International Trade Workshop #3

International TradeWorkshop #3

Importing & Exporting – Best PracticesApril 22, 2013San Diego, CA

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Agenda

• Introductions and Market Update• CT-PAT Update• Contracting Best Practices• Managing Air & Ocean – Best Practices• Questions

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Marianne Rowden• Marianne Rowden is President and CEO of AAEI following years of

service as the Association's General Counsel.

• Ms. Rowden has testified before Congress on trade legislation because of her extensive background from practicing law over 15 years concentrating in international trade and transportation regulatory compliance. Ms. Rowden has advised importers and exporters on a wide range of trade compliance issues relating to the entire global supply chain, sourcing goods, transportation contracts, trade security, compliance audits and penalties, export licenses, embargoes and mergers and acquisitions involving foreign corporations.

• Ms. Rowden also serves as an Adjunct Professor at The John Marshall School of Law

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Andrew Danas

• Andrew Danas is a partner with the Washington, D.C. law firm of Grove, Jaskiewicz and Cobert LLP.

• Andrew has thirty years experience advising and representing companies involved in international trade and transportation on all aspect of their operations. He frequently writes and speaks on a variety of legal topics involving international transportation.

• Andrew is a member of the Management Committee of the EALG, a multinational network of law firms with over 400 attorneys in the U.S., Europe, Asia, and South America. His professional affiliations also include the Transportation Lawyers Association (TLA), where he currently serves as Co-Chair of the Antitrust and Unfair Trade Practices Committee, and the American Bar Association, where he is currently a Vice Chair of the International Transportation Committee. He is a recipient of the TLA’s Distinguished Service Award.

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Jarrod Slaughter

• Jerrod Slaughter is the Corporate Transportation and Freight Audit Manager for Columbia Sportswear.

• Currently his role includes vendor management of ocean and international air freight as well as domestic transportation. He has over 20 years of experience in transportation and logistics management, at least half of which has been with Fortune 500 companies.

• His background is principally in the areas of freight audit and payment and managing third party logistics providers.

Air Market Update

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Airfreight Demand vs. Capacity (per IATA)

• Global air freight markets managed to maintain improved levels of demand. Air freight markets maintained modest improvement since Q4, with the size of the market up 2.5% in February compared to October 2012

• Business confidence levels continue to suggest an increase in manufacturing activity in the months ahead. Yet much depends on the stability of the Eurozone

• However, carriers continue to reduce capacity expansion, park aircraft, reduce frequencies, retire older aircraft, and hub splitting (multiple stops on one flight)

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Airline Financial Situation (per IATA)

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• Guarded optimism in 2013: Cargo markets should recover some lost ground from 2012. Yet, losses in cargo divisions might still prevail due to the fuel variable and global economic market conditions

• Carriers remain focused on sector profitability and yield maximization

• Freighter cancellations or reduction in flight frequencies

• Jet fuel prices have remained high and well above $120/b

Ocean Market Update

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2013 Ocean: Market Update

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Global Capacity • Current idle capacity is at roughly 830,000 TEUs, around 5.0% of the global fleet, and expected to be 1.2 million by the end of 2013. The idle fleet averaged 645,000 TEU over 2012. Down from nearly 12% of the global fleet being idle in Dec. 2009.

Container/Equipment & Labor • The ILA and USMX agreed to a six-year coast-wide master contract. • Labor disruptions at the Hong Kong International Terminal resulted in cargo delays.

Carrier Financial & Rates Update • Transpacific shipping lines have stepped up efforts to raise freight rates, to stabilize recent volatility, to better accommodate growing demand, and to establish a more compensatory baseline for subsequent negotiation of 2013 longer-term contracts.

2013 Market Considerations & Projections

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• Total container capacity grew 6% in the last six months of 2012

• Global trade volumes in goods and services are forecast to slow from 6.9% in 2011 to 3.8% in 2012 before recovering slightly to 5.4% in 2013 (revised downwards from its September forecast of 5.8% in 2012 and 6.4% in 2013

• Increase in vessel capacity against stabilized demand • Poor financial results by ocean carriers

• Continued vessel idling

Import/Export – Best Practices

39th Annual Conference

Transportation & Logistics Council

San Diego, CA

April 22, 2013

What Are the General Trends for Trade?

Safety

Compliance Facilitation

Security

What Has Actually Happened?

Compliance Facilitation

Security

HumanitarianSafety

“Trusted Trader” Concept

Concept predates 9/11, but has gained currency with the government to describe a company which is:

• Highly compliant• Good internal controls• Mitigates risk

“Authorized Economic Operator”• “a party involved in the international movement of goods in whatever function that

has been approved by or on behalf of a national Customs administration as complying with WCO or equivalent supply chain security standards. Authorized Economic Operators include inter alia manufacturers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, distributors.”

