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Playing By the Rules

Dec. 17, 2007
More and more firms are looking at risk in the supply chain because risk introduces uncertaintywhich must be factored into their planning, says Bill Shepard,

“More and more firms are looking at risk in the supply chain because risk introduces uncertainty—which must be factored into their planning,” says Bill Shepard, Practice Leader with Competitive Logistics LLC. Speaking as part of a panel on risk management at the Council of Supply Chain Management Professionals’ annual conference, the discussion continued with an observation that security concerns, along with natural calamities, underlie risk and, while we cannot control nature, security issues impact all participants in the supply chain.

Judging by the volume of security rules, regulations, and legislative action since September 11, 2001, it would be easy to question how much logistics professionals are controlling security and how much they are responding to security regulations. The last 18 months have seen a great deal of concentrated activity on security on both the legislative and regulatory front. As testament to the amount of change, there were at least 11 presentations in the “Risk Management” track at the recent CSCMP annual conference.

In 2006, the Department of Transportation (DOT) observed that the increased availability of security-related funding combined with a sense of urgency and need had led to the creation of more than 40 freight transportation security programs since 9/11. Here is an update on some of the key programs:

When the Security and Accountability For Every Port Act of 2006 (SAFE Port Act) was signed into law on October 13th, 2006, it contained several provisions which either codified past programs or started new ones. One such program is the Transportation Worker Identification Credential (TWIC), which is tasked to provide a tamper-resistant biometric identity card for workers requiring unescorted access to secure areas of the maritime transportation system. After much delay, the program is being rolled out. The first port chosen was Wilmington, DE. The TSA has announced a schedule for ports to implement TWIC. That selection of ports is based on a variety of factors including risk, geographic location, and other parameters. A number of ports have moved quickly to begin implementing the TWIC. The full schedule can be found at http://www.tsa.gov/assets/pdf/twicquarterlydeploymentschedule.pdf.

One of the biggest criticisms [of TWIC] so far is that the card will only be a "flash pass," says Aaron Ellis, director of communication for the American Association of Port Authorities (AAPA). "The required readers have not yet been approved,” he adds. He notes that these readers will be have to be quite rugged given the weather and marine environment in which they will have to operate. There will be a field test of prototype readers deployed at ports in Los Angeles-Long Beach, Miami, and New York-New Jersey. This pilot project was part of the SAFE Port Act which not only required this program but also that the Department of Homeland Security (DHS) would issue regulations to require the deployment of card readers and report the results to Congress.

“We will be part of the field test after full enrollment of all our required workers, and the design of the readers should be completed in time for deployment mid to late next year, says George Cummings, director of homeland security for the Port of Los Angeles.

Another area of concern with the TWIC program is how denials will be handled. A worker can be disqualified for certain crimes or if they are aliens in Temporary Protected Status. AAPA’s Ellis says that TSA has a waiver review program and it is on a case-by-case basis. If an applicant is denied a card, they have 60 days from the time they receive a denial to request a review. It is too early to tell how well the review process will work.

Customs-Trade Partnership Against Terrorism (C-TPAT) is a program which started out as a Customs and Border Protection (CBP) initiative is now included in the SAFE Port Act. The program continues as originally created, but the law now spells out the advantages that C-TPAT members should receive from CBP as well as adding time lines for validation of participant’s security systems by the agency.

Bill O’Connor, chairman of the National Industrial Transportation League’s (NITL) Select Committee on Security, says that there may be some advantages to C-TPAT, such as fewer inspections and less delay. If there was an “incident” which shuts down a trade lane, C-TPAT cargo should get preference in release.

O’Conner refers to a study completed by the University of Virginia’s Center for Survey Research that found that the average cost for C-TPAT implementation was $39,000, but that may not reflect the real costs to participants for implementation of the program.

One of the weaknesses in O’Conner’s opinion is that actual benefits may be hard to measure. That same survey found that 92% of the respondents would not leave C-TPAT.

There are currently 7,737 firms enrolled in the program and now that China has indicated it will allow CBP personnel to make C-TPAT inspections there, it is likely the program will get a significant boost.

Under the SAFE Ports Act, CBP has a pending rulemaking which would require importers to supply CBP with 10 additional data elements 24 hours prior to loading a container in a foreign port and the ocean carrier will have to furnish two additional data elements. Commonly referred to as the 10 +2 Rule these requirements are layered on top of the requirements set out in the “24-hour rule” that CBP enacted in 2002. That advance notification requirement currently calls for 24 items of manifest information to be reported to the agency. The 10 +2 rule is under internal review and must also be sent to the Office of Management and Budget for its examination. The final rule is expected to be released the first quarter of 2008.

There is concern among shippers and importers as to just how this rule will impact their operations, but all agree that this will add more complexity to the filing.

A requirement from the Implementing the 9/11 Commission Recommendations Act of 2007 (9/11 Act) is that all marine containers be scanned by non-intrusive imaging and radiation detection equipment at a foreign port before the box is loaded. The deadline for this requirement is July 1, 2012, with extensions of that date for two year increments if certain specified conditions exist.

A pilot program has been established at seven ports, including locations in Pakistan, Honduras, the United Kingdom, Oman, Singapore, Korea, and Hong Kong.

“We are installing our equipment in six of the ports, and this hardware is significantly improved over older versions,” says Alex Preston, general manager, Security and Transportation Technology for SAIC. “The new scanners have much greater penetration, providing digital images of the container’s contents,” he points out.

