Cross-Border Flow Analysis - Case Study for FAST Member by Leah Dupuis

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with Free and Secure Trade Program)

strategic transportation & tourism solutions

Prepared for Industry Canada Prepared by InterVISTAS Consulting Inc. 8 July 2009

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Table of Contents 1.

Introduction........................................................................................................................ 1 1.1 1.2

Overview .............................................................................................................................1 Methodology........................................................................................................................2

Firm Profile......................................................................................................................... 3

Value Stream Map.............................................................................................................. 4 3.1 3.2 3.3

Value Stream Glossary .......................................................................................................5 Current State vs. Future State Maps...................................................................................5 Processes and Timing.........................................................................................................9

Key Findings.................................................................................................................... 12

Border Crossing Costs ................................................................................................... 16

4.1 4.2 4.3

Summary...........................................................................................................................12 Findings.............................................................................................................................12 Quantitative Results ..........................................................................................................15

Appendix A: In-Transit: Toronto-Vancouver via U.S. ................................................................ 17

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Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Introduction The purpose of this study is to determine and evaluate the experience of processing a transaction from initiation of an order to clearance at the U.S. border. This report will be followed by recommendations and alternatives to result in enhanced facilitation of trade from Canada to the United States. The data collected from this report will help to identify the underlying causes of border challenges that may impact the competitiveness of Company 3 from a number of perspectives: regulatory, logistic and security. The study examines, measures and reports upon the various logistics, security and compliance costs for the company at the border, including more detailed examinations of the frequency of secondary inspections and the issues that trigger such incidents (i.e. regulatory compliance vs. border protection imperatives). The following report is a case study for Company 3 - an organization performing small product processing registered with the Free and Secure Trade (FAST) program. This draft case study report is developed based on interviews and information received from the firm. While the findings reflect the issues faced by the individual organization, it is intended to demonstrate the challenges that other companies within the industry are faced with. The report includes the following:

Value stream maps of cross border processes

Descriptions of process steps for shipping goods across the border

Matrix of key findings

Explanations of key findings

1.1 Overview This report provides an overview of the following information: 1: Shipping Steps / Wait Time 2: Regulatory Requirements/Issues 3: Logistics Related Issues 4: Security Issues 5: Existing Programs & Initiatives to Address Issues 6: Compliance Cost Data 7: Observations/Gaps Information included in this report will support the identification and analysis of top issues leading to significant challenges at the Canada-U.S. border. Further, it will allow for a better understanding 8 July 2009

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

of how border issues affect the competitiveness of companies, enabling an assessment of their impacts on North American supply chains. This information will lead to the development/proposal of potential options and solutions to eliminate unnecessary costs and delays at the border.

1.2 Methodology The methodology used to develop this report is as follows: 1)

Company Selection - The main criterion for selecting Company 3 was that it is an accredited member of Free and Secure Trade (FAST) with significant traffic volumes across the Canada-US border, both with respect to overall movements and their value. A full list of FAST carriers and importers can be found on the CBSA website (http://www.cbsa-asfc.gc.ca/prog/fast-expres/car-trans-eng.html). While the operations of Company 3 are fairly unique, it is representative of other participants in the FAST program who export/transport to the U.S.

Data Collection - In depth data collection was performed to qualitatively and quantitatively characterize the cross-border shipment process and to identify border issues. Data collection consisted of interviews with personnel responsible for exports and customs requirements and its service providers, several hours of observations of its typical operations to document the process steps and a review of aggregate shipment delay reports for 2008.

Develop Value Stream Map - With the detailed processes outlined for the products, timing data and incident rates were associated to each step to develop the “current state” value stream maps.

Detail and Categorize Border Issues - The challenges faced by the company in processing and shipping product across the border as identified by the company and through the value stream mapping process were documented and categorized into one of the seven columns as outlined in the findings matrix.

