CPSCIA 2008 Update

You won't be alone if you don't know what that acronym stands for. There are enough of them in the government nowadays, that's for sure. It stands for the Consumer Products Safety Act of 2008 which was passed into law last year. Among other things, the law mandates new permissible levels for lead paint and phthalates in children's toys and apparel, mandatory third party testing and certification requirements and a significant stiffening of penalties, both civil and criminal, for violations of the Act.

The full text of the act can be found on the CPSC's website here. Over time, the amount of lead in children's items must be reduced first to 600 ppm (parts per million), then 300 ppm and finally to under 100 ppm. Additionally, there will be limits for phthalates as well in both toys and apparel. Phthalates are used in plastic and/or vinyl and can be found in apparel items such as children's footed pajamas. Components of garments will be required to meet the new levels as well, and "components" includes zippers, buttons and other fasteners.

While the certification requirements are in place and importers and distributors should make this information available to CBP, CPSC and the public (if so requested), the testing requirements have been stayed for a year. It seems impossible to state that products meet the new levels without testing, so it's a Catch 22 for companies.

What is most important is that importers (and distributors of imported products) will all be held liable for products which enter the commerce that are in violation of the laws of the act. This means that companies who are distributing products imported by another person or firm will be liable as well.

The penalties are not insubstantial and are ratcheted up significantly. Cvil penalties in August, 2009, will increase to $100,000 per violation and a maximum of $15 million for related violations. Criminal penalties will be up to five years in prison and fines of up to $250,000 for individuals and $500,000 for corporations for each offense.

The moral of the story? Make sure you're complying. If your company is an importer, it has been suggested to take some basic steps to protect yourself including:

• Reviewing contracts and purchase orders to be sure that vendors will be responsible for compliance and will indemnify you from loss.
• Speak to your insurance company (whoever carries your product liability insurance) to be sure that recalls and related issues are covered.
• Insure there is a documented process in place should a recall become necessary to facilitate and expedite the process and demonstrate good faith compliance to the appropriate government agencies involved.

They (the CPSC and CBP) are extremely serious about this. Last year's high profile cases of melamine in pet food, lead paint in toys and even the melamine-tainted in milk in China and subsequent legislative response by the Congress are a clear sign that not complying will not be tolerated.

CBP seminar on Importer Security Filing

This week CBP's road show talking about the 10 +2 Importer Security Filing program made a stop in Chicago. They held a morning and afternoon session and in both instances, a 400 seat auditorium was packed to the gills.

There were no major surprises to come out of it. The presentation is available on CBP's website for viewing, but it was some content which was added by the presenter that I found most interesting.

Everyone knows that CBP plans to issue report cards for performance on ISF filing. What is less know and is still be worked out are the means by which CBP will enforce during this one year grace period. We were told:

• There are CBP officers right now reviewing this data and if importers are not submitting ISF's then CBP is well within their right to issue a do not load (DNL) message to the carrier until such time as an ISF is filed.
• The mitigation guidelines for penalties are being written now and an importer's history of filing (or non-filing) of the ISF will contribute to whether or not penalties in the future are mitigated.
• While DNL's will not be issued for ISF's which are filed incomplete and penalties for such infractions will not be imposed until 2010, anything which is in the interest of the national security of the United States will be acted upon and the one-year grace period should not be construed as allowing "anything" to get on board.
• CBP also indicated that there are no plans in the immediate future to expand this program to other modalities (air, truck, rail).

CBP has been more than clear about their goal to use this as a vehicle to get more information to better target inbound cargo for security. It is not to be used for admissibility purposes and that was again restated. We will wait and see if that truly is the case.

Take the long way home...

Apparently steamship lines are finding it cost-prohibitive to transit the Suez Canal. Never mind the pirates and such, but apparently the toll fees when they're busy trying to pinch pennies are so high that they're willing to take seven extra days to sail around the Cape of Good Hope rather than the Suez shortcut and even the week's extra transit time is still CHEAPER.

What does this tell us? First, that we really need to dig canals through major landlocked areas and charge through the roof during global shipping boom cycles. Second? That apparently despite being able to use words like "million" or "billion" conversationally, I really have no concept of what things cost in the real world. (Answer: For a 'very large container ship', $700,000.)

Container volume down in Southern California...who could've seen *that* coming?

The Journal of Commerce reports that volume slowed 23.4 percent in January from the same period a year earlier. Exports were even sharply lower, down 27.3%.

