Dunnage in ship's hold

Enhanced Enforcement of ISPM 15 costing US Importers Millions

ECMC in the news

by Janet Nodar, Senior Editor, Breakbulk and Heavy Lift – JOC.com

Shippers in the project and breakbulk sectors are concerned about what they see as increased enforcement of international regulations governing the transport of wood packaging after a series of shipments that had already been certified as compliant were found to be carrying invasive and potentially destructive species of pests.

Wood-boring pests such as the emerald ash borer, Asian longhorn beetle, and wood wasp, for example, are capable of destroying billions of dollars’ worth of US trees and forestland, which would then cost billions more in remediation. The United States Department of Agriculture (USDA) estimates that removal and remediation of damage by the emerald ash borer alone has cost at least $10 billion since the pest was first discovered in the United States in the early 2000s.

In an effort to avoid accidental importing of these pests to the US and elsewhere, those in the shipping industry are required to follow the International Standards for Phytosanitary Measures No. 15 (ISPM 15). Developed by the International Plant Protection Convention (IPPC) and adopted by the US in 2005, ISPM 15 maintains strict guidelines for treatment by heat or fumigation of all wood packaging materials (WPM), including dunnage. When correctly applied, these treatments prevent the accidental introduction of pests, including eight particularly devastating species of wood-boring beetles.

There’s just one problem: recent US Customs and Border Protection (CBP) inspections have uncovered a rash of compliant — i.e., properly treated and stamped — shipments of inbound WPM cargo that nonetheless harbored these dangerous pests.

That’s cause for serious concern for beneficial cargo owners, as the ISPM 15 enforcement policy can trigger the re-exportation of those goods as well as the threat of large fines for importers and carriers who may have followed the regulations to the best of their abilities.

Under re-exportation, the offending WPM — and sometimes the cargo inside it — must leave US waters within a specific period of time, often seven calendar days, and be taken to a port that will accept it, fumigate, dispose of the offending WPM, and, if necessary, repackage the cargo for return. Typically, cargo that was braced with infested dunnage (such as steel pipe) can remain in the US port, while the dunnage must be re-exported and destroyed. However, if the cargo itself is affixed to or encased in WPM, it may also have to be re-exported and repackaged.

Letter of the law

The unexpected costs and disruptions to project schedules that result from an ISPM 15 violation could threaten the economic livelihood of those in the project and breakbulk sector, but shippers and carriers say the enforcers of this near-zero-tolerance re-exportation policy also offer little assistance in addressing the underlying problems with WPM cargoes.

For project cargo imports, entire charters have been forced into re-exportation when only a very small portion of the shipment was actually packaged in infested WPM, packaging material that the importers believed to be properly treated and fully compliant. In some cases, large pieces of metal on the same bill of lading that were either untouched by wood or simply braced with dunnage have also been re-exported, and each of these pieces can be crucial to project schedules.

“The CBP is following ISPM 15 more to the letter than they used to, and it’s creating a problem for business,” Peter Svensson, senior vice president and head of Clipper Americas, a global steel carrier, told JOC.com. “We are experiencing this, in particular, in the port of Houston; and it almost feels like a manhunt.”

Dominic Sun, director of trade development at the port of Houston, attributed the industry perception that ISPM 15 enforcement is particularly stringent in Houston primarily to the high volume of cargo handled at the busiest project and breakbulk cargo port in the US. The escalation perceived since November of 2017 has to do with a change in the rules, rather than an increase in inspections or rejections, he said.

“CBP is enforcing throughout the country,” Sun said. “Instances are higher here because we have greater volumes of project and breakbulk cargo here. [There’s a] perception that it’s harder here. I don’t think that’s fair. It’s correlated to the volume at Houston.”

Harsher penalties

Customs officers are “really applying the letter of the law,” Sun said. While there has not been an increase in violations, in his opinion, there has been an increase in the application of fines and re-exportations per violation. “The change is to the law. Prior to July of 2017, you could have five instances of woodboring pests in dunnage or WPM before enforcement. Now you can only have one instance before enforcement. And the remedy is a fine and re-exporting of affected dunnage [or WPM] and freight.” According to a September 2017 statement from CBP, the harsher penalties are designed to “motivate” compliance.

As a breakbulk carrier, Clipper supplies the dunnage for the steel it transports, and Svensson said the company has a “laser focus” on the suppliers of the wooden dunnage it buys in Europe. “It’s very important to mention that we do everything humanly and physically possible to follow the [ISPM 15] rule to the letter,” he said.

