Securing the borders

There are 26,000 miles of navigable waterways in the U.S. and 3,700 marine terminals, observes Richard Biter, deputy director of the U.S. Department of Transportation’s Office of Intermodalism. “Our challenge is this,” he says. “How do we get the most efficient use of our resources but at the same time take the necessary steps to ensure security?”

“The intermodal transportation network is highly susceptible to small events, which could in turn have a cascading effect — much like what occurred with the power outage that darkened the Northeast earlier this year,” notes R. James Woolsey, former director of the Central Intelligence Agency and a vice president with consulting firm Booz Allen Hamilton Inc. “We need to be able to protect our transportation infrastructure so that any terrorist attack won’t be catastrophic.”

Woolsey, Biter and just about everyone in the business world agree that cargo containers are a perfect vehicle with which to transport weapons of mass destruction (WMD). According to one study, if a containerized WMD were detonated in the U.S., the costs associated with U.S. port closures could amount to $1 trillion, the amount spent on U.S. logistics costs per year.

Such frightening scenarios have prompted U.S. regulators and the companies they regulate to directly address the issue of maritime security. One of the most significant trade security programs initiated is the U.S. Bureau of Customs and Border Protection’s Customs-Trade Partnership Against Terrorism (C-TPAT) to enhance the security of the global supply chain and deter international acts of terrorism.

“Information,” according to Admiral James Loy, administrator of the Transportation Security Administration, “is the key to being able to do this. We want to develop a layered system of protection where the public and private sectors work in partnership to prevent, protect against and respond to threats.” C-TPAT provides a model for this concept of public-private sector partnerships in security.

C-TPAT is a voluntary partnership program between the business community and Customs, designed to enhance the security of international supply chains and thus reduce the number of containers that otherwise might be screened for WMDs. Under C-TPAT, Customs officials work in partnership with private industry, reviewing supply chain security plans and recommending improvements.

A company must document its observations in a security profile, which summarizes the firm’s current and future supply chain security practices and vulnerabilities. After conducting the assessment, the company then takes the necessary steps to correct security problems, and documents its efforts in the C-TPAT assessment. It submits this assessment to Customs for review and, hopefully, approval. In return for their efforts, C-TPAT members enjoy a reduced likelihood that containers traveling through their supply chains will be inspected for WMDs.

The C-TPAT security recommendations are meant to serve as a guide for companies to follow. The program applies to U.S. manufacturers, carriers and other logistics providers, and most recently was expanded to encompass foreign manufacturers. Some industry analysts predict that in the coming years, C-TPAT — or at least portions of it — will evolve into a mandatory program.

Today, about 4,500 companies have been C-TPAT certified. Children’s toy maker Hasbro Inc. was among the first 100 companies to participate in the program.

“We are very proactive with government programs,” says Barry O’Brien, director of global trade and customs for Hasbro. “We have an urgent need to get our products to market, so speed is critical to us.”

O’Brien believes C-TPAT was the right thing to do at the time when country was in crisis. “We knew that if we didn’t get on the bandwagon early, we’d be behind the eight ball,” he says. “The government raises the bar on security requirements every year, and we didn’t want to get a late start.”

As part of the C-TPAT effort, Hasbro sent its suppliers a detailed survey with some 90 questions about security arrangements at their factory. O’Brien and Hasbro’s head of corporate security reviewed the responses.

“If we thought there was a problem or gap, we went back to the supplier and asked them to correct it,” O’Brien explains. The company also trained a team of inspectors to visit overseas suppliers and conduct security inspections of their facilities.

Hasbro realizes very concrete benefits from the C-TPAT program. “We’ve seen a remarkable decrease in our import container inspection ratios,” O’Brien reports. At the same time, “C-TPAT makes us much more aware of what could go wrong, so we can be proactive about making changes to prevent problems.”
Ultimately, the toy company wants all of its suppliers, carriers and third-party logistics providers (3PLs) to be C-TPAT certified.

High-tech firm Flextronics International Ltd. was in the second wave of companies obtaining C-TPAT certification. In February 2003, the company launched its C-TPAT certification effort, and obtained Customs approval in September.

“Our C-TPAT program acted as a catalyst, galvanizing the company to self-assess our supply chain,” recalls Greg Stein, Flextronics’ vice president, global transportation and trade compliance.

Headquartered in Singapore, Flextronics manages design, engineering, manufacturing and logistics operations in 29 countries over five continents. The company, with over $13 billion in sales, does business with customers in 120 countries.

