mexican border.
Author:Giermanski, James R.
Publication:Supply Chain Management Review
Geographic Code:1USA
Date:Jul 1, 2000
Words:1526
Previous Article:Will e-Networks Take High or Low Road?
Next Article:True Measures of Supply Chain Performance.
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