– WCO “SAFE Framework of Standards to Secure and Facilitate Global Trade” adopted in June 2005 in Section 2.3 at p. 8.

AEO programs are:• Voluntary regimes• Commitment to adopt good importer practices for security and compliance• Trade facilitation benefits

World Customs Organization – SAFE Framework

World Customs Organization – SAFE Framework of Standards to Secure and Facilitate Global Trade (adopted June 2005)

Objectives of the SAFE Framework• Establish standards for supply chain security and facilitation at the

global level to promote certainty and predictability• Enable integrated supply chain management for all modes of

transport• Enhance the role, functions and capability of Customs to meet

challenges and opportunities of the 21st Century• Strengthen cooperation between Customs administrations to

improve detection of high-risk cargo• Strengthen Customs/Business cooperation• Promote seamless movement of goods through secure international

trade supply chains

WCO SAFE Framework – Four Core Principles

Harmonize advance electronic cargo information requirements• Advance Cargo Manifest Rules

Adoption of risk management approach to security• Strategic Targeting

Exporting country perform inspection of high-risk cargo• Automated Export System

Provide benefits to business that meet minimal supply chain security standards and best practices• C-TPAT Tiers 1 - 3

WCO SAFE Framework – Two Pillars

Twin pillars of SAFE Framework• Customs-to-Customs network arrangements• Customs-to-Business partnerships

WCO SAFE Framework – Benefits

New and consolidated platform to: • enhance world trade• ensure better security against terrorism• increase contribution of Customs and trade partners to economic

and social well-being of nations

Improve ability of Customs to detect and deal with high risk shipments and efficiencies in the administration of goods to expedite clearance and release of goods

Capacity building to help implement the framework worldwide

U.S. Authorized Economic Operator Programs

Security: Customs-Trade Partnership Against Terrorism • C-TPAT is a voluntary government-business initiative to build cooperative

relationships that strengthen and improve overall international supply chain and U.S. border security.

– CBP can provide the highest level of cargo security only through close cooperation with the ultimate owners of the international supply chain.

– CBP is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain.

Compliance: Importer Self-Assessment Program• ISA is a voluntary trade compliance program which implements CBP’s Risk

Management Strategy– Self-governance plan built around importer’s procedures and controls

• Internal controls were found to be an excellent predictor of actual compliance.

– Added flexibility and non-interference for participating importers

• ISA members are removed from CBP’s Focused Assessment audit pool

Security: Customs-Trade Partnership Against Terrorism

C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall international supply chain and U.S. border security. • CBP can provide the highest level of cargo security only through close

cooperation with the ultimate owners of the international supply chain.

• CBP is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain.

Security: C-TPAT Eligibility

Who is eligible to join C-TPAT?• U.S. Importers of record • U.S./Canada Highway Carriers • U.S./Mexico Highway Carriers • Rail Carriers • Sea Carriers • Air Carriers • U.S. Marine Port Authority/Terminal Operators • U.S. Air Freight Consolidators, Ocean Transportation Intermediaries and

Non-Vessel Operating Common Carriers (NVOCC) • Mexican and Canadian Manufacturers • Certain Invited Foreign Manufacturers • Licensed U.S. Customs Brokers • Third Party Logistics Providers (3PL) • Long Haul Highway Carriers in Mexico

CBP now seeking to extend C-TPAT to U.S. exporters

Security: C-TPAT Importer Eligibility Requirements

Be an active U.S. Importer or Non-Resident Canadian Importer into the United States.

Have a business office staffed in the United States or Canada. Have an active U.S. importer of record ID in either of the following

formats: • U.S. Social Security Number • U.S. Internal Revenue Service assigned ID(s) • CBP assigned Importer ID

Possess a valid continuous import bond registered with CBP. Have a designated company officer that will be the primary cargo

security officer responsible for C-TPAT. Commit to maintaining the C-TPAT supply chain security criteria as

outlined in the C-TPAT Importer agreement. Create and provide CBP with a C-TPAT supply chain security profile,

which identifies how the Importer will meet, maintain, and enhance internal policy to meet the C-TPAT Importer security criteria.

