Navigating the North Korean Sanctions

Monday morning, October 9, 2017, President Trump expresses his growing lack of patience with North Korea tweeting, “Policy didn’t work.” Later that day, the UN seized four vessels including the Petrel 8 registered in Comoros, Hao Fan 6 in Saint Kitts and Nevis, and Tong San 2 in North Korea. Although US sanctions against North Korea are nothing new, the latest sanctions and escalating tension may impact US importers in unexpected ways.
Commodity-specific sanctions are what most importers in the US are familiar with, and they are therefore not surprised by the prohibitions on oil, coal, and seafood. The new rules enacted by the US in August, however, include a strict prohibition on the use of North Korean labor. Chinese production of textiles, wood flooring, and seafood uses this newly prohibited labor pool. Seafood importers are therefore impacted in two ways. First, by sanctions on North Korea seafood products, and next by prohibitions on the use of North Korean labor which is often used in Chinese seafood products.

Recently, the Associated Press tracked packages of snow crab, salmon fillets, squid rings and other seafood products which employed North Korean labor imported to distributors within the US. These distributors included Sea-Trek Enterprises in Rhode Island, and The Fishin’ Company in Pennsylvania. Companies that supply retailers, food service companies, supermarkets, and export seafood to Europe, Australia, Asia, Central America and the
Caribbean.

To ensure you are not inadvertently caught up in sanctions violation, monitor the OFAC sanctions lists for suppliers or customers. Make sure this check is performed routinely to ensure a surprise appearance by your supply chain on one of the prohibited list. Next, request certification from members of your supply chain that they do not employ North Korean labor. If you import goods from Hunchun in China, be extremely cautious since over 3000 North Koreans are working in this region. Attempt to find alternate sources for your products to ensure no interruptions occur within your supply chain, Last if you have any questions or concerns, contact your Edward J. Zarach & Associates partner for additional ways to protect you and your business from this or potential new threats out of North Korea.

Hurricane Irma impacts floral supply chain

The battering onslaught of an active hurricane season has begun impacting the $30 billion per year floral industry. Hurricane Irma not only affected the distribution lines via Florida and the Southeast US but also interrupted air freight shipments from Ecuador and Colombia. Not only are fresh blooms being stalled, but greenery and filler plants are also expected to slow down and increase in cost as they are grown in Florida and distributed nationally.

While the decreased access to the supply of fresh cut flowers can cause prices to rise, many florists are turning to local growers to offset the problems. It’s one small benefit of the time of year, as predictable weather issues have given florists concerns in years past, so local growers are already preparing even before storms hit. According to the owner of Every Bloomin’ Thing in Iowa City, Maja Hunt “We always have a little room to do something different. This time of year we source a lot of local flowers. That’s one nice thing, getting stuff locally.”

Other florists are finding luck by substituting flowers they cannot import with available blooms that are similar. “We may not have this dark pink rose,” says Jim Relles of Relles Florists in Sacramento, CA. “But we’re going to have another shade that’s going to be very similar and we’ll just substitute. And we explain that to our customers. And most people, in a time of crisis, 99 percent of the consumers understand.”

As the damage and delays from Irma begin to subside, the floral trade begins to pick up its pace. The demand for supplies into the area offers an initial trip into south Florida, where drivers are then loaded with the flowers that have once again begun arriving from South America. We at Edward J. Zarach understand that these issues are of vital importance to our customers and we hope to offer more information and options for the times when cargo is impacted by unforeseen issues. We work to provide constant updates to critical shipments and prevent delays for each and every shipment.

Anti-Dumping duties and the best practices to mitigate them.

The best practice for dealing with anti-dumping duty (ADD) is to avoid importing merchandise subject to it.  When you can’t here are some best practices to follow.

Make sure you establish a good relationship with the manufacturer or reseller.  Use your influence to encourage the manufacturer to participate in the ADD investigation.  Manufacturers who participate in ADD investigations are typically are granted lower than the general or “All-Other” rate. Further, you will want the exporter to provide invoices that contain a precise description of the goods, the country of origin and manufacturer.  Besides, you will be asking the exporter to place the product subject to ADD on a separate invoice and bill of lading.