This report is one of seven case studies developed. For ease of reference, the seven companies are as follows:

Company 1 (Services Sector Involved in the Movement of Goods)

Company 2 (Small to Medium-sized Enterprise)

Company 3 (FAST Member)

Company 4 (Food Processing Industry)

Company 5 (Motor Vehicle Sector)

Company 6 (Consumer Goods Industry)

Company 7 (Chemicals Sector)

Companies provided data in confidence; as a result their names and descriptions are genericized and data collection results are provided in aggregate form only to protect commercial sensitivities. 8 July 2009

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Firm Profile Company 3 is a Canadian company headquartered in Central Canada that processes large volumes of small products that are shipped domestically, to the United States and around the world. The company and the drivers employed to transport goods to the U.S. are registered with the Free and Secure Trade (FAST) program. The company has a number of operating facilities in Canada that processes products for time-sensitive delivery deadlines. Company 3 ships by air or by truck to the U.S. but, for the purposes of this report, only ground transportation was reviewed and documented. Orders are placed on-demand throughout the day and must be processed and shipped by the end of the day. Products destined to each customer vary in size but are generally small and lead to less-than-truckload (LTL) shipments to the U.S. Company 3 uses its own fleet of trucks and FAST drivers as well as FAST approved carriers. Company 3 uses a service provider for brokerage at the border. The documentation requirements for border crossing, however, are performed by the staff of Company 3 as opposed to the service provider. In the U.S., the service provider cross-docks the shipment and forwards the product to their final U.S. destinations. In general, Company 3 must contend with one type of shipment: mixed products. Mixed products are significant in that all shipments are less-than-truckload due to the heterogeneous nature of the products. As such, each entry must also fulfill a number of border reporting requirements for both U.S. Customs and Border Protection (CBP) and other participating government agencies (PGAs), especially Food and Drug Administration (FDA). Company 3 participates in a number of facilitation programs that are currently available to the industry. It maintains Tier II status in the Customs-Trade Partnership Against Terrorism (C-TPAT) program. The company and its drivers are members in the FAST program.

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Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Value Stream Map Value Stream Mapping (VSM) is a process analysis tool that is used to represent the interaction between processes, operations and information for bringing a product order (or request for service) through to delivery of it. The concept originated a number of years ago through the Toyota Production System and is a key technique used in Lean Manufacturing. Company 3 is no stranger to streaming processes like VSM due to its focus on logistics. Typically, VSM is used to determine the value added and non-value added elements of a system. It provides a high level picture of product and information flows in order to develop improvement suggestions. A value stream consists of the following elements:

Supplier (start of flow)

Customer (end of flow)

Physical flow of product being mapped

Information used by process transformation steps

Information flowing between process control, supplier and customer

Value stream maps can help visualize the process steps required to make a product or provide a service and any waste that exists in the processes. It provides a view of the entire system so that any improvements can be made to better the overall flow rather than a limited area within it. The symbols used in the value stream maps in this report are as follows: Customer or Supplier

Delay (non-value added)

Process (value added)

Flow of Product

Decision Point or Alternative

Flow of Information

Transport

Information System

Elapsed time Touch time

Timing Chart

The following section provides a glossary of terms used in the value stream maps.

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Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

3.1 Value Stream Glossary The following definitions are used in value stream maps and Lean principles. Term Elapsed Time

Definition The time it takes to complete the tasks to make a product or provide the service including delays and interruptions within the process. Also known as throughput, turnaround, flow or lead time.

Non-Value-Add (NVA) Any operation or activity that consumes time and/or resources but does not add value to the service provided or product sold to the customer. (Some are necessary - i.e., regulatory requirements - while others are unnecessary.) Queue or Delay Time

Non-value added time spent waiting for a process.

Takt Time

Average demand for product or service expressed in units of time. Sets the pace for the operation; all processes need to produce at rate of demand. The calculation of takt time is available work time per day / customer demand per day.

Touch Time

The total time spent performing tasks to complete the product or provide the service without delays or interruptions within the process.

Transport

Physical movement of goods from one place to another. If the company performs the transportation, queue time is not included in the transport time. Otherwise, delay time is included in transportation time.