Security: C-TPAT Importer Security Criteria

Companies must conduct a security assessment of international supply chain based on C-TPAT security criteria below• Business partners

– Written documentation for selecting business partners

• Container security– Point of stuffing procedure to seal and maintain integrity of container

• Container inspection– Procedures for “seven-point” inspection process to check container structure

• Physical access controls– Controls to prevent unauthorized entry to facilities by employees, visitors and vendors

• Personnel security– Procedures to screen prospective employees (consistent with laws in jurisdiction)

• Procedural security– Procedures to ensure integrity and security of transportation, handling and storage of cargo

• Security training and threat awareness– Program to make employees aware of threats posed by terrorists at each point in supply

chain

• Information technology security– Automated systems using individually assigned accounts with periodic change of password

Security: C-TPAT Benefits

C-TPAT offers trade-related businesses an opportunity to play an active role in the war against terrorism. By participating in this first worldwide supply chain security initiative, companies will ensure a more secure and expeditious supply chain for their employees, suppliers and customers.

Beyond these essential security benefits, CBP will offer benefits to certain certified C-TPAT member categories, including: • A reduced number of CBP inspections (reduced border delay times) • Access to FAST lanes• Priority processing for CBP inspections. (Front of the Line processing for

inspections when possible.) • Assignment of a C-TPAT Supply Chain Security Specialist (SCSS) who will

work with the company to validate and enhance security throughout the company’s international supply chain.

• Potential eligibility for CBP Importer Self-Assessment program (ISA) with an emphasis on self-policing, not CBP audits.

• Mutual recognition – Canada, New Zealand, Jordan

Security: C-TPAT Application Process

Submit an online electronic application with:• Corporate information• Supply chain security profile

– In completing the supply chain security profile, companies must conduct a comprehensive self-assessment of their supply chain security procedures using the C-TPAT security criteria or guidelines jointly developed by CBP and the trade community for their specific enrollment category.

• Executed Memorandum of Understanding as an acknowledgement of an agreement to voluntarily participate

CBP reviews the application C-TPAT Tiers

• Tier I = Certified• Tier II = Validated• Tier III = Best Practices

•10,181 - Certified Partners to current date•169 - Total C-TPAT staffing level• 18,696- Total Validations Completed

–10,786 - Initial Validations Completed–7,910 - Re-Validations Completed

•Number of completed validations by year: -2010 / 1,017-Initial Validations / 2,127-Revalidations

3,144-Total Validations in 2010-2011 / 446-Initial Validations / 1,344-Revalidations

1,790-Total Validations in 20111,109 - Total Suspensions (525 Highway Carriers)

• 943 - Total Removals (382 Highway Carriers)

•Internationalization Efforts: –5 - Mutual Recognition Arrangements: New Zealand, Canada, Jordan , Japan, Korea–3 - Mutual Recognition Projects: European Union, Taiwan, Singapore–8 - Technical Assistance Projects: Malaysia, Mexico, Philippines, Guatemala, China, Colombia, Israel, Peru–2 - Capacity Building Training Programs: Ghana, Kenya–3 - Rounds of joint validations with the General Administration of China Customs

•Security Criteria Implemented:–10 - Business Entity Types: Importers, Air Carriers, Highway Carriers, Mexico Long Haul Highway Carriers, Rail Carriers, Sea Carriers, Foreign Manufacturers, Customs Brokers, Port Authorities/Terminal Operators, Third Party Logistics Providers (3PLs).

•Tiered Benefits Structure – commensurate with security enhancements. Best Practices Catalog.

–329 - Tier 3 Importers

Certified Members by Business Type

4375

2873

866

1168

83861

Importers - 4375

Carriers - 2873

Brokers - 866

Foreign Manufacturers - 1168

Consolidators/3PLs - 838

Marine Port Authorities andTerminal Operators - 61

0

1000

2000

3000

4000

2006 2007 2008 2009 2010 2011

Validations By Year

Security: C-TPAT Achievements (September 9, 2011)

Source: CBP Office of C-TPAT/Industry Partnership Programs (September 2011)

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

Fewer InspectionsIt is the right thing to doBusiness partner pressureExpedited clearanceHaven't joined

SecurityIf your company participates in a supply chain security program, why did your company decide to join the program?

Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

0%

20%

40%

60%

80%

2009 2010 2011 2012

Met expectations Exceeded expectations Fallen short Some programs have, some haven't

Security: Great ExpectationsHas the supply chain security program in which your company is enrolled met your expectations?


0%

10%

20%

30%

40%

50%

60%

70%

2009 2010 2011 2012

Yes No Don't know

Security: If you knew then, what you know now . . .Based on your experience with supply chain security programs, would you join today?


Security: Cost of AEO Status

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

Less than $20K $20K to $50K $50K to $100K $100K to $200K More than $200K

On an annual basis, what is your company’s cost to maintain status in the supply chain security program(s) in which it is a member?

Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June 2009 May 2010, May 2011, and August 2012, respectively)

Security: Costs and Benefits of C-TPAT

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

More than anticipated

Less than anticipated

About what was anticipated

Had no idea of costs

Answer not offered

Is the amount your company spends maintaining status in its supply chain security programs:


0%

10%

20%

30%

40%

50%

2009 2010 2011 2012

Yes No Don't know What benefits?

Security: Costs and Benefits of C-TPATDo you think the cost to join/maintain your company’s supply chain security program(s) is worth the benefits?


Compliance: ISA Status

Currently, approximately 288 companies in the Importer Self-Assessment (ISA) program• Membership has not increased over the last few years• CBP has not aggressively promoted ISA

“Industry ISA” programs• Completed

– Petroleum– Aerospace– Chemicals– Pharmaceuticals/Biotech (completed in April 2011)

• In negotiations– Automotive (off and on)– Textiles (keep dreaming)

Compliance: Customs Audits

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

Less than 6 mos. 6 mos. to 1 yr.

1 to 2 yrs. More than 2 yrs.

No audits in 5 yrs.

Considering all the U.S. Customs audits that your company has experienced over the past five years, what was the typical cycle time from entrance from conference to exit conference?

Source: AAEI Benchmarking Survey – Import Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

Compliance: Voluntary Disclosures

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

Initial filing is perfected

Less than 60 days

60 - 180 days

More than 180 days

Haven't filed any VSDs

If your company has filed any export voluntary disclosures, what is the typical time between filing the complete (“perfected”) disclosure and closing the matter with the government?

Source: AAEI Benchmarking Survey – Export Question for Importers/Exporters (June 2009, May 2010, May 2011, and August 2012, respectively)

Security: Status of AEO MRAsConcluded MRAs

Date Country

June 2007 New Zealand – USA

May 2008 Japan - New Zealand

June 2008 Canada – USA

June 2008 Jordan – USA

July 2009 EU – Norway

June 2009 Japan – USA

July 2009 EU – Switzerland

June 2010 Canada – Japan

June 2010 Canada – Korea

June 2010 Canada - Singapore

June 2010 EU – Japan

June 2010 Korea – Singapore

June 2010 Korea – USA

January 2011 Andorra – EU

May 2011 Japan - Korea

June 2011 Korea – New Zealand

June 2011 Japan – Singapore

MRAs Being Negotiated

Signatory Countries

China – EU

China - Japan

China – Singapore

EU - San Marino

EU - USA

New Zealand – Singapore

Norway – Switzerland

Singapore – USA

Security: C-TPAT Exporter Security Problem Areas

Companies must conduct a security assessment of international supply chain based on C-TPAT security criteria below• Business partners

– Written documentation for selecting business partners

• Container security– Point of stuffing procedure to seal and maintain integrity of container

• Container inspection– Procedures for “seven-point” inspection process to check container structure

• Physical access controls– Controls to prevent unauthorized entry to facilities by employees, visitors and vendors

• Personnel security– Procedures to screen prospective employees (consistent with laws in jurisdiction)

• Procedural security– Procedures to ensure integrity and security of transportation, handling and storage of cargo

• Security training and threat awareness– Program to make employees aware of threats posed by terrorists at each point in supply

chain

• Information technology security– Automated systems using individually assigned accounts with periodic change of password

Security: C-TPAT and Consequences DHS Notice of Privacy Act System of Records for C-TPAT, 78 Fed. Reg. 15962 (March 13,

2013) Creates “system of records” for all the C-TPAT data in the profile which mat be

disclosed outside DHS as a “routine use” to: Department of Justice for litigation Congressional office National Archives or General Services Administration An agency or organization to do an audit or oversight Appropriate agencies Contractors working for DHS Appropriate federal, state, tribal, local, international or foreign law enforcement agency Appropriate foreign government organizations or multilateral organization Organization or individual who is a target of terrorist activity Third parties during law enforcement investigation News media and the public “when there exists a legitimate public interest in the disclosure of the information

or when disclosure is necessary to preserve confidence in the integrity of DHS . . . .”

DHS Notice of Proposed Rulemaking, Privacy Act of 1974: Implementation of Exemptions for C-TPAT System of Records, 78 Fed. Reg. 15889 (March 13, 2013)

Ultimate Goal = Mutual Recognition

AEO from one major trading block is recognized by another major trading block via a bilateral agreement. Only companies that apply for a full or safety and security AEO certificate may participate in arrangements brought about by mutual recognition agreements.

