Homeward Bound

Canada’s contribution to the war on terrorism launched by the United States last month likely won’t come in the form of ground troops dispatched to a distant land. Instead, it will be heightened security here at home along the world’s longest undefended international border.

In recent weeks, Canada has been called a “soft spot” and a “staging ground” for terrorists by U.S. Congressional representatives, who have asked President Bush to devote more manpower and technology toward protecting American soil from the likes of those who perpetrated the Sept. 11 attacks in New York and Washington, D.C. Political pressure is building on Canada to do the same.

There’s a lot at stake for both countries. Canada and the United States exchange nearly $1.8 billion in goods each day, 70% of which moves by truck. Roughly three-quarters of Canada’s manufacturing output is exported to the United States, primarily in the automotive industry. Canada must develop a way to maintain security without creating the horrendous delays that flared up last month. In a letter to federal Trade Minister Pierre Pettigrew, Gerry Fedchun, the president of the Automotive Parts Manufacturers Association, said such tie-ups would allow terrorists to “win by causing such an economic disruption that we are pushed into recession.” The hours-long waits raised talk of manufacturers trying to consolidate freight-or increasing inventories-in order to reduce their frequency of crossborder shipments.

Neither would bode well for trucking companies.

Coincidentally, Canada Customs and Revenue Agency (CCRA) this month will launch Customs Self-Assessment (CSA), a voluntary program that will reward companies for strict compliance with customs and immigration rules with speedy clearance at border points. In a profound change from traditional customs clearance, under CSA the importer, carrier, and driver are pre-cleared to enter Canada, and the freight is released without physical inspection. The program has the potential to dramatically speed processing times for shippers who transport large volumes of the same types of goods across the border as a matter of routine-and who operate at a high level of compliance with customs and immigration rules.

Participation involves an exhaustive application process. “This is a system based on trust,” says Oryst Dydynsky, a former member of CCRA’s CSA implementation team and now a consultant with International Trade Services ViaSafe. “It’s like a frequent flyer program. These people have applied, been reviewed, and are known to have good business practices. They know what they’re doing and should be rewarded.”

Because the shipper, carrier, driver, and freight are pre-approved, customs and immigration officials will be able to focus on other importers and drivers streaming across the border, says Caron Wilson, project manager with the CSA implementation team. CSA participants also will undergo periodic audits to verify the companies’ compliance, and any customs officer at the border still may carry out a random inspection. Anyone caught abusing this newfound “trust” will have their CSA status revoked and face fines up to $25,000.

To date, only a handful of importers have enrolled in CSA. They are all large manufacturers based in Ontario that employ numerous trucking companies to move freight into Canada. It’s an important point, since CSA-approved shipments must be hauled by CSA-approved motor carriers and drivers.

The procedure for a full CSA load is simple enough. The importer and carrier each are assigned a bar code. At the border, these two codes, along with the driver’s CSA registration number, are scanned and cross-referenced against a database. The three criteria and their passage histories are identified, cleared, and the incoming shipment is then authorized for delivery to the importer. In theory, because all three elements will be known entities to CCRA, the process can be completed in less than a minute. It eliminates paper and faxing, results in less questioning, and should save all involved time and money.

Clearing a mixed load-when there is freight that’s not part of the program on the same trailer-is more complicated. Ideally, the carrier, using a CSA-registered driver, will transmit its manifest data electronically prior to arrival at the border. In this case, the truck may continue inland to the carrier’s bonded warehouse pending a release decision for the non-CSA shipments.

The process for a non-registered driver will be more rigorous at the first point of arrival and could include a referral to secondary, an examination of the conveyance, and/or the shipment(s) on board. Similarly, carriers presenting paper manifests will be required to proceed to the highway sufferance warehouse pending a release decision for the non-CSA shipments.

The role of a customs broker also changes under CSA. “For pure CSA shipments, because we are not asking for any information relating to the goods, there really is no role in relation to border clearance,” says Wilson. “But there is an ongoing role in terms of accounting and payment, and program compliance. And when you include AMPS, there’s more of a focus on compliance. They have a lot of expertise to offer in that area.”

Dydynsky adds that brokers will have an extensive role under the LTL scenario and when dealing with importers, who will have the luxury of an accounting and clearance process where they don’t have to report the details of each individual load at the border. Importers can rely on their own business systems and take up to 30 days to transmit trade data and revenue reports back to CCRA electronically.

So what does CCRA look for when approving the three elements of CSA? First the driver: CCRA is looking for information on residency and whether a driver has a criminal record or violations under the Customs Act or Immigration Act. Both the importer and bonded carrier are required to undergo a three-step application that includes a far more extensive business profile. Both need to describe, among other information, their business profile and U.S. partnerships, a list of divisions or terminals, and what mechanisms are in place to minimize criminal activity. Both also have to fill out a second application that details their internal information systems. The applications are online at www.ccra-adrc.gc.ca.