Value-Add (VA)

Any operation or activity the customer values (and would be willing to pay for).

Waste

The elements of the process flow (or lack thereof) that add no value to the service provided.

3.2 Current State vs. Future State Maps Current state value stream maps are typically developed to document current process flows and identify potential points of improvement. Future state maps are developed from the current state maps to design a lean flow that eliminates waste and improves the process flow. There are three basic Lean principles that are applied when designing future state value stream maps: Â&#x192;

Eliminate Unnecessary Non-Value Added

Â&#x192;

Reduce Necessary Non-Value Added

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Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Optimize Value-Added

In general, these are targets for improvements that can be achieved six to nine months out. Some of the tactical actions that can be taken include:

Eliminate steps / handoffs

Merge steps

Create parallel paths

Implement pull if flow is not possible

Reduce / eliminate batches

Improve quality

Create standard work

Create an organized, visual workplace

Eliminate unnecessary approvals / authorizations

Stop performing nonessential (NVA) tasks from the customer’s point of view

Co-locate functions based on flow; create teams of crossfunctional staff

Balance work to meet takt time requirements

The following diagrams show the current state value stream maps for Company 3 for the processing of products and shipments from its Canadian locations to the U.S. Company 3 is CTPAT Tier II certified and a member of the Free and Secure Trade (FAST) program. Future state value stream maps are outside of the scope of this study and were not developed. Its service provider for border crossing is also registered with FAST and is at least C-TPAT Tier II. As a result, the firm was able to provide a quantifiable record of delays and causes of delay.

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EDI Small Product Operation

Ultimate Consignee - 70% of shipments notifications are by EDI

Data Integration

Bill of Lading

To Depot

Broker

ABI/ACS

Manifest System

ACE

Imaging 2000/day

Shipment Data

Customs Invoice

DEPOT - 3 min. - Scan in - Sort for special services

I 30 min.

To Hub LOAD - 1 min. - Attach security truck seal

0.5 hr 3 min.

PROCESS

20 min. to 3 hrs

- 4 min. - Unload - Measure - Sort - Document audit - Data entry - Label

0.3 – 3 hrs. 1 min.

I 6 min.

PALLETIZE - 1 min. - Scan - Build pallet

1 – 2.5 hrs

LOAD - 1 min. - Attach security truck seal

To Terminal

20 min.

PROCESS - 2 min. - Unload - Scan - Audit - Sort by ZIP Code

I 3 hrs.

LOAD - 1 min. - Load plan - Attach high security truck seal

To Border

2 – 4 hrs.

CBP & FDA PROCESS - 45 min. - Detailed processes mapped elsewhere Transport time : 2.6 – 7.3 hrs

0.1 hr 4 min.

1 – 2.5 hrs 1 min.

0.3 hrs 1 min.

3 hrs 2 min

2 – 4 hrs. 1 min.

Queue time : 4.6 – 6.1 hrs 45 min.

Touch time: 58 minutes

NOTE: All process times are for a single package.

COMPANY 3 Small Product Shipment March 5, 2009

eManifest - 1 hr prior to arrival - ½ hr for FAST

Carrier

ACE Ultimate Consignee

OR Entry Data CF3461 Submit prior to arrival

Impending shipment

Importer of Record

Broker

ABI/ACS

PORT LIMITS – within 25 miles of border crossing

Arrive at border

Primary Processing

Result

Depart

Release

30 min 3 min. 100% to Secondary Processing

Redeliver

I I 1 hr

I 30 min

Open Doors (1%) 3 – 4 hrs

30 min. Finding

90 sec

Hold for Compliance (at CBP compound)

I 30 min

I 1 – 2 hrs

6 – 24 hrs

Return to Canada

Refuse and Return 0 min

0 min

On-site Mitigation Return Property

YES

I VACIS

Conditional Release (may lead to Request for Redelivery)

Detain up to a max. of 30 days

Detain (Must be exported if no decision has been made after 30 days)

I 30 min

Hold for Compliance (At CFS – space constraint at CBP)

1 – 2 days

1 hr.