European Commission is currently engaged in mutual recognition discussions with USA, China, Switzerland, Norway, Japan and India. Negotiations are still in progress.

USA: mutual recognition for C-TPAT only:• Internationalization Efforts:

– 4 - Mutual Recognition Arrangements: New Zealand, Canada, Jordan , Japan– 4 - Mutual Recognition Projects: Argentina, Singapore, Korea, European Union– 7 - Technical Assistance Projects: Malaysia, Mexico, Philippines, Guatemala, China, Colombia, Israel – 2 - Capacity Building Training Programs: Ghana, Kenya

• Security Criteria Implemented:– 10 - Business Entity Types: Importers, Air Carriers, Highway Carriers, Mexico Long Haul Highway Carriers,

Rail Carriers, Sea Carriers, Foreign Manufacturers, Customs Brokers, Port Authorities/Terminal Operators, Third Party Logistics Providers (3PLs).

• Tiered Benefits Structure: commensurate with security enhancements. Best Practices Catalog.

– 310 - Tier 3 Importers

Source: KPMG LLP “AEO – EU Update” presentation to AAEI’s Globalization Committee (September 2009) and CBP Office of C-TPAT/Industry Partnership Programs (April 2010)

Security: What Does Mutual Recognition Mean?

AEO from one major trading block is recognized by another major trading block via a bilateral agreement. Only companies that apply for a full or safety and security AEO certificate may participate in arrangements brought about by mutual recognition agreements

European commission is currently engaged in mutual recognition discussions with USA, China, Switzerland, Norway, Japan and India. Negotiations are still in progress, so details are limited:

USA• mutual recognition agreed at political level• key milestones agreed (Trans-Atlantic Economy Committee)• US examining export processes• mutual recognition agreement signed in 2012

Source: KPMG LLP “AEO – EU Update” presentation to AAEI’s Globalization Committee (September 2009)

Security: What Does Mutual Recognition Mean?

AAEI has proposed a “self-executing” MRA for the Trans Pacific Partnership Agreement:

“Any TPP signatory which has an Authorized Economic Operator program based on the World Customs Organization’s SAFE Framework of Standards shall be accorded mutual recognition by the other TPP signatories. A company which has been granted “trusted trader” status as low risk under any TPP signatory country’s AEO program shall be accorded ‘trusted trader’ status in every other TPP country and receive the same benefits as if it had received such status from that government.”

Questions?

IMPORT/EXPORT – BEST PRACTICESContracting With

International Carriers and Multi-National 3PLs

Andrew M. Danas, Esq. Grove, Jaskiewicz and Cobert, LLP

39th Annual ConferenceTransportation & Logistics Council, Inc.

San Diego, CaliforniaApril 22, 2013

Basic Guide: International Transport Contracts

Non-contiguous international transportation services can be offered by: Ocean Carriers Non-Vessel Operating Common Carriers

(NVOCCs) Ocean Freight Forwarders Indirect Air Carriers Multimodal International 3PLs

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Different rules govern different service providers

International ocean shipping: still regulated. International air transportation cargo services:

largely deregulated. International 3PL contracts: subject to the rules

governing the underlying mode/service provider.

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Basic Guide: International Transport Contracts Ocean shipping rates & services: the most

regulated mode of transportation Recent Federal Maritime Commission

(FMC) actions increase pricing flexibility. They include: The right to use quoted, non-tariff rates by some

(not all) nvoccs. The right to use index rates. A broader right to use contract terms that are

incorporated by reference, rather than spelled out in the document. 48

Basic Guide: International Transport Contracts Bottom Line

New contracting tools allow for more creativity and flexibility in shipping goods internationally.

They also create traps for the unwary.

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Basic Rules: Ocean RatesRule 1: Rates must be either published in a tariff or set forth in a

written contract.

Rule 2: Written contracts for ocean transportation services can be:

An ocean service contract with an ocean common carrier filed with the FMC

An NVOCC Service Arrangement (NSA) filed with the FMC

A written Negotiated Rate Agreement (NRA) with an NVOCC utilizing a tariff exemption from rate publication.

Rule 3: If a rate is not contained in a service contract, NSA, or NRA, the ocean carrier or NVOCC’s published tariff rate may apply, even if it is much higher than the rate originally quoted to the shipper – and even if it is in writing.

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Basic Rules: Ocean Carriers & NVOCCsWritten contracts must include:

1.Rates2.Origin & destination ports or points (trade

lanes)3.Commodities or commodities4.Minimum quantity commitment (MQC)5.Service commitments.6.Line-Haul Rate7.Liquidated damages for non-performance

(if any)8.Duration, including Effective Date &

Expiration Date9.All other provisions of the contract.

