Issuu on Google+

Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer) strategic transportation & tourism solutions

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


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

i

Table of Contents 1.

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

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

2.

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

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

4.

Key Findings.................................................................................................................... 14

5.

Border Crossing Costs ................................................................................................... 21

4.1 4.2 4.3 4.4 4.5

Summary...........................................................................................................................14 Findings.............................................................................................................................14 Quantitative Results ..........................................................................................................18 Customs-Trade Partnership Against Terrorism.................................................................19 Auto Parts Supply Chain Issues........................................................................................19

Appendix A: In-Transit: Buffalo-Detroit via Canada .................................................................. 22

8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

1.

1

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 5 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 5 - an automotive parts manufacturer. 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: ƒ

Value stream maps of cross border processes

ƒ

Descriptions of process steps for shipping goods across the border

ƒ

Matrix of key findings

ƒ

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 5: Case Study for Company 5 (Automotive Parts Manufacturer)

2

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 - Company 5 was selected as a major automotive parts manufacturer with significant transborder movements. It is representative of other companies in the automotive industry with multi-national operations and/or supply chain.

2)

Data Collection - Data gathering was performed at two different locations for Company 5 to identify border issues: at a border crossing with the service provider and at the company headquarters in the U.S. Personnel responsible for border processing compliance were interviewed, shipment summaries were examined for the past 5 years including access to the data room containing all records. The documentation for C-TPAT certification and Importer Self Assessment application and maintenance were also reviewed. All documents were strictly confidential, were viewed onsite, were not to be removed and all statistics can only be reported in aggregate. Moreover, due to the major turbulence for auto manufacturers and shut-down of manufacturing plants in early 2009, there was no ability to collect 30-days worth of data for the purpose of this study.

3)

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.

4)

Detail and Categorize Border Issues - The challenges faced by the company in automotive parts 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: ƒ

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

ƒ

Company 2 (Small to Medium-sized Enterprise)

ƒ

Company 3 (FAST Member)

ƒ

Company 4 (Food Processing Industry)

ƒ

Company 5 (Motor Vehicle Sector)

ƒ

Company 6 (Consumer Goods Industry)

ƒ

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 5: Case Study for Company 5 (Automotive Parts Manufacturer)

2.

3

Firm Profile Company 5 is a large automotive parts manufacturer and assembler with a number of locations in Eastern Canada. Parts are shipped to the main assembly plant in Eastern U.S. to feed the assembly line. Shipments fulfill inventory needs for a Just-In-Time system and are, consequently, highly time-sensitive (i.e., the assembly line should never be stopped due to a lack of parts). The Canadian assembly plants ship complete automobiles to the U.S. via rail. For the U.S. assembly plant, the specific sequence of vehicles to be built is known and only a few hours of inventory is held at the plant. As such, shipments from the Canadian parts manufacturing locations are made frequently and on a regular basis. Parts vary in size and sometimes require specialized racks or bins (i.e., instruments of international traffic) for shipping that must later be returned to the Canadian location. Items are transported on a full truck load or rail car basis. Company 5 has its own drivers and trucks as well as maintains a list of approved carriers and selects which ones to use as required. It also uses its own company-specific service provider for brokerage at the border. There are two types of shipments that are relevant to Company 5: ƒ

Truck: Full truck load shipments are made and use the Free and Secure Trade (FAST) lanes at border crossings.

ƒ

Rail: Fully assembled vehicles are loaded onto unit rail cars and transported by rail across the border.

Company 5 participates in a number of facilitation programs that are currently available to the industry. It was one of the first companies to attain Tier III status in the Customs-Trade Partnership Against Terrorism (C-TPAT) program. The company, its carriers and drivers are all members in the FAST program. In terms of customs entry, Company 5 participates in the Importer Self Assessment (ISA) program.

8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

3.

4

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. 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: ƒ ƒ ƒ ƒ ƒ

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.