- pay fine Seize Shipment CBP disposes On-site or off-site 0 min

- destroy - donate - auction

0 min NO

I 15 min. (C-TPAT)

LTL (FAST & C-TPAT)

De-van (at CES)

Finding

YES

Demand for Redelivery to CBP

24 hrs 30 min.

8 – 12 hrs.

Return to Canada

I 1 – 2 days

0 min

COMPANY 3 Customs and Border Protection Truck Process July 8, 2009

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

3.3 Processes and Timing 3.3.1

Small Product Shipment by LTL Truck

Note that some product is regulated by the U.S. Food and Drug Administration. #

Step

Observations

Timing

Product Flow 1 Depot

Product received at a regional depot will be scanned into system, and sorted. U.S.-bound product will be handled by a special services associate.

3 minutes

2 Wait

Wait for the next scheduled truck destined for the product distribution hub.

30 minutes

3 Load

Products are loaded, and a truck security seal is attached to ensure that the load is tamper-proof.

1 minute

4 Transport

Truck drives from regional depot to central distribution hub.

20 minutes to 3 hours

5 Process

When the truck arrives at the distribution hub, product is unloaded, measured (weight and dimensions), and sorted into transport mode (ground and air). For ground transport, a document audit is carried out, and the package examined visually. Documents are sent for imaging.

4 minutes

Should discrepancies of any kind be found (inadequate product description, possible contraband or product with a potential threat, etc.), the parcel is diverted to processing by specially trained staff. Such parcels constitute 1% to 2% of product shipped to the US. Typically, the issue is resolved in 24 hours. Where it cannot be resolved, the product is returned.

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6 Wait

Wait for sufficient and appropriate parcels for building a pallet

6 minutes

7 Palletize

Scan each parcel and place on pallet

1 minute

8 Wait

Wait for the next scheduled truck destined for the USbound logistics hub.

1 to 2.5 hours

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Step

9 Load

Observations Products are loaded, and a truck security seal is attached to ensure that the load is tamper-proof.

1 minute

10 Transport

Truck drives from distribution hub to US-bound logistics hub.

20 minutes

11 Process

Product is unloaded and scanned. A product and label 2 minutes audit is performed. Product is then sorted by US ZIP code.

12 Wait

Wait for the next scheduled truck destined for the appropriate US port of entry.

3 hours

13 Load

Products are loaded, and a truck high security seal is attached to ensure that the load is tamper-proof.

1 minute

14 Transport

Truck drives from US-bound logistics hub to the US border. The driver will be registered with the Free and Secure Trade Program (FAST).

2 â&#x20AC;&#x201C; 4 hours

15 CBP

The shipment is processed at primary and secondary processing as appropriate for an LTL shipment from a CTPAT validated company utilizing FAST drivers.

45 minutes

Typically, 1.5% of product needs to be inspected by the U.S. Food and Drug Administration (FDA). Since shipments always cross during times when FDA inspectors are not available, these products will be offloaded for inspection when the FDA inspectors are available. This generally results in a 1 or 2 day delay. Information Flow

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Timing

1 EDI

Many locations have the facility to transmit bill of lading information electronically. The remainder use paper bills of lading.

2 Imaging

Customs invoiced are imaged, and the images transmitted to the broker.

3 Data Integration

The shipment processing includes integration of bill of lading information with other information requirements

4 Broker

The data required by the broker to create the Entry Data is transmitted electronically to the customs broker, and then entered into the ABI/ACS portal.

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Step

5 Manifest System

Observations

Timing

Manifest data is collected electronically, and the eManifest is entered into the ACE portal. Timing Summary

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1 Touch-time

58 minutes, including 45 minutes for the border crossing process.

