Supply Chain Compliance 101

by | Jan 25, 2017 | Compliance, Freight Forwarder, Ports, Supply Chain Dictionary

supply chain compliance 101

As you may have noticed in the supply chain and logistics world, there are a lot of terms you will need to learn. Many are abbreviations for government agencies, laws or specific compliance requirements; but all are essential to ensure compliance in your supply chain.

Essential Supply Chain Compliance Terms

CBP: This is an acronym for U.S. Customs and Border Protection, often referred to as simply Customs, which falls under the Department of Homeland Security. This government agency enforces the laws and regulations around travel and trade. For supply chain managers, this is the agency that allows your goods into the country as well as collects the corresponding duties and taxes.

The amount of customs duties you’ll pay on your goods depends on how they are classified under the Harmonized Tariff Schedule (HTS). Products are classified either by their name, intended use or the materials they are made of, and assigned a unique 10-digit classification code number. There are more than 17,000 of these 10-digit codes in total, covering everything from live animals to nuclear reactors.

If you’re interested in learning more about the HTS and various classifications, check out the U.S. International Trade Commission HTS website.

Customs Broker: This is a person or firm that helps clients (i.e., you, the importer) meet federal requirements for imported products. Customs brokers submit the necessary forms and payments to get their clients’ products cleared through CBP. They are also experts in the various rules, regulations and HTS classification.

Customs brokers receive a power of attorney (POA) to act on behalf of their clients to conduct customs business. As they can sign and file paperwork and make decisions for you, it’s incredibly important that you find a customs broker you trust and understands your business. Often, your freight forwarder has a customs broker on staff or one they would recommend. (Of course, that means you need to find a freight forwarder you can trust.)

Technically, you don’t need to hire a customs broker to clear your goods, but, much like hiring a lawyer to handle legal documents or a lawsuit, it’s clearly recommended. Customs rules and regulations are complex and the smallest detail can affect how a product is classified. For example, a commodity like footwear spans more than 150 lines of the federal tariff code and can reach tariffs of almost 70%. If you don’t classify your products correctly, this can lead to major and unexpected corrections later by CBP. A customs broker reduces any confusion or errors regarding classifications.

Bonds: Known as a customs bond, this is an insurance policy that ensures the government will be paid for the duties and taxes on your imports. There are two main types of customs bonds, single-entry bonds and continuous bonds. As the names suggest, you can either purchase a bond for a single-entry import, or a continuous bond if you are regularly importing goods.

ISF: This abbreviation stands for Importer Security Filing, and is a requirement that came about post-9/11 to help screen cargo before it’s headed to the U.S. It’s also sometimes referred to as “10+2” due to the ten data elements required of the importer and two from the carrier. The ISF filing must be made by you or your designated filer (often your freight forwarder/customs broker) 24 hours before your products are loaded on a vessel destined for the U.S. This notifies the CBP about the incoming cargo, which gives them time to identify shipments that pose a safety or security risk.

Below are the ISF data elements that need to be submitted on behalf of the importer:

  • Seller (name and address)
  • Buyer (name and address)
  • Importer of Record number
  • Consignee Number
  • Manufacturer or Supplier (name and address)
  • Ship-to-party (name and address)
  • Country of origin
  • Commodity HTSUS
  • Container Stuffing Location (name and address)
  • Consolidator (name and address)

It’s very important to submit your ISF on time and without errors, otherwise you can be fined up to $5,000 per violation (with a $10,000 cap). Problems with ISFs can also result in unnecessary cargo holds from CBP.

In short: ISFs are very important.

Government Agencies: Depending on what your product is or the material it is made of, you may have to supply paperwork to other government agencies to get your goods into the country.

Just a few of these agencies include:

  • FDA: The Food and Drug Administration regulates product imports such as foods, beverages, pharmaceuticals, cosmetics, medical devices and related items.
  • EPA: The Environmental Protection Agency regulates products that affect the environment, such as pesticides, motors, and hazardous waste.
  • DOT: The Department of Transportation regulates products used in or for transportation, such as motor vehicles or motorcycle helmets.
  • CPSC: The Consumer Product Safety Commission regulates consumer products, such as lead levels in toys. The CPSC ensures products are safe and often works with the CBP to clear imported goods.
  • FWS: The U.S. Fish and Wildlife service regulates the import of any wildlife (dead or alive), animal products (such as ivory), fish and plants, and all products made from plants, such as wooden furniture or guitars.

Just as with the ISF forms, you need to get your information submitted to various government agencies on time or your goods may be held by customs.

TSA: The Transportation Security Administration does more than just screen people boarding airplanes: It screens cargo too. The TSA applies only to air freight. If you are an “unknown shipper,” you can only send product via cargo planes. To find out more about the TSA’s role in air freight, check out: What Your Air Freight Forwarder Wishes You Knew.

MSDS: This an abbreviation for the Material Safety Data Sheet, which is a form you must submit if you are importing any hazardous materials. The form provides information on the physical and chemical properties of a product, how to store it, procedures for spills and leaks, etc. MSDS forms are submitted for a wide-range of products, such as flammable materials like fireworks; certain types of alcohol (e.g., vodka); chemicals; products that could explode under pressure, lithium ion batteries, etc.

This list contains only a small fraction of the many terms used in supply chain management and global logistics. Each is important for ensuring compliance in your supply chain; however, it can be difficult to keep it all straight. Working with an experienced freight forwarder and customs broker will ensure your products are properly classified and the right forms are submitted in a timely fashion.

Contact Dedola Global Logistics to learn how we ensure compliance in your supply chain.