8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

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: ƒ

Eliminate Unnecessary Non-Value Added

ƒ

Reduce Necessary Non-Value Added

8 July 2009

5


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

ƒ

6

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: ƒ

Eliminate steps / handoffs

ƒ

Merge steps

ƒ

Create parallel paths

ƒ

Implement pull if flow is not possible

ƒ

Reduce / eliminate batches

ƒ

Improve quality

ƒ

Create standard work

ƒ

Create an organized, visual workplace

ƒ

Eliminate unnecessary approvals / authorizations

ƒ

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

ƒ

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

ƒ

Balance work to meet takt time requirements

The following diagrams show the current state value stream maps for Company 5 for shipment of automotive parts from a Canadian location to its U.S. assembly plant. Future state value stream maps are outside of the scope of this study and were not developed. Company 5 is C-TPAT Tier III certified and uses either truck or rail to transport goods and its drivers are registered with the Free and Secure Trade (FAST) program. As a result of the firm’s participation in both border compliance facilitation (C-TPAT) and trade facilitation (Importer Self Assessment) programs, the firm was able to provide a quantifiable record of delays and causes of delay. Due to challenges in the economy, the value of present day (January-February 2009) data was not as valuable as the history review.

8 July 2009


ASN info

ORDER SYSTEM

TRADE SYSTEM

RAIL AMS

ABI/ACS

Automotive Assembler

ASN Order to Supplier via EDI

309 Manifest

FAST manifest (>90%) or eManifest

BROKER

CARRIER (RAIL)

CARRIER (TRUCK)

Options for shipping: - ACE release, (7501 entry summary filed monthly; limited prepopulated entry data and SCN (DUNS + ASN) filed for each shipment) – 90% of shipments (truck & rail) - Immediate delivery, (CF3461, CF7501 entry summary filed with entry data and SCN, or separately) (truck & rail) - in-bond (CF7512 in transit; transport and export) (truck and rail) - temporary importation bond (CDN samples) (truck only) - instruments of international traffic (e.g. racks) (truck and rail) - free informals (small value and other exemptions 7523, 3311, 3299) (truck only) - foreign trade zone CF214 (truck only) - to bonded warehouse (truck only) - US goods returned (form 3311) (truck only) - Form 4455 goods of no commercial value, one-way (e.g.US samples returning) (truck only) Other filings: - Other government agency permits (DOT, FCC, FDA, etc.)

- carrier files Rail AMS (ANSI 309) manifest, based on shipper’s 858 B/L - 4 hrs in advance

- driver obtains pro-bill, customs invoice, and ACE cover sheet - carrier files eManifest and trip code (SCAC + unique number) - FAST ½ hr, non-FAST 1 hr in advance

Broker uses OEM trade system to file Entry Summary and SCN

SUPPLIER SYSTEM

ASN (TRUCK) 858 B/L (RAIL)

PICK & SHIP LIST

Truck WAREHOUSE

ACE

STAGE & LOAD

I

ATTACH HIGH SECURITY SEAL

15 – 30 min.

0 – 4 hrs

10 min.

To Border

15 min. – 4 hrs

15 – 30 min.

- file in-bond filing electronically - may file eManifest if carrier is not able

3 min.

15 min. – 4 hrs. 10 min.

SERVICE PROVIDER

BONDED WAREHOUSE

CBP PROCESS (TRUCK)

FOREIGN TRADE ZONE

Transport time: 15 min. – 4 hrs. 0 – 4 hrs

By fax

Queue time: 0 – 4 hrs 3 min.

Touch time: 28 – 43 min. IN BOND

In-bond shipment

Rail

STAGE & LOAD

I

4 – 8 hrs.

0 – 12 hrs 0 – 12 hrs

240 – 480 min.

To Crossing

- 4 hours – 6 days - Unit Train

Direct shipment to OEM US warehouse or assembly plant

CBP PROCESS (RAIL) 10 - 20 min.

4 – 148 hrs. 10 - 20 min.

Transport time: 4 – 148 hrs.

COMPANY 5

Queue time: 0 – 12 hrs

Automotive Parts Shipment

Touch time: 250 – 500 min.

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

I

Result

99% of shipments are released after primary processing

Depart

Release NO

30 min 3 min.

When directed to VACIS

To Secondary Processing

VACIS A. Random B. Blitz C. Directed

I 1 hr

90 sec

Finding

YES

To Secondary Processing Redeliver

NO

I I 1 hr

Initial Determination 15 min.