2 Queue time

4.6 to 6.1 hours, as a result of packages waiting for load completion

3 Transport time

2.6 â&#x20AC;&#x201C; 7.3 hours, resulting from variation in driving distances

4 Delay

Total delay due to FDA regulated product is 1 to 2 days, mainly due to FDA hours of operation. This affects about 1.5% of shipments.

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Key Findings

4.1 Summary 1) Shipping Steps / Wait Time

2) Regulatory 3) Logistics 4) Security Requirements/ Related Issues Issues Issues

5) Existing Programs & Initiatives to Address Issues

6) Compliance Cost Data

7) Observations / Gaps

None Noted

FDA In-Transit via None Noted Reporting U.S. FDA Driver Hour Prohibited InDaily Transit Limitation Lacey Act LTL Shipments to Secondary Processing

FAST is Very Beneficial IRS Personal Tax Identification Number ACE Messaging

SCN C-TPAT Duplicates Certification PAPS Code FDA Hours of Causing Operations Conflict and Inconsistency Delay between CBP Ports Universal Port Code is Not Working Implementati on of APHIS Fee From Canada into U.S.

4.2 Findings 4.2.1

Shipping Steps / Wait Time

Company 3’s processes were found to run efficiently and were not impeded by preparations for border crossing into the U.S.

4.2.2

Regulatory Requirements/Issues

FDA Reporting Two hour prior notice is required for almost all of Company 3’s shipments. In a company dealing with mixed loads, the differentiation between those shipments requiring 1 hour for CBP and 2 hours for specified Food and Drug Administration (FDA) products causes confusion and results in the maximum benefits of the C-TPAT program not being available.

FDA Prohibited In-Transit Post 9/11, FDA terminated the ability for a truck transiting from eastern Canada to western Canada from utilizing a route through the U.S., which was a long-standing, proven safe, and efficient practice. 8 July 2009

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Lacey Act The Lacey Act (part of U.S. Farm Act) requires labelling of genus, species, and country of origin of every wood product. This goes in effect April 1, 2009 for Lumber and Furniture; July 1, 2009 for Pulp, Paper, Paper Products, Musical Instruments; September 30, 2009 for Oil Seeds, Cork, Toys, Games, Sports Equipment.

4.2.3

Logistics Related Issues

In-Transit via U.S. A number of serious logistics related issues exist for Company 3 without the ability to perform InTransit shipments via the U.S. See Appendix A: In-Transit: Toronto-Vancouver via U.S. for more detail.

Driver Hour Daily Limitation The 10 hour daily limit involves one hour of loading and one hour of unloading, which leaves 8 hours of driving time including border crossing. A one hour delay at the border involves, in some instances, 50% of the freight to not be delivered as scheduled. (Generally, a driver required to go to CBP Secondary Processing has a minimum of a one hour delay).

LTL Shipments to Secondary Processing Trucks containing six or more shipments are required to proceed to CBP Secondary Processing to prevent truck line-ups at the Primary Processing booths. This is a legitimate practice to avoid backups at Primary Processing. However, a separate procedure to allow LTL drivers who are sent to Secondary to avoid causing delay at Primary is not provided. LTL drivers are required to join the normal queue in CBP Secondary Processing behind drivers who have been sent because of a discrepancy, lack of data, or are required to make a payment. While Company 3 is compliant with all border crossing requirements, it is unjustly penalized with a consistently applied delay to its drivers and shipments.

4.2.4

Security Issues

Company 3 noted no security issues as a member of the FAST program.

4.2.5

Existing Programs & Initiatives to Address Issues

FAST is Very Beneficial Company 3 was very complimentary of the FAST program and found it very beneficial in terms of avoiding the delays that non-FAST accredited drivers experience.

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Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

IRS Personal Tax Identification Number The CBP requirement for an IRS tax identification number to be provided on commercial invoices functions appropriately with the Employer Identification Number (EIN) assigned to a business. However, when the ultimate consignees are not businesses, their personal social security is demanded. This is a situation which results in the majority of individuals refusing to supply this information (understandably so, with identity theft as a major concern). This results in shipments not being able to be made cross border.