The state of the shipping industry is one of great fluidity at this point. At last count, more than 1.1 million TEUs of container ships were idled globally. Carriers are even storing containers on those idled vessels. (Journal of Commerce subscription required for container storage story)

And now, carriers like CMA-CGM are going to try to seek rate increases on many if not all of their trade lanes. Here's a news flash: Maybe if you weren't so busy slashing and burning rates to try to incent business that doesn't exist to change, you wouldn't have to be trying to pump those numbers back up again.

We're also being approached by several of our carrier partners wanting us to sign our contracts NOW for 2009-2010, well in advance of their expirations many months down the line. Peculiar and it makes me wonder what their end-game is.

A couple of weeks ago I received the following picture from a buddy who used to work for a big blue steamship line. They're Danish, and not the kind you eat, either. Reminds me of Monroe Harbor during the summer time in Chicago, except they're a little bigger and not nearly as plush. This picture was (allegedly) taken in Singapore.

So you want to learn more about 10 + 2?

Customs and Border Protection will be traveling around the country with their "10 + 2 Roadshow", not to be confused with the Antiques Roadshow which is far more entertaining but probably contains an equal number of surprises. They're in Chicago next week and we will be sending our entire entry department and key staff who are involved in the process.

The presentation that they will be giving has been posted to their website.

Click here to read it.

First Carrier Casualty: Senator Lines

Senator Lines this week announced that they would begin to wind down their liner operations as soon as possible. You wouldn't know it from their website, everything still appears hunky-dory, but every trade publication we read had a story on it. Senator, which worked in close alliance with Hanjin, was the “alternative” carrier to some people who didn’t want to pay for a name brand (such as Hanjin or people who use Safmarine instead of Maersk). Other carriers will pick up the slack.

But what about those remaining carriers? Tonnage is being laid up globally because of the massive slowing down all over the world. It is estimated that more than a half a million TEU’s of space is sitting at anchor. As for rates, the once-lucrative Asia Europe trade (where carriers charged far more than on the Eastbound Trans-Pacific) has had some rates fall as low as $100. Granted, there are surcharges for such things as fuel and terminal handling which contribute to a larger all-in number than that, but the question still does remain. What do carriers who invested heavily only a few years ago in larger vessels due to remain afloat?

The carriers of the Trans-Pacific Stabilization Agreement recently put a proposal before the FMC that would allow them to speak about space, pricing and vessel issues to “respond to the rapidly changing global economic climate.” The backlash from every corner of the shipping community was tremendous and the FMC ordered an extension before it came into effect to review it further. This week, the carriers withdrew their proposal.

How low can rates fall? Fuel has fallen significantly, from a high of nearly $150/barrel last year to under $40/barrel now. But there is a floor below which these operators insist on going; that floor is their true cost to move a container. Remember that rates bear very little correlation to cost. It’s mostly supply and demand because, like a grocery store, the Eastbound Trans-Pacific was viewed as a “loss-leader” which was offset by money made on other lanes by global operators. Now, with global traffic and rates in a downward trend, these lanes must make money on their own. Why do the rates continue to dive then? They think that perhaps a rogue action to lower the rates by one or two carriers will incent business to move from one place to another, but the elephant in the room is that there is just less business to go around, period.

Many of these carriers are heavily debt leveraged and rely on access to capital through credit markets to remain in business. As credit continues to remain scant and notes are renegotiated with higher interest payments to become more attractive to investors, there has to come a tipping point. The only question is where and when it will happen again.

We're back...we're sure.

Okay. I realize it's been, oh, only about five months since the last post. You're right, that's bad.

But things they are a'changing. Effective this year I have been moved into our sales department full time. As that was getting off the ground, I also needed to simultaneously manage our 10 + 2 rollout which has gone far smoother than I anticipated.

Along the way, we've picked up a new President and the heads of all the agencies will be changing as happens to political appointments when administrations change. We're waiting for the new heads of TSA and Customs (the Customs Commissioner, Ralph Basham, is retiring effective 1.March). The Federal Maritime Commission is also pending a chairman and a Commissioner who need to be appointed.

Mix in a little stimulus, a global economic meltdown, the snowiest and what felt like coldest winter so far around these here parts in a while...and like I said, it's been busy.

But we're working on some new technology things on the website and with our marketing. It is my goal in the next month or two to roll out our News Alert by e-mail, especially in light of the recent announcement from the Post Office. We're also going to be reaching out electronically through some managed lists a bit more; so if you hear from us and find a message in your inbox, rest assured that we put it there for a reason. Things are constantly in flux in our line of work and we are going to do our best to deliver the most important changes and updates to you as quickly as possible.

Stay tuned. Stick around. Enjoy, and thanks for reading.