Workshop #3
Importing & Exporting – Best Practices
April 22, 2013
San Diego, CA

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• 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 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.

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

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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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• 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

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Global Capacity
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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
10 longer-term contracts.

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
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• Continued vessel idling

Import/Export – Best Practices
39 th Annual Conference
Transportation & Logistics Council
San Diego, CA
April 22, 2013

What Are the General Trends for Trade?
Compliance Facilitation
Safety Security

What Has Actually Happened?
Compliance
Facilitation
Safety
Security
Humanitarian

“Trusted Trader” Concept
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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 21 st 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
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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

Security: C-TPAT Achievements (September 9, 2011)
• 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
Certified Members by Business Type
838
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Importers - 4375
Carriers - 2873
• Number of completed validations by year:
-2010 / 1,017 -Initial Validations / 2,127 -Revalidations
3,144 -Total Validations in 2010
1168
866
-2011 / 446 -Initial Validations / 1,344 -Revalidations
1,790 -Total Validations in 2011
1,109 - Total Suspensions (525 Highway Carriers)
•
943 - Total Removals (382 Highway Carriers)
2873
4375
Brokers - 866
Foreign Manufacturers - 1168
Consolidators/3PLs - 838
Marine Port Authorities and
Terminal Operators - 61
Validations By Year
• Internationalization Efforts:
4000
– 5 - Mutual Recognition Arrangements: New Zealand, Canada, Jordan , Japan, Korea
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3 - Mutual Recognition Projects: European Union, Taiwan, Singapore
3000
– 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
1000
0
2006 2007 2008 2009 2010 2011
•
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.
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329 - Tier 3 Importers
Source: CBP Office of C-TPAT/Industry Partnership Programs (September 2011)

Security
If your company participates in a supply chain security program, why did your company decide to join the program?
60%
50%
40%
30%
20%
10%
0%
2009 2010 2011
Fewer Inspections
It is the right thing to do
Business partner pressure
Expedited clearance
Haven't joined
2012
Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June
2009, May 2010, May 2011, and August 2012, respectively)

Security: Great Expectations
Has the supply chain security program in which your company is enrolled met your expectations?
80%
60%
40%
20%
0%
Met expectations
2009 2010
Exceeded expectations Fallen short
2011 2012
Some programs have, some haven't
Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June
2009, May 2010, May 2011, and August 2012, respectively)

Security: If you knew then, what you know now . . .
Based on your experience with supply chain security programs, would you join today?
70%
60%
50%
40%
30%
20%
10%
0%
2009 2010 2011 2012
Yes No Don't know
Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June
2009, May 2010, May 2011, and August 2012, respectively)

Security: Cost of AEO Status
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?
60%
50%
40%
30%
20%
10%
0%
2009 2010 2011 2012
Less than $20K $20K to $50K $50K to $100K $100K to $200K More than $200K
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
Is the amount your company spends maintaining status in its supply chain security programs:
60%
50%
40%
30%
20%
10%
0%
2009 2010 2011 2012
More than anticipated
Less than anticipated
About what was anticipated
Had no idea of costs
Answer not offered
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
Do you think the cost to join/maintain your company’s supply chain security program(s) is worth the benefits?
50%
40%
30%
20%
10%
0%
Yes
2009
No
2010
Don't know
2011 2012
What benefits?
Source: AAEI Benchmarking Survey – Security Question for Importers/Exporters (June
2009, May 2010, May 2011, and August 2012, respectively)

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
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?
60%
50%
40%
30%
20%
10%
0%
2009 2010
Less than 6 mos.
1 to 2 yrs.
No audits in 5 yrs.
2011 2012
6 mos. to 1 yr.
More than 2 yrs.
Source: AAEI Benchmarking Survey – Import Question for
Importers/Exporters (June 2009, May 2010, May 2011, and
August 2012, respectively)

Compliance: Voluntary Disclosures
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?
60%
50%
40%
30%
20%
10%
0%
2009 2010 2011 2012
Initial filing is perfected
Less than 60 days
60 - 180 days
More than 180 days
Haven't filed any VSDs
Source: AAEI Benchmarking Survey – Export Question for
Importers/Exporters (June 2009, May 2010, May 2011, and
August 2012, respectively)