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)

I

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)

I

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 5 Customs and Border Protection Truck Process July 8, 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

9

3.3 Processes and Timing 3.3.1 #

Parts shipment by dedicated truck Step

Observations

Timing

Product Flow 1 Stage and load

Load parts from warehouse or from production line. The load can be a bulk delivery to the OEM’s US warehouse, or a JIT in-sequence load, going directly to the US assembly line

15 – 30 minutes

2 Wait

Trailer may wait up to 4 hours before being picked up by long-haul driver.

0 – 4 hours

3 Attach high security seal

At the gate, the load is checked, and a high security seal is attached.

10 min.

4 Drive to border

For a FAST driver, prior notice is ½ hour. The drive usually takes 2 to 4 hours. JIT in-sequence deliveries must come from a facility that is within a 15 minute drive from the assembly plant.

15 min – 4 hours

5 CBP process

At the border, the truck uses the FAST lane, and is cleared in about 3 minutes.

3 min.

Information Flow 1 Create pick/produce and ship list

8 July 2009

Supplier production is based on the forecast and daily shipping schedule. A firm shipment order is sent by EDI, and the required product is picked from a warehouse or produced. The trailer is loaded, and the pro-bill and commercial invoice are sent to the carrier.

< 1 minute

2 Send Advance The producer files the Advanced Shipping Notice (ASN) Shipping with the OEM’s Order System. This in turn is sent to the Notice (ASN) OEM’s Trade System

< 1 minute

3 File FAST manifest

< 1 minute

The carrier files the FAST manifest and trip code in ACE.


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

#

Step

Observations

Timing

4 File ACE Release

The OEMâ&#x20AC;&#x2122;s Trade System files the ACE Release, a two< 1 minute part entry data filing, consisting of limited, pre-populated, data, as well as the SCN, at the time of entry. A consolidated Entry Summary is filed monthly. It is also possible to use Immediate Delivery, where the entry summary is filed with the entry data, or within one day of entry. The OEM serves as its own broker in normal course of business, but will use a third party broker for specialty shipments.

5 Service provider

A third party service provider is used to file in-bond filings, and other matters requiring special services. In cases where a carrier is not capable of filing an eManifest, this can also be done by the third party service provider. Timing Summary

8 July 2009

10

1 Touch-time

28 â&#x20AC;&#x201C; 43 minutes, depending on length of time to load

2 Queue time

0 â&#x20AC;&#x201C; 4 hours, depending on carrier pickup schedules

3 Transport time

15 minutes to 4 hours, depending on supplier location

4 Delay

There are no delays noted.


ABI/ACS

Entry Data and B/L Shipper

- Rail carrier will not load container arriving by sea without auditing Ocean B/L

RAIL CARRIER

ULTIMATE CONSIGNEE

BROKER

Trip data

RAIL AMS

Rail AMS transmitted 4 hrs prior to arrival at crossing

RAIL CROSSING (LIMITS VARY BY LOCATION)

100% VACIS At 5mph

Finding

10 - 20 min.

NO

Release

- Cargo selectivity - ATS - Random selection

YARD EXAM - Entire train - 4 hrs

YES SECONDARY PROCESSING CUT OUT AND INSPECT

RAIL HEAD EXAM 1 – 4 hrs.

- Individual car - 8 – 16 hrs. to release balance of train - Devan cut out car, 1 – 3 days

CBP Process for Rail March 5, 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

3.3.2 #

12

Parts Shipment by Unit Train Step

Observations

Timing

Product Flow 1 Stage and load

Load parts from warehouse. Heavy parts, such as frames and engines, moved over long distance, often go by rail.

4 – 8 hours

2 Proceed to crossing

Due to sharing of rails and other train scheduling, it may take several days before the border crossing is reached. The shortest time is 4 hours, due to the prior notice requirements for rail shipments.

1 – 6 days

3 CBP rail process

All clearance is done electronically, so the train does not have to come to a stop. At the crossing, the train passes through VACIS scanning, slowing down to 5 mph (8 km/hr) while passing through the scanner. In the case of a rail head or yard exam, inspection may take up to four hours.

10 - 20 min.