The creation of separate invoice and bill of lading is a way to mitigate the risk associated with ADD entries.  ADD entries remain open for a longer period, pending the final review of the products in question. During this time, CBP has access and the right to examine the entry and if mistakes are found, even in the merchandise not subject to ADD, to issue penalties on those errors.  You, therefore, want the goods without ADD to liquidate timely and close any additional risk. Although this will increase the cost for the customs entries, segregating the merchandise will decrease the time CBP has to review the entries and found unnoticed errors.

Next, place a blanket reimbursement statement on file with CBP.  CBP mandates a reimbursement statement be on file upon liquidation for every ADD entry.  This document declares that the manufacturer is not reimbursing the importer for the anti-dumping duties due.  If not presented to customs at liquidation, the ADD due doubles.  You, therefore, do not want to be penalized for this type of oversight.  Placing a duly authorized, blanket reimbursement statement on file closes off that possibility,  Also, make sure the document has all the required information.  The statement should provide the dates it covers the case number, country or origin, and commodity.  Although as of 1989 the statement is only required be on file with CBP on the liquidation date,  an oversight can cost importers double the amount of the ADD duties due.  I would, therefore, have a reimbursement statements on file upon the first entry that cover all manufacturers within the case. I suggest listing all manufacturers; this will provide additional coverage if an insufficient invoice causes the broker to file an entry with a general or “All-other” rate applied.

The most common way to mitigate risk created by ADD entries is to make sure that cash reserves are set aside for the Final Review of the product.  In most cases, the closing of the case results in an invoice presented to the importer for an increase. Having the cash on hand for the liquidation date can reduce not only the risk to the merchant but also the stress created when those invoices are received.

Useful Links:

https://www.cbp.gov/sites/default/files/documents/guidance_for_cert_3.pdf

https://www.usitc.gov/tariff_affairs/nontariff_duty_finder.htm

https://rulings.cbp.gov/

http://adcvd.cbp.dhs.gov/adcvdweb

Edward J. Zarach & Assoc. Employee Spotlight: Raymond Langevin

Edward J. Zarach and Associates prides itself on our outstanding team as we can only ever be as great as our employees. For our first employee spotlight, we’d like to introduce our readers to our Senior Import Compliance Manager, Raymond Langevin, a licensed customs broker working predominately in our Minneapolis office. He joined the Zarach team in August 2015 after gaining his broker’s license.

Raymond works in the Minneapolis office coordinating with shippers and importers to ensure compliance. He works with the entry writers in Chicago checking that they’re using the most compliant means for their imports. Specializing in complex alcoholic shipments and FDA procedures often working with clients to advise on long term compliance amid a myriad of ever-evolving regulations. Raymond often works as a government liaison, auditing commodities to make sure anti-dumping compliance is enforced and shipments are imported without fees, delays, or overpayment of duties. Dumping is a process where a company exports a product at a price lower than the price it normally charges on its own home market and an anti-dumping duty is a protectionist tariff imposed on imports believed to be priced below fair market value.

“The hardest thing about my job is delivering bad news. Things can go wrong in customs and it usually involves fines and delays. Telling my customers about this is never easy and every shipment for me is mission critical. It can be high stress and long hours but the rewards are totally worth it. When things go right you feel just like a superhero. In this industry you get feedback whether you want it or not and it motivates me to see the immediate results of our work. Working at Zarach we get direct access to supervisors and they take our suggestions seriously. It feels good to know your employer values your opinion and is willing to truly hear you when you have an idea or a concern. [The team at Zarach] doesn’t let us forget the value we have and in turn we always try to treat our customers the same way. Edward J. Zarach and Associates leads by example and feels the workforce is the most important tool therfore, they pay close attention to how implementation will affect the workers.”