Several key business drivers fueled Flextronics’ decision to seek C-TPAT certification. The first, says Stein, was customer satisfaction. “Our customers told us they wanted us to follow the C-TPAT guidelines and/or obtain certification,” he says. “Many of them were in the first wave of certification, and they wanted their supply chain partners to commit to be certified. We in turn are requiring our suppliers to do the same.” Additionally, Flextronics wanted to reduce the frequency of inspections by Customs. “There are two kinds of Customs inspections, and each carries a cost,” Stein observes. “Terminals charge $125 or more to position a container for an on-site, non-intrusive inspection. The more intensive inspections requiring complete de-containerization at an off-site facility are much more expensive. It costs up to $800 a container, plus the cost of the delay.”

Delays are anathema to Flextronics. “Time is key,” Stein says. “We operate under a just-in-time and lean manufacturing system, so we don’t have extra time built into our supply chain to accommodate such delays. This means a delayed container could potentially [result in] significant customer service issues or problems.”

Stein views C-TPAT and other Customs programs as catalysts to overdue process improvements. “This is not a bad thing,” he observes. “It helps all participants to focus on managing latency in the supply chain. It ensures that the hand-offs from supplier through the distribution network to the end customer or plant door are as efficient and compliant as possible. The inevitable adoption of RFID tags, especially the superior Class 3 tags, will cover all merchandise cartons, pallets and ocean containers, improving inventory tracking and tamper detection as product moves through the supply chain.

“People see C-TPAT as a means of protecting their assets against theft and loss at the same time as protecting against terrorism,” Stein continues. “It's a win-win. They generate a return on investment and security benefits at the same time.” He believes that the savings created by fewer inspections and faster flows offset at least some of the costs of a C-TPAT program.

The export side of the U.S. trade equation has not experienced the same level of government/regulatory attention as imports, but Pat Skeahan, export administrator for Wah Chang Inc., has noticed a difference post-9/11.

“Staying abreast of government regulations is critically important today,” she says. “They change very rapidly now, so we take extra time with all of our shipments to make sure they comply. We want to know who the carrier is, where the shipment is going, and what routing it will take.”

Wah Chang, an Allegheny Technologies company, is a manufacturer of specialty chemicals and metals. A number of Wah Chang’s products are what Skeahan refers to as “dual use.” This means that they can be used for nuclear proliferation and terrorist purposes just as easily as they can be used for space shuttle repairs.

“We have a lot of compliance issues because of the nature of our products,” Skeahan explains, adding that just about everything the company makes or sells is on the U.S. Department of Treasury’s OFAC list.

The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

As a result of 9/11, Wah Chang is “more careful about the orders we book and the end use statements we take from our customers describing how they intend to use our products,” Skeahan says. “All orders come to me and if they don’t look right, we ask our customers more questions. We make sure we know where our products are in the world and how they’re being used.

“When we get a new customer,” she continues, “before we do business with them, we check them out thoroughly — on the web, by Dun & Bradstreet report if available, and we even ask the Commerce Department to do pre-license checks if we have bigger concerns. If we’re shipping material to Pakistan, for instance, and we don’t know the company, we ask Commerce to conduct a pre-license check. Commerce normally has the Central Intelligence Agency (CIA) conduct these investigations.”

Wah Chang is highly motivated to comply with U.S. government restrictions on its products. Failure to do so could have a disastrous effect.

“The fines are humongous,” Skeahan notes. “You can go to jail. If we lost our export privileges, we’d lose 57% of our business. That would close us down. So we are very careful about staying current and complying with the law.” LT

Maximum security

With new programs like C-TPAT and a constantly changing regulatory landscape, logistics managers have their work cut out for them when it comes to maritime security compliance. There are a number of steps you can take to improve security. Charles Miller, VP and general counsel for GreenLine Systems Inc., a risk management software provider, offers some commonsense thoughts on the matter.
‹ Understand the physical and logical processes that make up your extended supply chain. “This requires you to think into your trading partners’ organizations, and generally know a lot more about how they do business,” he notes.
‹ Understand what each upstream supplier does to assure that dangerous goods or contraband are not added to a shipment. Determine whether you believe those identified procedures are adequate.
‹ Visit supplier facilities on both scheduled and random bases. Check security procedures.
‹ Flow security requirements upstream to suppliers.
‹ Try to drive a certain level of randomness into supply chain processes, e.g., vary employee shifts to eliminate the potential for internal conspiracies.
‹ Consider having “dual control” processes so that two people, preferably without a long-standing prior relationship, must check or sign off independently on certain important steps.
‹ Maintain a high level of information technology (IT) security with appropriate housekeeping tools, e.g., access controls, virus protection, intrusion detection, firewalls and penetration testing.

Miller suggests making your suppliers financially responsible for any losses in the event of failure to follow agreed-upon security procedures. “If you want your goods handled in a certain way, specify it in your contracts — even down to what kind of seals you want on your containers,” he advises. “The financial liability gets your supplier’s attention right away, and keeps it focused on maintaining security standards.” — LHH

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