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Basic Rules: Ocean Carriers & NVOCCsRule: Contracts must be specific

• Essential Terms may not: Be uncertain, vague or ambiguous; or Reference terms not explicitly contained in the

contract or NSA itself unless those terms are readily available to the parties and the Commission.

Readily available means on 30 days request . NVOCC wrinkle: Reference may not be made to a

tariff of a common carrier other than the NVOCC acting as carrier party to the NSA.

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NVOCC Rate Agreements

• Introduced in 2011.

• They are a de facto written contract for NVOCC spot market rates.

• Create an exemption from the NVOCC tariff publishing rules that would normally apply.

– Wrinkle: NVOCC tariff rules may still apply, including other rate items such as surcharges.

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NRA Requirements

• Be in writing (fax, e-mail, letter, other document)

• Contain the legal name and address of the parties and any affiliates; and the names, title and addresses of the representatives of the parties agreeing to the NRA;

• Be agreed by both the NVOCC and the NRA shipper prior to receipt of the cargo by the common carrier (including originating carrier in the case of through transportation);

• Clearly specify the rate and the shipment or shipments to which such rate will apply; and

• No modifications after initial shipment is received.

• Currently cannot be offered by a non-U.S. NVOCC.

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NRA and NSA Compared

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Basic Rules: Applying Ocean Rates• Applicable rate: the rate legally in effect on date shipment

received by the carrier OR its agent.

• Tariff Rates Effective Only If Published New rates and/or rate increases: can only take effect after 30 days Rate decreases: take effect immediately. The applicable rate is the rate in effect when the carrier or its

agent receives the shipment at origin.

• NRA rates must:• Be negotiated and agreed to in writing prior to the shipment date.• Clearly specify when the NRA will apply.

• Service contract and NSA rates cannot take effect until the contract is filed with the FMC.• Also for contract rate amendments.

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Traps for the Unwary: Ocean Rates

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Index Rates

References an outside (usually 3rd party) source to determine a rate.

Hedges the risk of changing market rates over a one or multiyear contract

If overall freight rates decrease, shipper receives the advantage of the general market rate level.

If overall freight rates increase, carrier gets the advantage of the general market rate level.

The contract can be tied to a percentage of the index rate so the shipper gets a guaranteed discount off of the prevailing market rate.

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Index Rates

• Ease concerns over predictions about the direction of freight rates.

• Shipper retains contractual advantage of minimum guaranteed lifting from the carrier.

• Carrier retains contractual advantage of shipper MQC.

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Types of Freight Indexes

Common freight indexes include: China Containerized Freight Index

(CCFI) Shanghai Containerized Freight Index

(SCFI) Drewry Freight Insight Index Transpacific Stabilization Agreement

(TSA) Consumer Price Index

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Traps for the Unwary: MQCsKey Questions to Ask

Minimum Quantity Commitments (MQCs) When and how do they apply? Does the MQC require the volume to be tendered:

In specific amounts? As a percentage of shipments? At specific times? During regular time periods?

What happens when the MQC is reached? What happens if the shipper fails to tender booked

cargo? What happens if the carrier rolls the cargo?

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Avoiding MQC Traps for the Unwary:Suggested Best Practices

Tender shipments over consistent time periods. Provide periodic anticipated shipment forecasts. Include specific clauses regarding maximum

contract volumes and what happens when the MQC has been met.

Include penalty clauses for both shippers and carriers if they fail to meet volume commitments.

Include guaranteed non-peak shipments as quid pro quo for space guarantees during peak seasons.

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Traps for the Unwary: Incorporation by Reference

Beware the Matrix! Pay attention to the legal boilerplate.

Avoid Incorporation by Reference:Rules Tariffs and/or Tariff Surcharges

Internet Terms and ConditionsBill of Lading Terms and Condition

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The Risk: If the contract or the Internet Terms and Conditions reference the carrier’s rules tariff and/or tariff surcharges, and incorporates them by reference, the substantive terms of the contract can be changed by later changes to the rules tariff provisions.

Best practice: include all provisions in the written contract, especially anything that may affect rates. All references to the rules tariff, external surcharges, or external

terms and conditions should be excluded through the use of an integration clause.

Second best practice: Permit reference to rules tariff terms surcharges, or external terms and conditions, but prohibit application of any changes that occur after the effective date of the contract.

• NRA Best Practices: both shippers and NVOCCs use standard written forms.

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Bill of Lading Terms and Conditions• The Risk: Carrier’s bill of lading trumps the written terms and

conditions.