A Michigan native and a graduate of the Michigan State University, Raymond may have taken the most circuitous route into the logistics profession. With a bachelor of science, he majored in fisheries and wildlife management hoping to eventually manage saltwater fisheries and the biological effects on marine biology. After college he trained at the University of Alaska before he began working aboard the F/T ARICA, a catcher processor vessel out of Dutch Harbor in the Bering Sea. He recorded data on catches, ranges, and depths as an independent contractor and reported those findings back to the National Marine Fishery Services, under NOAA, to avoid data bias. Though most of his education and training had warned him he could spend his entire career without seeing a marine mammal, on his first day the vessel caught a 900lb sea lion that was trapped in the nets. Raymond then had to catalog and partially dissect the animal right on the deck to notate the event, all the while avoiding both the blood which might contain parasites and being crushed in the process.

In 2007, Raymond decided to hang up his deck shoes and accepted his uncle’s offer to join the logistics profession as an entry writer. He took a short sabbatical from entry writing to return to Michigan to care for his partner’s grandparents on their working farm. He returned to entry writing while studying to obtain his broker’s license and finally found his way to our Chicago team in 2015 as a fully licensed customs broker. In a chance moment, he jumped on an offhanded opportunity arising in Minnesota.

“While at work in the Chicago office I overheard Darryl and Allan talking behind me about the MSP office and jokingly asking no one in particular “Does anyone want to move to MSP?”  I jumped up and said I would love to move to MSP.  Several weeks later they asked me directly if I was serious about wanting to move and I said yes.  I made the move to the MSP office in mid-March 2016.”

Raymond and his partner plan to remain in Minneapolis long-term as they enjoy the benefits of a having strong neighborhood roots in a small city, lush with culture and energy and overflowing with friends who join them for weekly old movies at a local independent theater and “Soup Monday” community dinners.

Five investments Zarach has made to handle e-Commerce shipments into and out of the United States.

As shopping and distribution patterns change, the move to e-Commerce is one that logistics companies must be capable of handling. At Edward J. Zarach & Associates, we have been building our e-Commerce handling capability and are taking steps to further enhance our service offerings from shippers and our global network partners here in the United States. Here are the five things that Zarach has done to position ourselves as an e-Commerce leader for shippers and global logistics partners.

1) Edward J. Zarach & Associates joined the WCA e-Commerce network.

The WCA family of networks encompasses both general and specialty networks. The newest network of the group is the e-Commerce network and is focused on companies who provide services to support logistics companies and e-Commerce businesses worldwide. The WCA was named by Alibaba as a partner in helping to support their mission of supporting their e-Commerce business. Members of the e-Commerce network have the ability to use neutral technology tools across a global network of partners to do B2B and B2C business worldwide.

2) Edward J. Zarach & Associates offers warehousing and Customs brokerage across the United States.

From our corporate headquarters in Chicago or from any of our other offices in Minneapolis, Reno, Boston or New York, Edward J. Zarach & Associates offers Customs brokerage for general and specialty commodities across all ports of entry in the United States. Our offices in these cities, coupled with our network of warehouses, enables us to do short and long term storage, kitting and both carton and piece level shipping from any of our designated facilities.

3) Edward J. Zarach & Associates offers last mile delivery.

Standard cargo moves between countries, cities and warehouses. Our company has partnered with local truckers, messengers, postal services and express couriers to provide last mile delivery at a variety of speeds. Whether next day or deferred, Edward J. Zarach & Associates provides last mile delivery for e-Commerce companies.

4) Edward J. Zarach & Associates offers vendor consolidation and deconsolidation services.

The greatest shipping savings is achieved through consolidation between points. Whether managing a shipper’s ocean consolidation comprised of multiple vendors and orders or an air shipment for transport and delivery to individual recipients, trust Edward J. Zarach & Associates to consolidate your e-Commerce shipments for import or export and delivery from buyers and sellers worldwide.

5) Edward J. Zarach & Associates offers piece-level visibility through our WMS.

There are multiple e-Commerce order taking and shipping solutions out there and regardless of which one a shipper is using, our system can connect and receive orders for shipping. Our Warehouse Management System (WMS) is fed with inventory information from our freight forwarding and Customs brokerage systems, providing individual SKU and carton quantities that are on hand with visibility into stock levels and shipping quantities. From our WMS, clients can access on-hand inventory, ship orders and track orders to their final destination.