“We tell [suppliers] to go beyond the regulations. We want a stamp every foot, so that if a piece breaks off, it still has the stamp. If you import WPM or dunnage without stamps, you are in violation of the regulation. We do not want anyone to assume that we are trying to cut corners. Trust me, we are spending a fortune on dunnage every year — over $2 million purchasing proper dunnage out of Antwerp. We have changed suppliers because we were not satisfied. We focus on getting the highest quality timber possible, and this material is still causing problems. Two ships in a row, they found live infestations. You ask yourself, ‘How could this have happened again?’”

‘Outrageously expensive’

In one case, Svensson said CBP “found [infestation] in one piece of dunnage, out of thousands of pieces. And all the dunnage went back onboard the ship, the ship went to an island in the Atlantic, and [at the port there] we fumigated and disposed of the dunnage. The ship was returned back to Houston for redelivery to owner. This cost us $250,000. A quarter of a million dollars.”

A logistics executive with a global engineering, procurement, and construction (EPC) firm told JOC.com the company received an emergency action notice (EAN) from CBP in 2018 that triggered tremendous remediation efforts for a project cargo shipment bound for the port of Houston. The EAN was received a week after the cargo arrived. CBP had discovered wood wasps, also known as “siricidae,” an insidious wood-boring insect, in some WPM on a small portion of a large project cargo shipment on a chartered vessel. The cargo had been packed by a manufacturer’s subcontractor, was properly stamped and, as far as the EPC knew, was compliant with ISPM 15 regulations. Nonetheless, the insects were extracted from the WPM.

The initial fine, which has been assessed but not yet paid to CBP, was 100 percent of the importation value of the goods, plus taxes and duties, according to the executive, which put it in the millions of dollars. Everything on the bill of lading, including large metal pieces that had never been packed in or near the infested WPM, had to be re-exported. “It was frustrating,” said the executive. “The main equipment, the heaviest pieces, had some wood bracing but were on a metal frame and should not have been quarantined. There could have been exceptions made. The main item we needed at our job site was not infested. That was a major issue for us. We don’t understand the purpose behind this.”

The EAN also called for the EPC to act within a very short period of time or risk additional fines, but CBP worked with the company, which had to find a suitable heavy-lift vessel to take the cargo back out of the port. Due to the time constraints, however, it was not possible to get a competitive bid for ocean transport, the executive said. “There was no protection from price gouging.”

CBP and USDA officers told the executive that the offending insects found in the WPM were bored so deeply into the wood that the EPC “could not have known they were there … We used a certified packing company. We did what we were supposed to do. The packaging looked great during inspection.”

Both Svensson and the EPC executive questioned the effectiveness of a rule that so severely punishes shippers that are operating in good faith.

“The companies doing everything they can to be compliant should have an option other than re-exporting,” Svensson said. “Re-exporting is outrageously expensive.”

“Why is the importer being fined? Why isn’t the packer being fined?” the EPC executive asked. “We are not legally allowed to claim those fines back from anyone.” These fines are capable of putting a small EPC out of business, the executive noted.

Diana Davila, Houston-based director of projects with UTC Overseas, said she’s heard many stories similar to those of Clipper and the EPC firm. She heads up a committee on ISPM 15 for the Exporters Competitive Maritime Council, a Houston-based, project logistics-focused industry group that targets key industry issues.

“I think it’s worth saying that we are not against the ISPM 15 policy. We are totally on board with them,” Davila said. However, the industry needs to find a way to address the economic fallout from the way the policies are administered in the project and breakbulk cargo realm, she said.

Re-exporting back to the actual country of origin is usually prohibitively expensive, Davila said. Most shippers want to mitigate their costs, so they find a closer country that will allow them to bring in the cargo, fumigate, remove the WPM and burn it, repack the cargo with certified WPM, and bring it back to the US. These are importers who have run afoul of the regulations even though they believed that they were following ISPM 15 requirements and that their suppliers were using compliant, properly treated, and properly marked materials. In other countries — the countries used for re-exportation — importers and carriers are able to remedy these situations in port.

“Our ecosystem is being disrupted in this whole scenario. It’s clear that we want to stop this. It puts the onus on the receiver, not the person who supplied the wood and said it was ISPM 15 compliant. We are the receivers, and we are already doing our own due diligence. We have advised our vendors that materials have to be ISPM 15 compliant,” Davila said.