Information Flow 1 Create pick and ship list

Supplier production is based on the forecast and shipping schedule. A firm shipment order is sent by EDI, and the required product is picked from a warehouse. The train is loaded, and the 858 bill of lading is sent to the railway company.

< 1 minute

2 Send 858 B/L notice

The producer files the 858 B/L with the OEM’s Order System, which subsequently enters the information in the OEM’s Trade System.

< 1 minute

3 File Rail AMS manifest

The railway files the Rail AMS (ANSI 309) manifest 4 hours in advance of crossing with CBP’s Rail AMS system.

< 1 minute

4 File Entry Data

The OEM’s Trade System files the Entry Data and Entry Summary.

< 1 minute

Timing Summary

8 July 2009

1 Touch-time

240 - 480 minutes, depending on length of time to load

2 Queue time

This depends entirely on railway scheduling, and varies from 0 hours (live load) to perhaps one day.


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

#

8 July 2009

Step

Observations

13

Timing

3 Transport time

4 hours to 6 days, depending on railway scheduling

4 Delay

10 - 20 minutes for VACIS inspection. More detailed inspection can last up to several hours.


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

4.

14

Key Findings The following are the categorized key findings from interviews and other data collected from Company 5.

4.1 Summary 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

ƒ FAST and Non-FAST Truck Traffic Mixing at CBP ƒ Shift Change CBP Operations are Inefficient ƒ Department of Transportation Road/Bridge Maintenance ƒ In-bond Moves are Currently not Authorized for FAST Program ƒ C-TPAT Green Lane ƒ Trucks Not Inspected in Secondary ƒ Key U.S. PGAs Should Provide 24/7 Service

ƒ Trade Responses For New Procedures Given Little Weight ƒ CBP Cost/Benefit Studies Must be Improved ƒ Non-tariff Trade Barriers from PGA Requirements ƒ Some Positive Examples of Reduction in PGA Requirements ƒ Lacey Act Requirements

ƒ System ƒ Drivers of ƒ In-transit ƒ Preparation ƒ Need for Needed to Carriers with and In-bond Dedicated for and Process ACE Good Inclusion in Lanes or Maintenance and Standard Records FAST Must Crossings for of C-TPAT Manifests Approached be Achieved Low-risk Certification Together for Criminal ƒ System Companies ƒ C-TPAT and ƒ C-TPAT has Activity Required for ƒ C-TPAT FAST Help Mixed FAST Privileges Achieve Been Helpful and NonRevoked for Almost 100% but Should FAST Loads Carrier with a Compliance be More (clearing at Single Driver ƒ ISA Beneficial Primary) Incident Validation ƒ FAST is an ƒ LTL Should and Excellent be Able to Maintenance Program Clear at Cost Primary for FAST Lane ƒ Need a System for LTL Mixed Loads (clearing at Primary using a nonFAST lane)

4.2 Findings 4.2.1

Shipping Steps / Wait Time

FAST and Non-FAST Truck Traffic Mixing at CBP FAST trucks are not streamed appropriately and subsequently mixed with other traffic so that they are queued behind non-FAST trucks arriving at CBP plaza causing congestion and delays for FAST trucks. This can be essentially eliminated with the advent of Western Hemisphere Travel 8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

15

Initiative (WHTI) that will facilitate car-processing allowing FAST trucks to utilize the non-right side lane(s) of the roadway.

Shift Change CBP Operations are Inefficient Planning to service traffic demand needs to be improved. Failure of CBP to appropriately manage a shift change so that service levels are not negatively impacted is required.

Department of Transportation Road/Bridge Maintenance Border crossing delays are caused by roadway/bridge infrastructure maintenance (e.g., bridge painting is taking place during high traffic times). Multi-discipline coordination is required.

In-bond Moves are Currently not Authorized for FAST Program Movements by trucks in-bond are currently not allowed in the FAST program. Appropriate EDI programming needs to be undertaken on a priority basis to achieve this objective.

C-TPAT Green Lane Companies achieving status of C-TPAT Tier II and above have undertaken extensive costs and measures to comply with the requirements of the program. When this voluntary program in partnership with CBP was created, both parties envisioned a “green lane” process that would result in a “primary inspection in motion” that has not yet been achieved and needs to have priority attention attached to implement.