I’ll be in Miami in just a few short weeks attending the WCA e-Commerce conference and meeting with global partners who share our philosophy and service standards. If your company is an e-Commerce shipper or is looking for an e-Commerce partner, get in touch and our team will be happy to discuss our capabilities in greater detail and provide a quotation for e-Commerce logistics services.

 

Air freight demand soars

Air freight demand is finally back on the rise, according to the latest reports from Drewry’s East-West Airfreight Price Index and the Airports Council International. Barring any seasonal fluctuations, Drewry maintains that the air freight industry is up 8% over the same period in 2016. IATA corroborates the findings stating the current levels are the highest since 2010.

“[It] was clearly a very strong quarter … FTKs have grown by 9.7% in annual terms so far this year,” IATA senior economist David Oxley said. “In fact, adjusting for the … [2016] leap year, we estimate that the true pace of FTK growth was even faster, closer to 11%.”

North American international freight alone was up 14.2% in the fastest jump since the West Coast ports shut down.

Signs for the robust recovery come from a combination of business confidence, an optimistic economic outlook and increasing global trade opportunities. While part of the increase is in total tonnage moving via air freight, further information reveals that an increase in rates from Asia to North America was the most important factor in this climb.

Drewry claims that the recovery will likely continue though a seasonal downturn in May might offset the gains slightly, they expect another strong rebound in June as peak season ramps up. Lending credence to this theory, IATA states that this growth trend is part of an overall improvement in trade conditions worldwide as new export orders reach a six-year high.

While most expect the recovery to be steady, the rising fuel and labor costs might cause a bit of turbulence along the way. As a shipper, rate increases may not be the best news to hear when you have urgent cargo moving overseas. However, we at Edward J. Zarach and Associates are on hand to assist and advise our clients on how to navigate the climb and mitigate cost increases by sharpening efficiency, protecting the interests of our customers, and streamlining supply chain processes. Economic growth, especially in the logistics market can bring more capacity, better routings and an increase in services offered by growing companies eager to gain market share. Our company’s  industry expertise is dedicated to providing each and every one of our customers unmatched, personalized service.. We are always in your corner and remain excited to watch our industry bloom once again.

Three reasons to have a Customs compliance program.

Customs compliance should be a key element of every importer’s operational structure. For many legacy companies, their sourcing may have begun with domestic companies. The need to ensure compliance with import regulations from multiple government agencies may not have been necessary for what they were buying. However, as companies took steps to remove cost and layers from their supply chains, they became importers of record and subject to regulations from multiple government agencies. Here are three reasons that importers should have a Customs compliance program.

A proactive compliance program saves money and reduces risk.

Importers are businesses. As such, there are already investments made for accounting, insurance, human resources and other proactive steps which protect the health of the business and ensures continuity and protection. A Customs compliance program is no different.

  • Are classifications reviewed before entry for duty rate and trade program eligibility?
  • Are the goods or their packaging marked correctly with the country of origin?
  • If an agricultural commodity, is it permitted entry into the United States?
  • If potentially subject to antidumping, has a scope determination been obtained to avoid unnecessary risk?

These are reasonable questions that if an importer has a process in place can ensure that goods are brought in at the lowest possible duty rate with the fewest possible delays because of the due diligence done prior to entry to ensure complete admissibility.

It is never too late to undertake a review and implement corrective actions and take proactive steps.

Importers who have not had a compliance program may ask themselves, “Our company has been importing for years. It’s too late to try to institute these processes today.” At Zarach, we emphatically deny this and caution importers that it is never too late to implement a compliance program. A proactive analysis of an importer’s records could yield examples where there are issues of non-compliance which could be declared to Customs using a prior disclosure, limiting financial exposure to penalty multipliers within the regulations.

Non-compliance is expensive. Just ask this Texas importer ordered to pay more than a quarter million dollars.

