The high cost of security

What’s the hard cost of security for shippers today? Consider — a typical $1,500 laptop computer includes $150 in its price to account for theft losses, according to Tim Kennedy, senior investigator for retail giant Target Corp. (www.target.com) and a former law enforcement officer.

The U.S. government is increasingly looking to private industry to provide its own answers on how to secure global supply chains. Ensuring the integrity of those supply chains will be less enforcement-driven and more a matter of voluntary compliance with jointly established high standards of physical integrity, such as the Customs-Trade Partnership Against Terrorism (C-TPAT) and the Container Security Initiative’s pre-notification requirements.

While the amount of inbound cargo has doubled in recent years, staffing at the U.S. Bureau of Customs and Border Protection (www.customs.gov) has remained relatively level. At the same time, Customs has expanded its role beyond the fiscal and into the physical realm of trade.

One particular challenge on the global trade front is the presence of Customs inspectors at foreign ports. The Container Security Initiative (CSI) has pushed the virtual U.S. border back to the port of origin, and in some countries, a U.S. Customs inspector will be on site ensuring compliance with the full range of requirements for importing into the U.S. This move has been controversial because it has produced requests for reciprocity from foreign governments. Canada and Japan have already placed their own officials in the U.S. to inspect exports.

Customs’ revenues have increased significantly thanks to closer scrutiny of shipments and documentation. Physical inspections have turned up duty and excise opportunities for the agency, but tighter documenta-tion requirements and pre-shipment notification rules have also provided Customs with a preview for compliance. A compliance check at a foreign port could easily turn into a Customs pre-audit.

According to Suzanne Richer, executive director of consulting firm Customs & Trade Solutions Inc., Customs will be performing two reviews of import shipments — one for compliance, and one for security. Speaking at the recent International Cargo Security Summit in Chicago, Richer reminded shippers that Customs did not lose its fiscal responsibility to collect duties and taxes due the U.S. government and to enforce quotas when the country’s focus shifted to security (i.e., keeping weapons of mass destruction out of the country).

For logistics managers arranging for imports from suppliers and plants outside the U.S., the need to have your terms in order has taken on a much more significant role. CSI precludes the use of terms like FAK (freight all kinds) and STC (said to contain) on shipping documents in favor of specific harmonized tariff terms. It also focuses attention on proper use of Incoterms from the International Chamber of Commerce (www.iccwbo.org) (see Get your acronyms straight on p. 45).

Not knowing the Incoterms could have immediate financial repercussions, Richer says. For instance, when buying Ex Works (EXW), goods must clear Customs at the point of origin. By definition, the seller is putting goods at the disposal of the buyer at the seller’s premises or another named place not cleared for export. Documentation is critical under CSI, and if it’s not in order, the shipment may be suspect and Customs could issue a “no load” order that will stop the import freight from being loaded onto a ship for transport to the U.S.

Typically, the first five days of container use are free on ocean imports, says Richer, so any delays in Customs will easily put you over your five days and could lead to additional charges for storage, inspection and container demurrage. There may also be costs associated with having goods that are unavailable to your customer or plant as expected.

A “no load” message is not a hold message, adds Albert Saphir, managing director of ABS (www.abs-consulting.net), a logistics and supply chain consulting firm. You can have a Customs duty release but be stopped for security or other reasons, he explains.

Shippers decide on the level of security if they participate in the Customs-Trade Partnership Against Terrorism (C-TPAT) — but it’s not as simple as it sounds.

The first step is to execute a memorandum of understanding (MOU) between your organization and U.S. Customs. This binds you to complete the required security questionnaire within 60 days. According to Richer and other compliance experts, anyone considering C-TPAT should review the questionnaire before filing the MOU.

C-TPAT requires current processes and procedures to be reviewed and documented. The questionnaire is in two parts. Part one asks the importer to provide an executive summary outlining the process elements of the security procedures you currently have in place. Part two requires that you indicate that the specific details noted [in the previous section] are available to Customs in a verifiable format at an identified location. Then you must provide information on what changes you will make to correct identified weaknesses.

Richer notes that C-TPAT is a baseline — not only does it open your organization to scrutiny for security, but you also open yourself up to a compliance audit. For these reasons, she urges an internal review for compliance and for security. Also ask your brokers, forwarders and carriers if they are in C-TPAT. Make them aware you will be pursuing certification.

Deanna Jones, manager of international logistics at Sara Lee Branded Apparel (www.saralee.com), goes a step further. She has incorporated the C-TPAT questionnaire into her security manual and requires all carriers to review it.

Focus on what you can control, says Alexander Tabb, associate managing director of risk consulting company Kroll Inc. (www.kroll-worldwide.com). The goal of security is to protect the process, not interrupt it. C-TPAT is about the private sector securing its own supply chain. To be involved in any other Customs initiatives, you have to be in C-TPAT, Tabb observes.

In the end, you — the importer — will be describing the steps you intend to take to improve security, Tabb notes. You don’t necessarily need best practices, but you do need appropriate, consistent practices.

In completing the C-TPAT questionnaire, put in things that you’ll consider doing — and that are realistic to the way you do business, Richer says.

For instance, one company Richer worked with is located in a fairly remote area and has not had a break-in or theft loss in 15 years. Does that company need a nine-foot security fence built? Based on the facts, no.

Having written procedures in place is important, says Richer, and it’s not only about complying with C-TPAT. A government study shows companies without a written procedure are 10 times more likely to pay the wrong duties on imports. If that same finding is extrapolated to security, a company with written procedures that it trains for and measures against will have a much higher degree of security.

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