As reported on this blog back in March, many in the trade predicted a shortage of containers and a resultant freight rate increase for 2011.

Now, however, Alphaliner, a market analyst for the liner shipping industry, foresees no container shortage during peak season.  As reported in the Journal of Commerce, the primary reasons are that “[l]easing companies and ocean carriers have ordered sufficient numbers of new containers during the last 12 months, while demand growth has failed to match earlier projections.”

In addition, Alphaliner indicates that falling demand has caused “prices for new TEU dry containers drop from $2,900 at the beginning of the year to less than $2,500 per TEU.”

See the full article here.

A recent discussion thread on the Customs Specialists LinkedIn group page offers guidance on the age old question pertaining to the Harmonized Tariff Schedule (HTS):  what constitutes a “part” or an “accessory”?

Although the posts do not (of course) definitively answer the question, the discussion thread provides helpful points to consider when evaluating this issue.

For example, a couple of commenters suggest their own rules of thumb for this inquiry:

• “…I have always applied the guide that for an item to be classified as a part, the item of which it is a part must not be capable of operating as intended without the presence of the ‘part’. Additionally, the ‘part’ must not be capable of classification as an item in its own right – i.e., as a non-part …. Of course, there are exceptions, but this rule of thumb holds good in most circumstances, and is reasonably easy for engineering departments to follow….”
• “…1.) Has it been made especially for x machine? No: classify it as specific product, yes: go to 2. 2.) Is it excluded from being a ‘part of’ according to the [HTS] Notes (like screws, motors, etc)? Yes: classify it as specific product. No: check the comments on the chapters to be sure.”

Others cite case law on this topic.  For instance, one commenter references Honda of America Manufacturing v. United States, a case from 2009, in which the Court of International Trade held that a specialized “oil bolt”, designed for use in automobiles, was still classifiable as a run-of-the-mill bolt under Heading 7318, and was not a “part” or “accessory” of the automobile. ”

Still other commenters provide guidance from other countries.  In India, “the principle applied by the courts is that a ‘part’ is something that is necessary for the funcionting of the product; while an ‘accessory’ provides convenience in use or promotes better [utilization] of the product.”  Other citations include an memorandum on classification of parts and accessories from Canada Customs and a link to a Federal Court Judgment in an Australian case.  Finally, a commenter mentions a 2007 decision by the European Court of Justice, which held that an ink cartridge was not part of a printer, but rather “ink.”

Given the unsettled and often conflicting opinions on this topic, US importers and exporters should follow the advice of one commenter:  ”Your best bet is to send to CBP [a request for] a binding ruling if you will be shipping these goods regularly.”

The Customs Specialists LinkedIn group page is available here (membership required).

A recent discussion thread on the Foreign Trade Association’s (FTA) LinkedIn group page outlined the pros and cons of using an express courier (DHL, FedEx, UPS, etc.) for importing goods into the US.

On the positive side, the former head of compliance for FedEx Trade Networks (FTN) outlined the advantages of using FTN as express courier, including:

• Large staff
• Nearly 100 individuals overseeing compliance process, doing internal audits and resolving issues
• Worldwide coverage by one party
• Visibility at all stages to handling/documentation/clearance

One commenter stated that FTN is a much better option than its competitors, and a couple of others suggested that using an express courier for small, routine shipments is appropriate.

On the negative side, however, the concerns of many commenters about using an express courier included:

• Trading speed and cost for compliance
• Improper classification of goods
• Need to micromanage courier
• No designated personnel assigned to importer’s account
• Clearance of products under the name of the courier, rather than the importer’s, results in importer’s inability to access import documents
• Importer still liable for courier’s non-compliance

The FTA’s LinkedIn group page is available here (membership required).

A recent report by PricewaterhouseCoopers (PwC) outlines a growing threat to supply chains from cyber, hacker, pirate and terrorist attacks.

The report, “Transportation & Logistics 2030, Vol. 4 – Securing the supply chain,” outlines the responses of 80 global executives to an extensive survey on what elements of supply chain security they believe will be most critical in the future.

Some highlights:

• Total direct costs of piracy in 2010 are estimated to be between US$7 and $12 billion; indirect costs drive this figure higher
• Terrorist attacks on key locations in the global supply chain — such as in Hong Kong, or chokepoints like the Panama and Suez Canals — can disable the immediate hub but can cause more widespread damage throughout the global supply chain (as recently seen with Japan post-earthquake and tsunami)
• Cyber attacks designed to induce physical damage will be an increasing threat for the transportation and logistics industry

So what can the trade do?  According to PwC:

Companies have to find the right combination of preventive and reactive measures to achieve the optimal level of supply chain security…. [c]ompanies need to consider the possible, not just the probable.  Executive should keep an eye on so-called wild-card events too.  That means looking at the possible financial impact, the relative vulnerability of their business model and their company’s ability to react to low-probability, high-impact events…. Security audits along the entire supply chain will  become a requirement to maintain effective levels of security.

The complete report is available here.