• Key question: Is the bill of lading a “receipt” or a separate written contract?

• Some courts have held that since the shipment made pursuant to the bill of lading occurs after the first written contract, it is a “second contract” and any inconsistent terms will supersede the first contract.

• Bills of ladings often:• Include provisions for loss and damage.• Incorporate the carrier’s rule tariff terms for

• Demurrage• Detention• Other charges that may conflict with the written contract.

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Bill of Lading Trump Cards

amount of liability for loss and damage the right to sue subcontracted carriers demurrage and storage charges how, when, and where to file and/or litigate a

claim

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Avoiding Incorporation by Reference Traps for the Unwary:

Bill of Lading Best Practices Include all terms in written contract.Bills of ladings issued under a contract = “receipts”

Alternative: Written contract specifies that any b/l terms and conditions for shipments made under the contract shall apply only in the event that they do not conflict with the written terms of the contract. In the event of any conflict in terms, the written contract applies.

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Contractual Traps for the Unwary:A Final Caution

Written contract terms must be followed for the contract to apply.

For example, if a contract says that a

bill of lading must reference a contract number to qualify under the contract the bill of lading better reference the contract number.

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3PL Multimodal International Contracts Similar to written ocean contracts:

Rate guarantees for specific commodities and points/ports

Protections against certain types of surcharges and rate increases

May also offer International air forwarding services Customs brokerage services Export forwarding services Domestic transportation services

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3PL Multimodal International Contracts The 3PL signing these contracts will

usually be: A licensed Ocean Transportation

Intermediary (OTI) Either an NVOCC, Ocean Freight Forwarder, or

both.

It may also be: A customs broker An indirect air carrier A domestic broker or surface freight

forwarder Or a parent company having subsidiaries

operating in any or all of these capacities.

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3PL Multimodal International Contracts Benefits of dealing with a 3PL:

Increased flexibility and choice Lack of volume commitment by shipper Leverage of a global intermediary

Including access to multiple carriers

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Traps for the Unwary: 3PL Multimodal International Contracts

The 3PL may be signing as a parent company or agent of a related subsidiary/affiliate.

Or simply subcontracting out to an unrelated third party.

Unless specific FMC requirements are met, 3PL contracts for ocean transportation services must be pursuant to an NVOCC tariff.

The standard T&Cs of most international 3PLs limit their liability.

Terms and conditions of a written 3PL contract for international services can be trumped by the underlying documents of the entities that it hires or arranges to provide the actual international services

Including Tariff terms Bills of ladings and waybills Internet terms and conditions General terms and conditions

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Avoiding Traps for the Unwary: 3PL Multimodal International Contracts Suggested Best Practice:

Include in 3PL contract Legal status of 3PL when rendering services. 3PL assumption of liability for subcontractor

performance/non-performance. 3PL assumption of liability for loss and damage.

74

IMPORT/EXPORT – BEST PRACTICES

Contracting WithInternational Carriers and Multi-National

3PLs

Andrew M. Danas, Esq. Grove, Jaskiewicz and Cobert, LLP

[email protected]

39th Annual ConferenceTransportation & Logistics Council, Inc.

San Diego, CaliforniaApril 22, 2013

by Jerrod Slaughter, Corporate Transportation Manager

What does a shipper really want?

Simple …1.Reliability2.Flexibility3.Market competitive

rate

Understanding Ocean …

Container Rates Type of delivery is needed Container Size Container Routing

Essential Accessorial Terms Surcharges Bunker (Fuel) Peak Season Surcharge (PSS) General Rate Increase (GRI)

Essential Service Terms Space Guarantees Minimum Quantity

Commitment (MQC) Detention & Demurrage Delay In Transit (DIT)

Performance levels / KPI Bookings Transit times

What type of delivery is needed? Container Yard (CY) Inland Port Intact (IPI) Store Door Delivery (SDD)

Container Size 20 FT (TEU), 40 FT (FEU), 40 FT High Cube and

45 FT Routing

All Water Service (AWS) Landbridge (Not through Panama Canal)

Rates

Surcharges Advance Manifest Fee (AMS) Chassis Usage Surcharge (CUS) Document Fee (DOC) Terminal Handling Fee (THC) War Risk Surcharge (WRS) Etc. (See 40+ other terms)

Bunker (Fuel) Floating schedule

Peak Season (PSS) Typically June 1st through October

31st General Rate Increase (GRI) / Rate

Restoration (RRI) Any time based on Carrier / Alliance

Space Guarantees Hong Kong to Los Angeles – X FEU?

