C-TPAT Benefits Outweigh Costs
The Customs-Trade Partnership Against Terrorism will consume costs and resources, but its long-term benefits are beyond dispute.
Toby B. Gooley -- Supply Chain Management Review, 1/1/2005
If you want to see how easy it is to get different answers to the same question, try asking this one: How is C-TPAT (the Customs-Trade Partnership Against Terrorism) coming along?
Officials at U.S. Customs and Border Protection (CBP) in Washington will tell you that C-TPAT is moving forward quite nicely, adding hundreds of new members and expanding to include more parties in the international trade community. U.S. importers and their overseas suppliers, on the other hand, may have a different response. They'll say they understand the need for the federal security-compliance program and support its aims but are frustrated at the slow pace of implementation and C-TPAT's lack of specific standards.
Both sides have valid points. From the government's perspective, C-TPAT is doing what it was intended to do: get international traders to improve security throughout their supply chains in order to reduce the risk of terrorist attack. Conceived shortly after the Sept. 11, 2001 terrorist attacks, the security program consists of a four-step process.
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Potential participants sign a memorandum of understanding (MOU) stating that they agree to comply with the program's security guidelines.
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They then submit a document detailing their current security practices and those of their transportation service providers and overseas suppliers.
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Customs and Border Protection reviews the document and either provisionally accepts the applicant or asks for an improved security plan.
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CBP inspectors make site visits to verify the information in the application.
C-TPAT membership initially was open only to U.S. importers. The program soon expanded to include ocean carriers, freight forwarders, customs brokers, port authorities, and, most recently, foreign manufacturers. Figures released by CBP show that as of March 2004, approximately 6,400 companies had applied for membership, 3,400 had been provisionally accepted, and about 700 were undergoing validations—and that number has steadily grown since.
Officially, participation in C-TPAT is voluntary. But in reality, it has become a condition of doing business with big importers such as JCPenney, Home Depot, and Target. So if they don't get with the program, importers, freight forwarders, customs brokers, and foreign manufacturers stand to lose a significant chunk of business.
That impetus to participate in C-TPAT has created a backlog of applications that is taxing CBP's resources. Importers have reported waits of three or more months just for acknowledgments that CBP has received their memoranda of understanding. The entire process can take two years or more. Hasbro, the Pawtucket, R.I.-based toy importer, for example, signed its MOU in May of 2002 and finally underwent validation inspections in September of 2003. The following summer, CBP suggested that Hasbro make some changes in its procedures. Hasbro responded to the CBP's letter in August; at press time, the company had still not heard back from the agency.
That situation should improve now that Customs and Border Protection has hired more than 100 security specialists to evaluate applicants and conduct validations. The agency also is working on automating the largely paper-oriented system. ("Paper-oriented" may be a bit of an understatement: One freight forwarder reports that its security plan's executive summary was more than 70 pages long.)
CBP evaluates applicants' submissions and decides whether their security plans are sufficient. But it's not entirely clear what constitutes "sufficient" as the agency has deliberately refrained from setting specific standards for security practices, choosing instead to provide general guidelines. (In October, CBP did circulate a draft proposal of changes to C-TPAT that would mandate specific practices, such as risk analysis and container inspections.) Broad guidelines are just fine with mega-retailers that do business with thousands of factories in dozens of countries; with so many different types of suppliers, they want the flexibility to devote appropriate levels of attention to each country. Smaller importers, however, would like to see a little less flexibility in C-TPAT.
Because CBP has not issued a fill-in-the-blanks form for surveying security plans, importers develop their own questionnaires. This means suppliers and service providers that do business with multiple importers may be bombarded with differing demands for information.
Coping with the Costs
Meeting those demands can be time-consuming and costly. "Large retailers require all of their vendors to be C-TPAT certified," says the import manager of a Massachusetts-based giftware supplier. "But they still demand that we complete huge questionnaires on security, then they send their own inspectors to the [overseas] factories—and they charge us for each visit." Says another importer: "It's a pass/fail system, and we don't know what constitutes passing or failing. We've hired third-party consultants to help, and it's gotten very expensive."
How expensive? Hasbro, which sources the majority of its products in China, spent nearly $200,000 to get C-TPAT off the ground and expects to spend about $112,500 annually both here and overseas on compliance.
To keep costs down and minimize the burden on foreign suppliers, Hasbro and other members of the Toy Industry Association are developing a questionnaire, standards for security practices, and a compliance-verification protocol to be used by all members. Thus, a factory need only complete one survey and undergo one inspection to meet the requirements for dozens of customers.
No one ever said certifying suppliers' security measures would be cheap or easy, and CBP is standing firm on the need to focus on foreign manufacturers. "If we don't have complete security of the point of origin, then security is illusory, in my opinion," said CBP Commissioner Robert Bonner at a recent industry conference.
Bonner believes the answer to importers' concerns is to get their foreign suppliers to join C-TPAT, perhaps by including security requirements in their contracts. Still, CBP has been listening to importers' somewhat conflicting messages, and agency officials say that their proposed changes will result in more standardized guidelines and better ways to evaluate the effectiveness of security measures.
But C-TPAT is not all burden and no payback. Some importers have accused Customs and Border Protection of failing to deliver on its promise of fewer inspections and faster processing for C-TPAT members. CBP officials, for their part, say their data prove otherwise. C-TPAT program managers say that members' shipments are inspected three to five times less often than imports in general, and they are subject to enforcement actions six to eight times less often.
Some of the largest importers agree with that assessment. Since joining C-TPAT, Hasbro has been able to process more than 99 percent of its entries entirely without paper. It also has reduced the number of Customs "holds" from 211 out of nearly 2,800 entries in 2001 to 45 out of 4,100 in 2003, and the number of intensive physical inspections has plummeted from 31 in 2001 to just 5 last year. Target and JCPenney, meanwhile, have documented a direct correlation between requiring suppliers to adhere to security standards and a decline in cargo theft. Other importers report that because C-TPAT requires them to document procedures and inspect overseas plants, they've found unexpected opportunities for improving efficiency. And now that C-TPAT membership is a prerequisite for Customs' Automated Commercial Environment (ACE) information system, the Importer Self-Assessment (ISA) program, and the new, monthly duty-payment option, the benefits will become even more attractive.
An Evolving Program
C-TPAT is still evolving, and what's true today may not be true six months or a year from now. One question often voiced by international traders is whether C-TPAT will remain voluntary or if it will become mandatory. Others worry about the opposite possibility—that CBP might cut off C-TPAT membership at some point.
Whichever path C-TPAT ends up taking, there are some things everyone can agree on: It won't be easy, it won't be cheap, and it will strain both public and private resources. But it will also force importers to be more aware of what their suppliers are doing, identify weak links in international supply chains, and help the federal government better protect the country from attack. As one observer recently summed it up, "C-TPAT is about reducing the size of the haystack so we can find the needle more easily."
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