An importer in Texas made a business decision to bring in furniture for use in university dormitories. They told Customs that it was not wooden bedroom furniture which was subject to antidumping duties of well over 200%. Customs disagreed, and the Justice Department levied a civil fine of $275,000 against the company for evading the regulations.

Trust Edward J. Zarach & Associates to craft your Customs compliance program.

As Customs brokers, we understand the regulations that govern the activities of importers. For decades we have helped importers operate their businesses profitably and within the scope of U.S. law. For more information how we can do it for your company, contact us today.

The changing shape of ocean alliances

On April 1, 2017, which was the start of the contract season, the four ocean carrier alliances reorganized to form three alliances, making up more than 77% of global container capacity and 96% of trans-Pacific container capacity. Thanks to an unprecedented number of mergers and acquisitions in 2016 forced by a glut of excess capacity causing rates to bottom out, the alliances are a way for carriers to offer the same or better services with less risk and less operational cost.

How did we get here?

The market-wide investment in supersize ships was originally a boon to carriers as it lowered their per container cost, but as more carriers invested in larger vessels, capacity skyrocketed, supply outpaced demand and the prices tanked. Container demand was unable to continue growing at an average of 4% per year once China’s growth began slowing in 2010.

The first, and the largest, casualty from the pricing crash came when Hanjin collapsed in August of 2016, after months of attempted debt restructuring. This left the supply chain industry in a state of chaos as Hanjin vessels were barred from docking due to their inability to pay port fees. The threat of container seizures led to a panicked scramble as shippers tried to locate and acquire their cargo from the Hanjin vessels.

Who are the alliances?

  • 2M: Maersk and MSC (in a vessel sharing agreement with HMM) which has 29.5% of the global market share. They may see this rise to 33.4% if Maersk’s plan to acquire Hamburg Sud is approved.
  • THE Alliance: Hapag-Lloyd (merging with UASC), KLINE, MOL, MYK, and Yang Ming which has 16% of the global market.
  • Ocean Alliance: CMA, COSCO, Evergreen, and OOCL which has 26% of global container capacity

What are alliances?

It’s important to note that these alliances aren’t mergers between companies to form enormous super carriers. Instead, these alliances are a cooperative agreement that forms a strategic alliance to cover major trade routes as no single carrier can provide service to every trade lane and every port every week. By sharing common resources, shipping alliances are able to cut variable expenses.

How do the alliances help?

Carriers can offer more sailings with fewer vessels, relying on their partners to pick up any slack and cover any trade lanes that are not serviced to better benefit customers, reduce congestion at ports, and lessen environmental impart. Alliances also offer an internal support and financial stability as operational costs decrease and allows for a much better allocation of resources as they create economies of scale. Alliances are also able to keep cargo moving in the event of a carrier bankruptcy thus preventing calamity for shippers.

Is this an oligopoly?

No. While alliances can use their immense size to negotiate with marine terminal operators who agree to that arrangement, the alliances cannot share cargo or customer information or rates within the alliance and must negotiate independently and avoid collusion in the market.  Eventually, as port alliances begin to take shape, there is the chance they’ll prefer to negotiate alliance to alliance with carriers, but currently only MTOs even have the option. These alliances can and likely will reconfigure again as the market changes and new lanes take precedence and carriers find better, more effective collaborations.

Where does that leave us?

As 2016 was a turbulent year in the ocean landscape, marked by rapid industry consolidation and painfully low rates due to overcapacity, the final formula for alliances may need more adjusting before finding a progressive mix of growth and stability. However, for now, alliances aim to protect both the carriers and shippers while the market settles and we discover what business as usual means for ocean freight once again.

 

Attention food importers: Major changes to FSVP beginning May 27th. Are you ready?

FSVP Importers and CBP importers have new rules to follow beginning May 27, 2017.

The Food Safety Modernization Act (FSMA) contains a requirement that Food Supplier Verification Program (FSVP) begins on May 27, 2017, and importers will need to provide additional data elements to file entries for release with CBP and FDA.

There are many new acronyms. What is FSVP?

