WASHINGTON — Apparel and textile importers will likely have to pay more to ferry cargo to the U.S. in order to pay for heightened port and ship security measures newly mandated by the government.
This story first appeared in the July 15, 2003 issue of WWD. Subscribe Today.
As early as year’s end, any firm that buys merchandise from abroad — the bulk of U.S. apparel sales are imports — will face a cargo security surcharge or user fee, but the amount and duration is still to be determined. For those who import from Asia, the security premium would follow cargo rate increases of almost $1,000 per 40-foot container, which went into effect last month.
This month, the 361 U.S. commercial ports and 10,000 commercial ships were mandated by the Department of Homeland Security to tighten physical security and create security protocols, which were already ratcheted up after the Sept. 11, 2001, terrorist attacks. The government estimates deploying this new security will cost more than $7.3 billion over the next 10 years.
The costs will eventually be passed on to retailers and then consumers. Although no catastrophic increase is expected, any rise in price adds up in the commodity-driven apparel industry that is already facing tough times.
“Security requirements will force prices up through the supply chain,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel
Hughes said the new round of costs will be in addition to huge security investments made by manufacturers and retailers required earlier by the U.S. government. She said, “We’ve already invested millions on our side.”
DHS has already pegged $442 million in federal grants for ports and related maritime facilities to use this year. However, the amount pales in contrast to the almost $1 billion in projects requested.
It was only a matter of time before ports and ships faced their own blanket of government security mandates, ordered in place by Nov. 1. So far, DHS and its Bureau of Customs & Border Protection have focused security efforts on cargo before it leaves its point of embarkation. The strategy is to deploy Customs officials at foreign ports to scrutinize manifests and x-ray containers to ward against weapons, bombs or even terrorists being smuggled aboard and causing havoc once they reach the U.S. shores.
Marine terminal and ocean carrier owners are now huddling to decide how to fill the funding gap. Last month, the Federal Maritime Commission granted the two groups antitrust immunity in order to discuss strategies to fulfill and pay for security obligations.
“It’s an issue that hasn’t been discussed much. So far, the carriers are bearing most of the cost of security, but everyone in the country is benefiting from the fruits of our labors,” said a spokesman for American Presidential Lines. “So the question becomes, how do you distribute the cost of preventing a terrorist attack? Is it a surcharge on containers? Is it a tax that everyone pays? Or is it a surcharge on goods that are shipped that gets rolled into the price of a skirt, blouse or pair of pants?”
A spokeswoman for the Port of Oakland in California, the fourth-largest port in the country, received $1.6 million from the federal government for security — a fraction of the $69 million requested. The funds will be used for systems to detect intruders and control access to facilities.
“Security is expensive,” the spokeswoman said. “When you look at the little money the government has given, we feel lucky we got the money we did.
Hubert Wiesenmaier, executive director of the American Import Shippers Association, which manages cargo contracts for several apparel concerns, said he expects importers to be hit with security surcharges.
“You will be affected, regardless of where you source from,” Wiesenmaier said. Eventually, he expects security surcharges to be treated as business as usual and the cost rolled into freight rates.
Importers have already been hit with security surcharges to deploy another federal mandate, called the 24-hour manifest rule. Customs since February has required detailed cargo manifests be supplied electronically to the agency or to Customs officers at the port of embarkation 24 hours before a carrier sails. A similar requirement for cargo originating in the U.S. will go into effect Oct. 1 and require a 48-hour notification.
The 24-hour manifest deadline for U.S.-bound cargo, along with a requirement that importers have a strict supply-chain security protocol originating at the foreign factory floor have forced many changes in foreign manufacturing and shipping. It wasn’t uncommon for foreign apparel makers, often facing last-minute fashion deadlines, to rush shipments to ports even two hours before a carrier sailed. Called “run-ins,” the hastily delivered cargo was typically accompanied by generic or blank manifests that were filled in electronically during the ship’s passage to meet a 48-hour-before-arrival deadline then set by Customs.
Now the manifests require extraordinary detail about cargo content, and for apparel that means a garment’s color and whether it has a bow, for example. In May, a four-month grace period ended and Customs began to make no exceptions in deciding whether to issue “Do Not Load” orders for cargo that has an incomplete manifest.
Being left on the dock can spell headaches, especially since shipments traveling in shared containers could get stranded because another importer failed to completely fill out their manifest. So far, 400 “Do Not Load” orders have been issued.
Besides the cost of shipping delays, there’s also a security charge for getting bumped. Most carriers have imposed a bill-of-lading fee to cover their costs of deploying more employees to scrutinize manifests in advance to prevent Customs from leveling a “Do Not Load” order. Common bill of lading security charges are $30 for paper documents and $10 if they’re filed electronically. Common bill of lading errors, according to APL, are incomplete addresses, vague product descriptions and quantity.
“Details, details, details,” is the advice APL gives its customers when filling out manifests. The APL spokesman said the added scrutiny has meant few manifest violations and that positive things have also come out of all the changes.
“This does have the potential to help customer companies run better and more flexible supply chains,” the spokesman said. “They now have more information about what’s on the water, [their inventory and] whether the shipment should bypass the distribution center.