“Post-audit carriers already have mechanisms that track shipments, whether they are domestic or international, from the time the shipment is ordered right until the goods are delivered,” says Wilson. “By and large, that’s what we’re looking for. We want to make sure carriers can track that shipment, because from a customs perspective the carrier is liable for those goods until they are delivered to importer. This basically gives the agency a comfort level that carriers know where their shipments are going, and we could subsequently go in and verify it.”

The added level of bureaucracy has been a tough sell for trucking companies.

Craig Germain, vice-president of sales and marketing at Toronto-based XTL Transport, a truckload carrier that hauls for goods for Kodak Canada, one of CSA’s biggest supporters, says he needed to be convinced when CSA was proposed at his company months ago. He says after some review, XTL decided CSA would not be the massive undertaking first thought.

“Becoming approved is not as indepth as maybe the perception out there,” Germain says. “A lot of these qualifications are what’s already required to have your fleet operating under any environment these days.”

XTL has prepared for CSA by updating its internal systems and educating employees. The company’s latest newsletter contained a detailed description of the whole CSA process. It has also incorporated CSA-type criteria in its hiring program.

Germain says that with the electronic fleet management system XTL has in place-OptiYield Driver&Load by Logitics.com-the company should have no trouble qualifying after some fine-tuning. “CSA and non-CSA will be a new criteria that we will integrate in dispatch software. If programmed properly it will not select a non CSA driver for a CSA load,” he says.

Germain has no doubt the benefits of CSA will outweigh the inaugural set backs. Although he agrees there will initially be a direct correlation in being CSA approved and soliciting business, he says an even bigger advantage will be faster turnaround time of trucks.

“For us, with short to medium hauls, we need quick turnarounds. We’ll be able to do that if the time of release is reduced at the border, not to mention hours of service. To have hours of service time be eaten away by delays at customs, anything to help improve that we believe in strongly.”

Moreover, any benefits seen and used by the importer can only have a positive effect on the whole trade chain. “If the importer sees the benefit, to me that can only mean it’s going to improve their business, whether it’s in cost reduction, less inventory, or shrinking their own lead time of delivery. Ultimately they may be less inclined to attack the rates, which is right now the easy knee-jerk reaction for everybody in this industry.”

However, not all carriers see the same advantages. Manitoba Trucking Association general manager Bob Dolyniuk goes so far as to call the program “a dog’s breakfast.” Dolyniuk’s biggest problem is that carriers will be held to a graduated 99% CSA compliance margin-meaning that at the end of the calendar year carriers will be audited to see how many times they broke CSA rules. If they have not maintained a threshold of 99% compliance, than they can face fines of up to $25,000.

Moreover, if a driver has his CSA card revoked for whatever reason, the carrier can be liable and face a penalty and fine under AMPS. Because of privacy issues, a carrier may never be notified if a driver has his card revoked. If such a situation occurs, Wilson admits a carrier will be charged a penalty, but adds that if the carrier was never notified and shows due-diligence, it can appeal and have the charge overturned.

Germain admits the process can be bureaucratic, but he believes such instances will be few and far between since carriers will have to show they have systems to prevent such situations to become CSA approved in the first place. If there should be any improvements to CSA, Germain would like to see a quicker turnaround time for processing applications.

At its infancy stage, turnaround is four to six weeks, he says, and unless CCRA adds more manpower, that gap will grow as CSA becomes more popular with other importers and carriers.

CCRA will have their work cut out for them beyond improving turnaround time. With the big shippers already expressing interest, CCRA is now looking at how to extend their focus by marketing to a broader range of importers and carriers, as well as expanding the program overseas via all modes of transportation.

John Bescec, vice-president of International Trade and Government Relations for the Canadian Importers and Exporters Association says there are real benefits to CSA, but adds CCRA has to do a better job of educating and marketing the program to a wider range of smaller importers. He says many of his members need more information before considering making changes for CSA approval. “Initially there was no response, but more and more importers are seeing this as a selling tool,” says Bescec.

There is no doubt that participation and the program itself is evolutionary in nature.

“This is not the big-bang theory,” says Dydynsky. “There is obviously a wait-and-see type of approach out there. Importers and carriers naturally want to see how others do first.”

Germain recalls a time not so long ago when satellite tracking was regarded by the industry in much the same way.

“Today, it’s become the standard rather than the exception,” he says. “Maybe I’m not in the mind of a 40-truck operation, but frankly I can’t believe in this day in age that a carrier will have to undergo a major reengineering to become CSA-qualified. If you’re running freight in year 2001, you should already have at least some of these systems in place. If you don’t, how are you getting by?”

It’s a question CCRA itself needs to ask the industry if it wants to continue shaping the future of international trade.