Security: Status of AEO MRAs
Concluded MRAs
Date Country
June 2007 New Zealand – USA
May 2008
June 2008
June 2008
July 2009
June 2009
July 2009
June 2010
June 2010
June 2010
June 2010
June 2010
June 2010
January 2011
May 2011
June 2011
June 2011
Japan - New Zealand
Canada – USA
Jordan
– USA
EU – Norway
Japan – USA
EU – Switzerland
Canada – Japan
Canada – Korea
Canada - Singapore
EU – Japan
Korea – Singapore
Korea – USA
Andorra – EU
Japan - Korea
Korea – New Zealand
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)
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Creates “system of records” for all the C-TPAT data in the profile which mat be disclosed outside DHS as a “routine use” to:
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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
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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
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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:
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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
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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?
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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?
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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.
”

Andrew M. Danas, Esq.
Grove, Jaskiewicz and Cobert, LLP
39 th Annual Conference
Transportation & Logistics Council, Inc.
San Diego, California
April 22, 2013

 Non-contiguous international transportation services can be offered by:
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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
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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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Ocean shipping rates & services: the most regulated mode of transportation
Recent Federal Maritime Commission (FMC) actions increase pricing flexibility. They include:
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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.
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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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• The basic rules about ocean rates.
• How ocean tariff rates work.
• The basic rules of international ocean contracts
• and the entities that can offer them
• The documents that constitute the ocean contract
• Amendment of ocean contracts.
• The roles of 3PLs and their contracts.
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Rule 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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Written contracts must include:
1. Rates
2. Origin & destination ports or points (trade lanes)
3. Commodities or commodities
4. Minimum quantity commitment (MQC)
5. Service commitments.
6. Line-Haul Rate
7. Liquidated damages for non-performance (if any)
8.Duration, including Effective Date & Expiration
Date
9. All other provisions of the contract.
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Rule: Contracts must be specific
• Essential Terms may not:
 Be uncertain, vague or ambiguous; or
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

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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• 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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•
•
•
•
•
•
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
Spot market rate exempt from tariff filing
Not Comprehensive
NVOCC Rules Tariff will apply, including surcharges, unless specifically excluded
Limited to US NVOCCs
NSA
Written contract
Comprehensive
Can include all applicable terms and conditions of service. Must include a MQC.
Available to all NVOCCs
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Applicable rate: the rate legally in effect on date shipment received by the carrier OR its agent.
• Tariff Rates Effective Only If Published
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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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Scenario 1:
Service contracts
& NSAs lock in rates and rates go up
Scenario 2:
Service contracts
& NSAs lock in rates and rates go down
Solutions Include:
--Multiple contract amendments
--Shorter term contracts
--Index rates
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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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• 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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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: MQCs
Key Questions to Ask
Minimum Quantity Commitments (MQCs)
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 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
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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.
63

Traps for the Unwary:
Incorporation by Reference





64

Traps for the Unwary:
Incorporation by Reference
 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.
65

Traps for the Unwary: Incorporation by Reference
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.
66

Traps for the Unwary: Incorporation by Reference
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
67

Avoiding Incorporation by Reference Traps for the Unwary:
Bill of Lading Best Practices


68

69

 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
70



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.
71

 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
72

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
73

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

Andrew M. Danas, Esq.
Grove, Jaskiewicz and Cobert, LLP adanas@gjcobert.com
39 th Annual Conference
Transportation & Logistics Council, Inc.
San Diego, California
April 22, 2013

by Jerrod Slaughter, Corporate Transportation Manager

Know the Mode
• Ocean service contracts and service agreements
• What is important?
Have a Strategy for alignment
• Get Stakeholders involved to help a line with needs Supply Chain
• Line vs. NVOCC
• Request for Quotation
“Best Practices”
• On Boarding
• KPI / Evaluation

Understanding Ocean …

Peak
Season
(PSS)
CY, IPI,
Door?
General
Rate
Increase
(GRI)
Rates
Surcharges
MQC
Volume
Bunker
(Fuel)
Detention
Demurrage
KPI and
Space
Guarantees




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

Rates



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)





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 1 st through October 31 st
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!
Add terms to
RFQ’s

Partner with internal Legal Counsel

Seek help on “boilerplate” by mode
Best
Practice!

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)
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
NVOCC
NON VESSEL OPERATING COMMON CARRIER
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



Define “Who’s who”

Detailed Standard Operating Procedure (SOP)

Escalation path


Slowly turn on the Valve!


Plan, Do, Check, Act



Best practice: 3 month rolling forecast

Keep it simple!


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 %
+/- 1 Day of Target
Transit
% Within Time
Range
(Days)
Avg
Variance:
Target vs
Actual
AA Ships
HAIPHONG –
LOS ANGELES, CA
HAIPHONG -
Zeebruggee
HO CHI MINH
CITY –
LOS ANGELES, CA
219
181
720
16
29
20
22 77% 69%
34 36% 31%
19 100% 18%
20
30
19
3
4
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