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The Electronic Border.

A technological revolution is sweeping across the 49th parallel

"In the customs brokerage business, cutting-edge technology is absolutely essential to avoid a paralysis at the border." That's the way Peter Luit, president and CEO of Livingston International Inc. of Toronto, Canada's largest customs broker, sums up the industry's drive to automate cargo clearance at the 49th parallel.

More than $1.4 billion worth of shipments go back and forth along the world's busiest trade corridor -- the Canada-U.S. border -- every day. In fact, one gateway -- between Windsor, Ontario and Detroit, Michigan, made up of the Detroit-Windsor Tunnel and the Ambassador Bridge -- has the distinction of being the highest volume corridor of international trade on the planet. This one border crossing handles more than one million transborder trucks carrying more than $100 billion in trade each year.

It's essential that all the trade participants -- importers, exporters, carriers and intermediaries -- take advantage of high-tech tools to expedite the release of imports and exports. The customs broker is that special agent who assembles the essential information that opens the doors at the border for prompt delivery of goods

The Canada-U.S. border has about 130 crossing locations along its 8,840-km boundary where freight can be exchanged. But there's one critical crossing site you won't find on any atlas. It's the so-called "electronic border," and it's becoming increasingly significant in the clearance of goods.

More and more of the essential paperwork, the classification of goods, filing and release of goods, is being done electronically. Computer-to-computer linkups with Canadian and U.S. Customs make it easier, faster and more efficient to facilitate trade. Indeed, the electronic clearance between the two countries is seen by other industrialized nations as a model to emulate.

"The transportation industry is on the verge of a technological revolution. We are moving to a 'paperless' way of doing business, welcomed by many as an alternative to the mountain of waybills, invoices and forms," says Luit. With a coast-to-coast network of offices across both countries, Livingston is the dominant customs broker in Canada. Of the $488 billion worth of goods traded between Canada and the United States last year, it cleared more than two million shipments valued at $50 billion. This year, Livingston will handle an estimated $70 billion of cargo crossing the 49th parallel.

There's no denying that the implementation of free trade has spurred North American commerce. Since the Free Trade Agreement (ETA) came into effect at the beginning of 1989 and the North American Free Trade Agreement (NAFTA) with Mexico was introduced six years ago, cross-border traffic has jumped significantly and, if predictions hold true, the volumes will continue to rise dramatically. In fact, statistics indicate trade dollars and imports into Canada and the U.S. will double in the next seven years. By 2005, Canada Customs expects it will process a staggering 17.3 million entries annually.

How can Canadian customs brokers keep abreast of the surging volumes? They must rely more and more on sophisticated technology. "We're increasingly seeing what we call 'the essential paperwork' -- the classification of goods, filing and release of goods is being done electronically," says My-Tien Van, chief information officer at Livingston International. In logistics, the information accompanying any shipment is often as vital as the actual delivery of the goods. Without the proper digital documentation and information -- such as tariff classification, country of origin, tax identification number and value of goods -- shipments can get held up.

Electronic Data Interchange (EDI) for customs clearance has become an absolute must to lighten the paper burden that's weighing down shippers, carriers and governments alike. My-Tien Van estimates the price of a manual release for Revenue Canada at $1.50. An electronic release, still requiring a customs officer's intervention, costs about 50 cents. Processing that's done entirely electronically costs mere pennies. Automating procedures allow customs to handle rising volumes while increasing safety and protection at the border without necessarily increasing costs.

Livingston International, controlled by CAI Advisors & Co., spends about 8% of its revenues on technology to provide the foundation for its electronic commerce strategy. Its R&D spending facilitates electronic customs clearance, cross-border transportation management and the detailed information trails required for government compliance.

Late last year, Livingston International acquired Blaiklock Inc. to provide enhanced customs clearance, consulting and international freight forwarding solutions to an even larger client base. The customs brokerage firm handles about one of every five shipments entering Canada from the U.s.

While there is a trend in many sectors of the economy to eliminate the so-called middleman, customs brokers in the 21st century will likely take on an increasingly crucial role in facilitating the movement of international freight. Indeed, some of the integrated carriers are beefing up their customs clearance roles. Earlier this year, FedEx Corp. acquired the brokerage firm Tower Global International. DHL Worldwide Express signed a deal recently to use software from New York-based Syntra to provide customers landed cost data via the Internet. Not to be left out of the fray, United Parcel Service zeroed in on New York-based Trans-Border Customs Services to gain greater customs clearance control on the U.S.-Canada border.

The brokers' role is to help expedite shipments under North American free trade. The term "free trade," however, is somewhat of a misnomer. A better way of describing it is to call it "conditional free trade." More than 70% of items coming into Canada have conditions attached. If you can satisfy the requirements, namely that the product is made in a NAFTA country, you pay zero import duty. Otherwise, you must pay the appropriate tariff. The same holds true for goods crossing into the U.S. Unless you meet the country-of-origin provisions under NAFTA, you are obligated to bear the cost of duties. Companies have to make sure their goods qualify under free trade and must do the necessary due diligence. It's important to remember that NAFFA was written upon pre-existing trade regulations. The rulebook was never thrown out. If anything, it has become much bigger. Proving the origin of goods now involves over 1,500 rules, a ten-fold increase over the ETA regime.

In international trade, duties and tariffs are of paramount importance. There's a world of difference, of course, whether you pay zero duty under NAFTA, or 8% as a most-favoured nation, or some stratospheric amount on a protected commodity such as more than 200% for milk.

