Question

Consider the following scenario: Kellogg’s distribution of cereal products to customers in Guatemala is coordinated through Crowley Maritime Corporation, a U.S.-owned and operated third-party logistics company (3PL) with a distribution centre in Guatemala City, Guatemala. Orders for the Latin America region were consolidated, and aggregate orders were placed with Kerry Inc. in Gridley, Il. Kerry Inc. shipped consolidated orders, palletized and labelled by distributor, by intermodal to Mexico City, at which point trailers with orders for distributors in countries south of Mexico were moved over the road. Crowley’s general manager in Guatemala City advised Kellogg’s head office personnel in Battle Creek, Michigan that they had identified approximately 140 pallets of salmonella-contaminated cereal products still in wholesale inventory in Guatemala. Unfortunately, despite FDA recommendations for disposal, government officials in Guatemala, upon learning of the recall through their government Facebook account, had contacted Crowley and insisted that no contaminated food products be disposed of in Guatemala. Furthermore, since the contaminated products had been shipped from the United States, Guatemalan authorities insisted that the contaminated products be returned to the U.S. for disposal. Kellogg’s Supply Chain Manager had already spoken with their freight forwarder and customs broker regarding arrangements to return the contaminated products to the U.S. Mexican authorities would not allow the contaminated products to transit through Mexico, which left marine transport as the only economically viable option to ship the contaminated products from Guatemala to the U.S. Kellogg’s customs broker had placed a call to US Customs and Border Protection (CBP) for advice since the returning goods would be labelled “CONTAMINATED – Not for Resale – Goods returned for disposal only”. Since the returning shipment would not be subjected to the same level of scrutiny as a commercial shipment, CBP expressed concerns that someone might target the shipment for smuggling or terrorism reasons. As a result, CBP stated they would only allow the shipment to enter the US if the origin port was compliant with the International Ship and Port Facility Security Code (ISPS) and the Container Security Initiative (CSI).

c) Identify and describe the relevant cargo security programs that are involved in the reverse logistics scenario described above For example:

i) In which security programs would membership likely benefit Crowley, Kellogg’s USA, and Kerry Inc.? Why? (5 points)

ii) What would the Harmonized Code, and rate of duty, be when returning these goods to the US? Provide the appropriate reference. (5 points)

Answer 1

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In which security programs would membership likely benefit ARICAM, Kellogg’s USA, and Kerry Inc.? Why?

C-TPAT membership is the Customs Trade Partnership Against Terrorism which is an important program from which the importers benefit. The member countries work with Customs of US and safeguard their supply chain from concealment of terrorist arms, less inspection at ports of arrival, expedited processing, and other benefits.This program is especially beneficial for ARICAM.

This program strengthens international trade and improves the border security of United States. It is a highest level, voluntary partnership program for public-private sector. The biggest benefit of this program is that it allow partner countries to work closely with US to fight terrorism and partners can identify their security vulnerabilities and take actions to mitigate the associated risks. (CTPAT: Customs Trade Partnership Against Terrorism, 2019)

Free and Secure Trade program which is called FAST is a program for commercial clearance for shipments entering the US from Mexico or Canada. It expedites processing of commercial carriers who are trusted shippers, who have fulfilled required eligibility requirements and have completed background checks. It is for the trusted truck drivers travelling in US-Canada-Mexico. FAST vehicle lanes allow the fast movement of goods. The FAST program participants require all members of the supply chain certified under the C-TPAT.

What would the Harmonized Code, and rate of duty, be when returning these goods to the US? Provide the appropriate reference.

The Harmonized code for Kellogg’s Honey Smack Cereals is 0409.00 1904.10.10.

There are duty rates for all the items that exist which is provided by the Harmonized Tariff System (HTS). The US International Trade Commission’s Tariff Database helps us to get an idea of the duty rate for any particular product. The exact and the final rate of duty is provided by the Customs and Border Protection agency. (Determining Duty Rates, 2015) The general rate of duty to be paid for Honey cereals shipped to US is 1.9 cents/kg bound under World Trade Organization. Since US and Mexico have signed the NAFTA which is the North America Free Trade Agreement, they do not pay any import duties. So the return shipment of Kellogg’s Honey Smacks Cereals has to pay $0 taxes.

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