ACE Messaging The Automated Commercial Environment (ACE) program being developed does not communicate smoothly with the Automated Commercial System (ACS) on which the legacy system currently continues to operate. When downtime occurs, effective alternatives to facilitate border crossing have not yet been perfected. When an ACE message is received that a truck shipment has not met the one hour pre-arrival notice and cannot proceed to the border, the message does not reflect what segment of the supply chain (shipper, broker, carrier, or driver) must act to resolve the situation.

4.2.6

Compliance Cost Data

C-TPAT Certification The project team was advised that Company 3, who is currently a C-TPAT Tier II member having successfully completed its validation, was approximately 90% compliant upon initially applying for the C-TPAT program (business partner requirements were lacking). Company 3 took 18 months from application to certification. To successfully achieve the C-TPAT designation, Company 3 was required to utilize a third party expert to guide them through the entire process.

FDA Hours of Operations The stringent requirements for FDA inspection involvement at the border results in shipments being delayed or detained if trucks arrive at the border outside of FDAâ&#x20AC;&#x2122;s limited hours of operation (typically 8:00am to late afternoon, Monday through Friday). In the instance of Company 3 and its shipping schedule, every FDA shipment is detained at the border resulting in 24-hour delays in delivery.

Inconsistency between CBP Ports Company 3 shipping the same product to two CBP ports within several hundred kilometers of each other found that one required the obsolete paper textile declaration form in addition to the Manufacturerâ&#x20AC;&#x2122;s Identification (MID) while the other port correctly only required the MID, which is the

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Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

current policy. This is representative of a number of incidents in which the same shipping situation arriving at one port is treated differently than at another.

Universal Port Code is Not Working Under the ACE initiative, the intended outcome was that once a trip code was inputted into the system, it could arrive at essentially any commercial U.S. port of entry (Universal Port Code). This was a top priority of border users, was highly anticipated and extremely cost effective. Unfortunately, the Universal Port Code is not accepted at some ports and results in carriers inputting multiple eManifests for different ports for the same shipment. Upon arrival by the carrier, it leaves orphaned eManifests that must be removed and reconciled at a cost to the broker. Further, if a truck arrives at a port different than what is stated in the system, it is very costly in time entry and, in some cases, entry is denied.

Implementation of APHIS Fee From Canada into U.S. The Animal Plant Health Inspection Service fee is being collected at the physical border rather than an off border charge or budget line for CBP.

4.2.7

Observations

SCN Duplicates PAPS Code Causing Conflict and Delay PAPS codes assigned to brokers are valid for 4 years and are sometimes duplicated by SCNs. These cause conflicts and delays.

4.3 Quantitative Results As noted previously, Company 3 was based on reviewing data processes as well as a review of aggregate shipment delay reports for 2008. Description

Frequency per Year

Shipments to the U.S.

30,000

To CBP Secondary (but no significant delays to Company 3)

29,500

To CBP Secondary (with 24 hour delays)

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500

Cross-Border Flow Analysis Report 3: Case Study for Company 3 (Small Product Processing Registered with FAST)

Border Crossing Costs Border-related costs, which are quantified on an annual basis for Company 3, can be categorized into one of two groups: compliance costs and other costs (i.e., due to delays, etc.). Compliance costs consist of the number of full-time equivalents (FTEs) employed by Company 3 to prepare individual shipments by FAST truck. Due to the sheer number of product shipped and justin-time nature of its operations, Company 3 employs a disproportionately high number of staff to perform compliance. This excludes the cost of the service provider for when the goods physically arrive at the border. Other costs are incurred when goods are delayed at the border. While virtually all shipments proceed to CBP Secondary because they are less-than-truckload and contain mixed commodities on the truck, no delay costs are incurred with FAST accreditation and the predictable processing time required at the border. A small percentage (1.5%) of product on a truck are held and delayed by 24 hours due to missing data on forms. A number of employees deal specifically with these exceptions for Company 3.