“We are watching this closely as well. We have questions about what happens after the scan is completed, as well as other concerns,” says Jonathan Gold, vice president, Supply Chain and Customs for the National Retail Federation.

One of the challenges for this pilot program, according to Preston is the ability to scan 100% of the containers without stopping the timely flow of trade. A report on this pilot is due in April 2008.

Another problem for this type of program is how the massive amounts of data generated will be handled. It will be an enormous task, says Preston, to integrate all this information and then to sift through it to achieve the desired result.

None of this takes into consideration the reaction of our trading partners, as the screening must be done at their ports.

“What about the many foreign governments that are concerned about the implications— including their view that this statutory provision expects foreign governments to undertake measures for their exports that the US government has no intention of doing for its exports?” asks Christopher Koch, president and CEO of the World Shipping Council.

The 9/11 Act requires 100% of cargo transported on passenger aircraft be inspected. That deadline is set for 2009. This has long been a source of contention among shippers and after several unsuccessful attempts, has finally become law.

The TSA will be allowed to use several screening methods to achieve this, including some of the same techniques used for passenger baggage.

A piece of technology that had its start in helping air carriers with dimensional pricing may supply an answer. Freightscan’s FS100 scans a package in four seconds, calculates the package’s dimensional weight, and stores a digital image of the box. As a result of the FS100’s scanning process, says André L. Johnson, CEO for Freightscan, developer of the unit, a data set is created which is a unique digital signature for that package—what he calls “Package DNA.”

Johnson is proposing a system called FreightScan Automated Security Screening for Transportation (F.A.S.T.), which records the package’s DNA at each step in the handling of the shipment. Any changes in the package would trigger an alert that could cause a re-inspection of the suspect shipment.

Another possibility is a replacement for the Known Shipper program which has been in place for the past few years. This program has been subject to criticism as not being sufficiently robust to exclude possible terrorist attacks.

“The new program is being called Certified Shipper, and it is much more rigorous than the old program,” says Brandon Fried, executive director for the Airforwarders Association.

While it is a voluntary program, it will be much closer to C-TPAT and will require the same type of security review.

In addition to the above, the 9/11 bill has at least two sections which will require studies, investigations and rule making proceedings. Section 1442 requires the development of a tracking program for certain motor carrier hazardous material shipments that uses GPS technology for tracking as well as enhanced communications and a driver “panic” button.

“We are working with TSA on a pilot project to provide data and put together clear definitions of products which would qualify as high risk hazardous materials,” says Walt Fountain, director of enterprise security for Schneider National Inc.

Section 1444 requires a program to review high risk hazardous materials security plans with civil penalty for non-compliance. At the same time, a study is to be done to determine to what extent the insurance, security, and safety costs borne by railroad and other carriers associated with the transportation of hazardous materials are reflected in the rates paid by shippers of these commodities and comparing those to the costs and rates for the transportation of non-hazardous materials.

Fortunately for carriers and shippers of hazardous materials, one area under the 9/11 bill which could have caused problems was avoided. While the DHS will require detailed security plans for chemical “facilities,” they have exempted carriers from this requirement.

The House recently passed HR 1401, Rail and Public Transportation Security Act of 2007 which contains several provisions which could create even more studies and rule making proceedings. The bill has been referred to the Senate’s Committee on Commerce, Science, and Transportation where it awaits further action.

Section 102 would require DHS to assign each railroad to a certain risk-based tier, while Section 126 directs DHS and DOT to jointly assess methods which could be used to attack tank cars containing toxic-inhalation- hazard (TIH) materials, including a risk assessment. Included is a requirement to conduct air dispersion modeling analysis of a release of TIH materials from a tank car in an urban area.

Section 130 will require an increase in the screening of rail shipments destined to the United States, looking for terrorists or weapons of mass destruction. This is a requirement to use some type of imaging equipment or other screening procedures.

Senate Bill 184, The Surface Transportation and Rail Security Act of 2007, would require that the TSA conduct a railroad sector risk assessment and submit prioritized recommendations for improving rail security. It would mandate that railroads create an employee security training program and call for those railroads handling certain hazardous materials to create threat mitigation plans.

The bill also requires the Federal Motor Carrier Safety Administration (FMCSA) to provide guidance to motor carriers and states regarding hazardous materials routing and to assess the addition of certain hazardous materials to the list of existing hazardous materials required to be transported by motor carriers with highway routing plans.

While neither bill has yet become law, further action is highly likely as there are many similarities between them and this is politically hot topic.

While the routing of rail hazardous material shipments has been subject to various rulemakings and court actions, there has been the ability to restrict hazardous material truck routes since 1994.

“The ability to define truck routes is defined in the Code of Federal Regulations,” says Rich Moskowitz, vice president and regulatory counsel with American Trucking Associations (ATA), “and the procedure requires a cost benefit analysis and hearings and takes such factors as extra mileage and road conditions into account”.

With all the attention being paid to security, it’s little wonder that the White House weighed in. On October 9, 2007, President Bush issued an updated National Strategy for Homeland Security report which, according to the White House Webpage, “will serve to guide, organize, and unify our Nation’s homeland security efforts." While it does discuss cargo security, there is no mention the TWIC program in connection with the “Screening People” section.

One thing is certain—all aspects of freight transportation will continue to receive a lot of attention, particularly as the presidential election moves into high gear.

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