Minimum Quantity Commitment (MQC) How many FEU’s a year? What is the right number?

Detention (out gate)& Demurrage (in gate at Port) Agreed days known as “Free Time” Days (calendar or working)

Delay In Transit (DIT) Key Performance Indicator (KPI)

Booking acceptance Service Strings / Port to Port On-Time

If you don’t have contracts today or do find undesirable terms then evolve …

One step at a time!

Partner with internal Legal Counsel

Seek help on “boilerplate” by mode

Include terms with Request For Quotations (RFQ)

How will incumbents react? Don’t surprise your vendors.

Discuss with internal stakeholders. Understand that terms can cause lengthy negotiations and potentially impact rates.

Careful not to overbuy!

Understand Ocean Line vs. NVOCC

OCEAN LINE (DIRECT BCO) NVOCCNON VESSEL OPERATING COMMON CARRIER

The Positive Direct relationship with Line Leverage MQC FEU volumes directly

to secure terms/rate/service Assigned allocation can lead to

consistent service string transit time Strong long term partnerships can

assist during industry challenges

The Challenge More complex i.e. FMC requirements Provide forecast of trade lane

volumes Manage MQC volumes Resources and bench strength to

manage multiple Ocean carriers Challenging to make changes

The Positive Flexibility with little to no

commitment Less complex to manage

No FMC required for shipper No MQC requirement No long term commitment

Ability to chase rate Much closer to the market rates

The Challenge Subject to volatility of market Susceptible to surcharge

GRI / RRI PSS

No direct relationship with Ocean carrier

Possible less predictable transit times

Selecting an International Partner …

Define Supply Chain Strategy & Needs Request for Quote (RFQ)

Know the Market Document shipper characteristics Identify and include Stakeholders Define service expectations Boilerplate Stakeholders provide suggested carrier RFQ pool Container Rate and Surcharge template Understand service string and transit offering Cost Analysis on 80%-95% volume lanes Selection

On Boarding Performance Evaluation

Operational readiness Define “Who’s who” Detailed Standard Operating Procedure

(SOP) Escalation path

Limited volume at startup Slowly turn on the Valve!

Deming Wheel approach Plan, Do, Check, Act

Shipper provided FEU forecast by lane Best practice: 3 month rolling forecast Keep it simple!

Communicate Origin Performance Is cargo getting booked and COB as

expected? Any rolls, delays, etc.? Be engaged and ask for feedback

KPI agreement Reporting requirements Quarterly or Bi-annual business review Measure transit expect vs. actual Cargo Claims Billing Issues Service Review

Booking performance Space guarantees Transit time metrics

Relevant field definitions:Target Transit Time: transit time expectation per lane from contract negotiations.Transit Time for 95% Of Shipments: Denotes the transit time by lane (or carrier) for which 95% of shipments were equal to or less than.On-Time %: Percentage of shipments per lane (or carrier) that were equal to or less than the target transit time.% Within +/- 1 Day of Target: Percentage of shipments per lane (or carrier) that were within one day of targeted transit time. The higher the percentage, the more consistent the transit times are.Transit Time Range (Days): This the range in days between shortest transit time and longest transit time per lane or carrier.Avg Variance (Actual vs Target): Per lane or carrier, this is the average variance in days between actual transit time and target transit time. The lower the number, the more consistent the transit times are.

CARRIER Origin - Destination

Total Shipments Per Carrier

Target Transit Time

Transit Time for 95% Of Shipments

On-Time %

% Within +/- 1 Day of Target

Transit Time Range (Days)

Avg Variance: Target vs Actual

AA ShipsHAIPHONG – LOS ANGELES, CA 219 16 22 77% 69% 20 3

HAIPHONG - Zeebruggee 181 29 34 36% 31% 30 4

HO CHI MINH CITY – LOS ANGELES, CA 720 20 19 100% 18% 19 3

International Air Freight Forwarding

Rates by route Port-Door, Port-Port, etc.

Recommend add gateway to door as option Add Service levels that fit your need – Exp,

Std, Def Add tier level weight break

Know your sweet spots!! Include transit days by service by lane Define service commitments Define Fuel surcharge Peak Season ?? Liability and cargo claims

Full service forwarder vs. niche regional forwarder Carrier service area Forwarders usually handle all major lanes

A full service forwarder may compliment a Shippers needs as supply chain becomes more complex

Don’t underestimate the value of regional niche forwarders Experts in specific geographies

Forwarders seek different freight mixes to support trade lane Rates and very drastically between competing

forwarders Shop around for best rate

Documents

International Trade Workshop #3