FSVP is flexible, risk-based program to verify foreign suppliers and the safety of the food they produce. The FSVP will require two key things:

  • Identification of the FSVP importer for foods imported into the United States.
  • The FSVP importer (defined below) is responsible for verifying that the foreign suppliers are using safe processes and procedures. The food must also not be adulterated or misbranded.

Is the FSVP importer different from the CBP Importer of Record?

This is a great question, and in most cases, the parties might be the same. The party must have, in the words of the legislation, “direct financial interest in the food product.” If you have any question as to whether or not you believe you are both the CBP Importer of Record and the FSVP importer, contact us for a determination.

A simple rule of thumb is: If the CBP Importer of Record is the US owner or consignee, they are by definition the FSVP importer.

What is used to identify the FSVP importer?

As the Customs broker preparing your entry, this additional requirement will add time to enter and process the shipment. Additionally, three key pieces of information we require are the FSVP importer’s contact information, DUNS number and food facility registration number.

How can and should an importer verify the FSVP party?

The regulations allow for a great deal of flexibility in this interpretation. FDA allows the US importer to establish an internal program using a “qualified individual” to verify suppliers, or they can rely on third party verifiers. If your company is looking to setup or outsource this step of the process, we are happy to help you accomplish this important compliance goal.

Are any kinds of food product exempt from the FSVP requirement?

Yes. The parties will need to be identified at the time we file the Customs entry, but the verification processes are far less rigorous. A short list of exempted commodities include:

  • Juice under HACCP.
  • Seafood
  • Alcoholic beverages
  • Products of Canada and New Zealand have less restrictive requirements as their food safety systems are considered comparable to the United States.

Can I read more about this?

If you’re the kind of person who enjoys a deep dive into federal regulations, by all means we encourage to to take time and read it end to end.

Here is a quick FAQ prepared by FDA that lays it out in simple terms.

Here is the final rule including a link to the Federal Register publication.

We’re here to help.

As always, this is never something an importer should feel like they have to tackle alone. As a Customs broker with a deep practice filing entries on many kinds of food, we are aware of the regulations and how importers can navigate them safely. For more information or a consultation contact us today.

Live from the floor of Seafood Expo, it’s Edward J. Zarach & Associates and the WCA Perishables Network!

Last week was Seafood Expo, the largest trade show for companies in the seafood industry. Held annually in Boston and formerly known as the “Boston Seafood Show”, the show is where US fisherman, producers and foreign suppliers come to present their products to buyers large and small. The show also features packing, refrigeration, blast chilling, metal scanning and other weighing and portioning machinery. One of the most interesting parts of the show are the country pavilions, where a nation will purchase a booth and give smaller producers the opportunity to get in front of a global audience.

While we handle many commodities across our five US offices located in Reno, Minneapolis, Chicago, New York and Boston, one of our major areas of specialty is seafood. We understand the importance of speed and accuracy because seafood, whether fish, shellfish or lobster, is a perishable commodity. Any delay in getting the goods moved, cleared and delivered impacts our clients ability to sell to their audience.

It is for this reason that we walked the floor with two distinct groups over two days. On Sunday, I was on the floor with Patrick Wyndham and Veronica Rosa from our Boston office. Boston, understandably, sees a tremendous amount of seafood through the port, both for transport into and out of the country as well as Customs clearance. Patrick and Veronica are key in ensuring that the goods are cleared before arrival, including both Customs and FDA, so that as soon as the cargo is available, we move it to final destination or make it available for our customers to retrieve from the airline.

On Monday, we had a global consortium of member companies in the WCA Perishables Network, one of the specialty networks of the WCA Family of Networks. Comprised of freight forwarders and Customs brokers from around the world, the WCA Perishables Network audits and validates the member companies and their capabilities, ensuring a consistent quality and level of service globally. The WCA Perishable Network sees the chance for individual companies to compete against global and multinational firms by offering a standardized level of service, allowing best-in-class companies in cities and countries to compete for global tenders.

We are especially proud of our membership in this group. Pictured in the image from left to right with me are: WCA Perishables Members from Asthon Cargo, Edward J. Zarach and Share Logistics at Seafood Expo 2017