Trucks Not Inspected in Secondary CBP should determine why trucks sent into Secondary and not inspected were sent there. An alternative should be developed to avoid a Secondary inspection stop to answer questions.

Key U.S. PGAs Should Provide 24/7 Service USDA, FDA and Ag should provide 24/7 inspections at the larger commercial ports in order to prevent avoidable border delays.

4.2.2

Regulatory Requirements/Issues

Trade Responses for New Procedures Given Little Weight New procedures tend to be dictated by the Department of Homeland Security rather than giving trade responses appropriate consideration and incorporation of suggested recommendations or proposed alternatives.

8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

16

CBP Cost/Benefit Studies Must be Improved Cost/benefit studies of proposed new rulings are not realistic and typically underestimate the true costs to trade. An improved system involving trade participation in assisting in the preparation of the cost/benefit study would be beneficial to all parties.

Non-tariff Trade Barriers from PGA Requirements Unintended consequences of participating government agencies (PGAs) requirements result in non-tariff trade barriers. For example, a CD laser reader installed in a vehicle falls under FDA requirements for inspection at the border treated the same as a high-powered laser that would have the ability to cause serious danger from misuse.

Some Positive Examples of Reduction in PGA Requirements A positive example for a reduction in PGA requirements is the EPA requirement for all vehicles not meeting certain emissions standards. Since all new vehicles from Company 5 conform, an exemption has been granted from filing individually with EPA for these vehicles.

Lacey Act Requirements The Lacey Act (part of the 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. In this case, vehicles with any parts made of wood (i.e., dashboard trim) are subject to these requirements.

4.2.3

Logistics Related Issues

In-transit and In-bond Inclusion in FAST Must be Achieved A number of serious logistics related issues exist for Company 5 without the ability to perform InTransit and In-Bond shipments via Canada in FAST. See Appendix A: In-Transit: Buffalo-Detroit via Canada for more detail.

System Required for Mixed FAST and Non-FAST Loads A system is required for shipments involving FAST and non-FAST loads on the same truck to clear at Primary. Currently there is approved systems for each type of product individually, but no consideration for a mixed load that is made up of all FAST components (i.e., shipper, carrier, driver) except for one item.

LTL Should be Able to Clear at Primary for FAST Lane ACE, FAST, and C-TPAT shipments that are less-than-truckload should have the ability to clear Primary while using the FAST lane. 8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

17

Need a System for LTL Mixed Loads Clearing at Primary A system needs to be developed for less-than-truck load shipments clearing at Primary using a non-FAST lane.

4.2.4

Security Issues

Drivers of Carriers with Good Records Approached for Criminal Activity Company 5 and its carriers comply with all of security requirements and have developed good security history. Drivers tend to be prone to being approached for criminal activity at companies with high level of compliance requiring appropriate attention by company.

4.2.5

Existing Programs & Initiatives to Address Issues

System Needed to Process ACE and Standard Manifests Together The ACE manifest system is specified and accepted; the standard manifest system is specified. The next step is to develop a system to process them together on a mixed load.

C-TPAT Has Been Helpful but Should be More Beneficial The C-TPAT program has helped, but it is not having the decrease in access time to primary and inspections as envisioned by CBP or expected by Company 5 (i.e., implementation of a green lane â&#x20AC;&#x153;primary processing in motionâ&#x20AC;?).

FAST is an Excellent Program FAST is an excellent program that has resulted in over $1 million annually of reduced service provider costs to Company 5 and has reduced the border crossing window from 12 hours to 4 hours for just-in-time manufacturing processes.

4.2.6

Compliance Cost Data

Preparation for and Maintenance of C-TPAT Certification Preparation for and maintenance of C-TPAT certification has involved an investment of millions of dollars, HOWEVER Company 5 was very quick to state that this cost is far less than cost of noncompliance.

C-TPAT and FAST Help Achieve Almost 100% Compliance The combination of C-TPAT and FAST has resulted in achieving a compliance record of almost 100% for Company 5 with virtually no fines to be paid.