The following post has been contributed by the CUSTOMS Info/Global Data Mining (CiGDM) team:

As you may be aware, the World Customs Organization’s (WCO) reform of the Harmonized Tariff Schedule will be implemented on January 1, 2012.  The new version includes hundreds of amendments to the HS nomenclature and will trigger a massive chain reaction of critical trade data changes that, if not managed effectively, may threaten first quarter or even 2012 profit projections.

HS 2012 includes 220 sets of accepted amendments, divided as follows:

• 98 relate to the agricultural sector;

• 27 to the chemical sector;

• 9 to the paper sector;

• 14 to the textile sector;

• 5 to the base metal sector;

• 30 to the machinery sector; and

• an additional 37 that apply to a variety of other sectors.

Environmental and social issues of global concern are the major feature of these amendments, particularly the use of the HS as the standard for classifying and coding goods of specific importance to food security and the early warning data system of the Food and Agriculture Organization of the United Nations (FAO).

The 2012 HS Reform will affect each of the 177 member countries of the WCO and may result in thousands or even hundreds of thousands of updates, corrections and changes in current corporate databases housing HTS data, critical to the flow of the global supply chain. For large multi-national corporations, this will impact an enormous amount of data.

It is expected that many more shipments will be detained by customs agencies around the globe compared to the previous tariff reform five years ago. Significant changes in world trade volume, computer automation, and enhanced government oversight and enforcement have created conditions that can impact the supply chain. While automation means we become more efficient, it also means we can make mistakes faster.

Delays in the supply chain hit the bottom line. A Purdue University study has concluded the average cost per day of shipping time is approximately 0.5 percent ad-valorem. For a company importing $500 million of goods annually, an average delay of just one additional day could squander as much as $2.5 million per year from the bottom line, not including the operational costs associated with late shipments, inventory outages, and lost sales.

With the deadline for this enormous task just a few months away, brokers, forwarders, and other trade professionals can easily become overwhelmed with the scope of reclassifying and re-documenting thousands or hundreds of thousands of items for multiple countries, updating enterprise-wide computer systems, notifying all trading partners and service providers, and managing differing government regulations and effective dates. All these are necessary steps to assure a smooth transition and an uninterrupted chain of supply.

Get involved now to determine the scope of the 2012 HS Reform on your global business.  View the WCO correlation tables to understand the scope of the changes and how they might affect your business. Finding which HTS codes your company will need re-classification ahead of time will help companies update their systems when the new HTS codes are released. Stay tuned for more blog posts from CiGDM and webinars on upcoming services to ease the 2012 WCO transitions.

To keep up with the ever increasing size of cargo ships, the twin ports of Los Angeles and Long Beach have been investing in “super post-Panamax” cranes to unload freight as efficiently as possible.  The cranes are 15 stories tall and can reach across vessels which are about twice as wide as the Panama Canal.

According to the Los Angeles Times, the ports are investing in this machinery — at a cost of up to $11 million each — in order to stay competitive.  Shipping companies may avoid ports which cannot easily accommodate their larger vessels, which now are 22 containers wide.

Moreover, when the expanded Panama Canal is completed in 2014, it is expected to handle even wider ships.  The Ports of LA and Long Beach realize that ships that normally would stop at the twin ports could instead head directly to Gulf Coast and East Coast ports, who will be “scrambling to dredge channels deep enough…and cranes big enough” to capture the Canal traffic.  Accordingly, the Southern California ports are already thinking about investing in even larger cranes in order to service these vessels and maintain their position as the top ports for US-bound imports from Asia.

The full article, “L.A., Long Beach ports bet on bigger cranes,” is available here.

Japan’s triple disasters in March — earthquake, tsunami and crippled nuclear reactors — and the resultant electricity shortages have hit Japan’s economy hard and continue to disrupt manufacturing and supply chains worldwide, prompting Japan’s government to address this issue directly with global trade groups.

According to the International Business Times, about 60 countries and regions, fearful of radiation contamination, have imposed import restrictions on Japanese products.  Addressing these concerns, the Japanese government will be going into full PR mode with visits to importers and shipping agents around the world — including those in the United States.  The purpose of the trip is to “‘disseminate correct information’” about the effect of the nuclear plant crisis on Japanese exports of agricultural and industrial products.

The three disasters in the world’s third largest economy have seriously curtailed industrial production, resulting in a decline of exports in March, about 2.2% less than a year ago.  As reported in The New York Times, although Japan is still running a trade surplus, analysts predict that its economy may not begin to rebound until later in 2011 when reconstruction spending hits and manufacturing levels and electricity supplies increase back to pre-quake levels.  Nevertheless, “pain and uncertainty remain intense, particularly in the automobile and electronics industries.”

This pain contiues to be very real for US importers.  As noted in The Journal of Commerce, Johnson Controls, the Wisconsin-based maker of automobile batteries and interior systems, anticipates a half billion dollar hit on 3rd quarter revenues, due to manufacturing interruptions in Japan.