Whatever you're importing, the governments have been vigorously promoting faster release of goods and electronic clearance of documentation for the past two decades. Although the two systems don't exactly mirror each other, Ottawa and Washington are moving towards harmonization of clearance procedures. Both governments are trying to shift from the front-end transactions at the border because the motorways are so congested. Their intent is to have more and more post-entry audits. The United States has a program called Line Release, where there's minimal documentation presented at the border and the accounting is done 10 days after the goods are cleared. At Livingston, about 70% of volumes into the U.S. move through Line Release. In Canada, there's a similar process called Pre-Arrival Release System, or PARS. In April, 1996, Canada Customs implemented its ACROSS program (Accelerated Commercial Release Operations Support System), designed to speed the processing and clearance of cargo coming into the country. L ike other electronic release systems, ACROSS incorporates data from the cargo manifest and Canada Customs Invoice.

With ACROSS, when Livingston includes the harmonized system classification with the shipment release request, the entire process is done electronically. It means that a customs inspector review -- which can hold up a shipment -- is not required. If a carrier or warehouse has release notification capabilities, it, too, will get the customs release acknowledgment electronically.

ACROSS is seamlessly linked with other online systems developed by Canada Customs. You can use it with Ottawa's CADEX (Customs Automated Data Exchange) electronic network. It also supports line release systems such as the various PARS programs and FIRST (Frequent Importer Release System) systems.

Depending on the border crossing, ACROSS can expedite shipments by as much as one working day. Certain ports in the province of Quebec, for instance, often take up to 24 hours to clear an entry that's accompanied by paper. But the same cargo is usually cleared within two hours if there's an electronic release request. As of yet, there isn't an efficient electronic process for truck drivers who arrive at the border and have not selected a pre-arrival processing program with ACROSS. For them, the shipments are still handled using the manual, old-fashioned paper method.

Unnecessary delays can be deadly. In the automotive industry, where production is dependent on just-in-time (JIT) lean inventories, a parts holdup at the border could mean shutting down an assembly plant at a cost of hundreds of thousands of dollars an hour. Even if it's not JIT manufacturing, there's always considerable effort to release goods if the "paperwork" is not in order. In a worst case scenario, customs officials have recourse to seize the goods until there's a proper accounting.

Likewise, the efforts by U.S. Customs to expedite cargo flows have not been insignificant. That's not surprising, given the massive influx of commodities, products, and services being drawn into its territory each year. For fiscal 1998, the latest year that statistics are available, America imported $1.4 trillion worth of goods. In fact, the U.S. Customs Service collects about $30 billion in annual import duties.

In the mid-1980s, U.S. Customs introduced its Automated Commercial System (ACS) to track, control and process all commercial cargos imported into the country. A key component of this system is the Automated Broker Interface (ABI). Under ABI, qualified participants -- brokers, importers, carriers, port authorities and service centres -- can transmit data electronically to customs. Currently, over 96% of all entries are filed through ABI.

The U.S. customs service, in its efforts to modernize, is planning to replace its Automated Commercial System with a proposed upgrade called the Automated

Commercial Environment (ACE). The system -- a prototype of which operates in Detroit and Port Huron, Michigan as well as Laredo, Texas -- would give customs officials a comprehensive database for analyzing imports and ensuring the collection of duties and remissions. At this stage, the Clinton administration and Congress have not agreed on a way to finance the new system estimated to cost as much as $2.6 billion over four to seven years.

Although much of the process of clearing a shipment through Customs is now automated, the one area that remains relatively low-tech is the interface between the importer or exporter and the broker. The majority of Livingston International's shippers still transmit their information via fax or paper. The amount of time and money it takes to process paper documents is causing severe bottlenecks in the system.

"Regulatory requirements in Ottawa and Washington mean that Customs now get less than 2% of the notifications by paper; the vast majority are filed electronically. By contrast, at Livingston we receive only about 4% of our clients' shipment documentation electronically," says Luit.

This means that all the information has to be manually entered into electronic format, increasing the chance for error. Beyond the data entry quagmire is the fact that there's no consistency in clients' paperwork; there are as many varieties of records forwarded as there are importers and exporters in a broker's roster.

Customs agencies in Canada and the U.S. have regulations that demand that data accompanying cargo be presented in a specific format. Customs brokers are starting to provide software trade management systems so that customers have all the vital information at their fingertips. For instance, Livingston's Insight[R] software allows importers to access information on their shipments coming into the country. They have immediate access to data on when a shipment crossed the Canada-U.S. border, full details of the declaration that was sent to the Canada Customs and Revenue Agency, and landed costs on products -- all of which are updated in real time.

"Our goal is to get an increasing number of our 16,000 customers to take full advantage of Canada's 'paperless' electronic border," says Luit. "We have spent many millions of dollars on hardware and software systems to facilitate the seamless flow of information from the customs broker to the regulatory agencies. The sophisticated electronic environment in place at Canada and U.S. Customs enables Livingston to provide 24/7 access to our clients."

It's the only way for cargo to travel.

Andrew Tausz ( is a Toronto-based freelance writer.
COPYRIGHT 2000 Society of Management Accountants of Canada
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Title Annotation:Computerization of Canada/U.S. customs
Author:Tausz, Andrew
Publication:CMA Management
Geographic Code:1CANA
Date:Sep 1, 2000
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