8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

18

ISA Validation and Maintenance Cost Importer Self Assessment (ISA) validation and maintenance costs (1/2 FTE to prepare, 1 FTE to maintain), results in the waiver of most penalties.

4.2.7

Observations

Need for Dedicated Lanes or Crossings for Low-risk Companies Company 5 asked “Why can’t proven highly compliant companies with proven low-risk status have dedicated lanes or crossings?”

C-TPAT Privileges Revoked for Carrier with a Single Driver Incident C-TPAT privileges are revoked for a carrier who has an incident (usually a single driver with illegal contraband) upon which lengthy inspection results in carrier being found innocent of any involvement. Because of this, the shipper is very negatively affected by having to contract with substitute carriers.

4.3 Quantitative Results Based upon a review of data associated with Company 5, the following are summary data for 2008 for border compliance information used in the development of the VSM. Description

Frequency per Year

Shipments to the U.S.

400,000

Shipments by air

10,000

Shipments by rail

40,000

VACIS for rail

40,000

Yard exam (3-4 hours) or cut rail cars out (816 hours)

750

Shipments by truck

350,000

FAST truck shipments (no delays)

345,000

Non-FAST truck shipments (with potential for delays, but only 5% of these instance) Compliance fines

8 July 2009

5,000 0


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

19

4.4 Customs-Trade Partnership Against Terrorism The Customs-Trade Partnership Against Terrorism is a voluntary government-business initiative to intended to build cooperative relationships to strengthen and improve overall international supply chain and U.S. border security. Participants in the program are expected to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain. The benefits of C-TPAT membership to companies are as follows: ƒ

A reduced number of CBP inspections (reduced border delay times)

ƒ

Priority processing for CBP inspections. (Front of the Line processing for inspections when possible.)

ƒ

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.

ƒ

Potential eligibility for CBP Importer Self-Assessment program (ISA) with an emphasis on selfpolicing, not CBP audits.

ƒ

Eligibility to attend C-TPAT supply chain security training seminars.

A number of different levels/tiers of C-TPAT certification exist and described below: Tier One - Certified importers that are preparing for validation and receive the basic benefits of a certified C-TPAT member. Tier Two - Validated C-TPAT importers that have greater Automated Targeting System (ATS) reduction in their scoring, twice the level of Tier One, resulting in even fewer inspections. Tier Three - Certified and validated C-TPAT partners that exceed the minimum standards, which represents the most significant level of benefits afforded to importers, receive the most significant risk score reductions and have adopted C-TPAT best practices. These C-TPAT partners will be subject to only infrequent random inspections.

4.5 Auto Parts Supply Chain Issues InterVISTAS was asked to review the multiple times a vehicle could potentially cross the border between Canada and the United States. One reference to this was a speech in May 2005 to the Vermont Chamber of Commerce when former Canadian ambassador to the United States Frank McKenna indicated that “most people would have no idea that before a North American car actually gets onto the car lot to be sold, the parts in it have crossed the border six times before it's finally assembled.” Ambassador McKenna was not specific about where, what, and why this takes place. Company 5 was not able to assess the frequency of occurrence of this type of logistics movement, but did confirm that it was possible.

8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

20

The following hypothetical example could help to illustrate a method of production that could generate this number of movements: Crossing

From

To

Description

1

U.S.

Canada

Part of raw materials for a wire made in the U.S. and shipped to Canada (e.g., plastic resin for wire insulation).

2

Canada

U.S.

3

U.S.

Canada

Minor sub-component assembled in the U.S. (e.g., an electronic component of the carburetor, such as an oxygen sensor).

4

Canada

U.S.

Major sub-component shipped for assembly to the main component (e.g., carburetor)

5

U.S.

Canada

Major component built in U.S. going to Canadian assembly plant (e.g., the engine or transmission)

6

Canada

U.S.

Completed car or truck built in Canada to be sold in the U.S.

Component part of minor sub-component produced in Canada shipped back to the U.S. (e.g., electrical wire)

In the competitive North American automotive market, transportation is generally kept to a minimum. This has led to the â&#x20AC;&#x153;just-in-timeâ&#x20AC;? system in which parts manufacturers are clustered around assembly plants. As much as possible, major components are produced to assembly plant demand, and shipped just before they are needed. Volume considerations and production processes requiring specialized equipment and techniques mean that some parts are produced in large volume in other places, away from any particular assembly plant. These kinds of parts may very well end up being transported from one plant to another before being incorporated into the vehicle itself. If the supply chain is trans-national (Canada, US, Mexico, and even beyond), some materials will certainly make several border crossings in the course of production. Such parts would include specialty plastics and metals at the most basic level of value added transformation. The heavier or bulkier the part becomes, the fewer transportation legs it will endure, based simply on the economics of transportation costs. With a typical assembly plant designed to produce about 200,000 vehicles, economies of scale mean that parts producers can afford to locate dedicated plants in proximity to assembly plants. It is difficult to estimate what percentage of a vehicle makes multiple border crossings, as this is a function of producer and model. The advent of material recycling also clouds the picture. It is fair to say, however, that for the highly integrated and specialized North American automotive industry, component parts and raw materials will make one or more border crossings prior to final assembly and distribution. 8 July 2009


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

5.

21

Border Crossing Costs Border-related costs, which are quantified on an annual basis for Company 5, can be categorized into one of two groups: compliance costs and other costs (i.e., participation in facilitation programs, etc.). Compliance costs consist of the number of full-time equivalents (FTEs) employed by Company 5 to prepare the necessary documentation for the transportation of goods across the border. All border processing documentation is performed at the headquarters whether it is for the import of parts from suppliers to the U.S. or intra-company goods movement. A service provider is employed directly by Company 5 to process shipment transactions at the border. Other costs have been incurred for maintaining program certifications. As a member of the Importer Self Assessment and of the C-TPAT programs, personnel must prepare for annual validations and prepare documentation to maintain the companyâ&#x20AC;&#x2122;s good standing within these programs. Note that Company 5 is 100% compliant and has not incurred any fines or levies unlike some other automotive manufacturers who are reported to pay millions of dollars in fines per year. While border crossing delays rarely occur and none have shut down assembly lines, Company 5 estimates that each minute of unexpected downtime on the assembly line costs $13,000.

Category

Cost Drivers

Compliance

Company 5 has a number of employees to complete border crossing documentation.

Other Maintaining program certifications

Staff are assigned to prepare for validation and maintain certification in the Importer Self Assessment and C-TPAT programs. Annual Total

* The assumed cost of an FTE for Company 5 is $80,000.

8 July 2009

FTEs

Cost*

5

$400,000

1.5

$120,000

6.5

$520,000


Cross-Border Flow Analysis Report 5: Case Study for Company 5 (Automotive Parts Manufacturer)

22

Appendix A: In-Transit: Buffalo-Detroit via Canada Issues Noted ƒ

800 trailers per month travel this or similar trip

ƒ

7 hours via U.S. vs. 4 hours via Canada

ƒ

Ohio highway weight load limit per axle results in ¾ of a full trailer capacity

ƒ

In-Transit shipments do not have a code in FAST system (unlike empty trailers and racks)

ƒ

Company 5 and its carriers are meeting all of appropriate reporting and timing for FAST requirements to travel through Canada but must currently use non-FAST lanes

ƒ

Occasionally paper in-bond documents misplaced by border agency resulting in queries to Company 5 to prove plant receipt of goods

ƒ

With current lack of FAST authorization by the existing EDI limitations for in-transit, excessive costs result for: o carriers by decreased truck utilization o reduced driver availability o increased driver hours of service eating up the 10-hour per day limit

8 July 2009


In-Transit: Buffalo â&#x20AC;&#x201C; Detroit via Canada

Peace Bridge border

Ontario ~4 hour travel time

Buffalo Ambassador Bridge border

Michigan

New York

~7 hour travel time Detroit Pennsylvania Ohio truck low load limit Ohio

Canadian Routing

U.S. Routing

Load limit


Prepared by InterVISTAS Consulting Inc. Airport Square â&#x20AC;&#x201C; Suite 550 1200 West 73rd Avenue Vancouver, BC Canada V6P 6G5 Telephone: 604-717-1800 Facsimile: 604-717-1818 www.intervistas.com


Cross-Border Flow Analysis - Case Study for Motor Vehicle Sector