Stronger Protection Needed
Government programs are a good first step, but more needs to be done to assure security of our global supply chains.
By Noha Tohamy -- Supply Chain Management Review, 3/1/2005
With the rapid increase in globalization and outsourcing, supply chains have become more distributed. And this, in turn, has resulted in more potential breakpoints along the supply chain. The events of Sept. 11, 2001, and the ensuing war on terrorism have only exacerbated the problem. Today, U.S. companies competing in the global arena face a higher degree of supply chain vulnerability than ever before.
The U.S. government, mainly through the Department of Homeland Security, has launched a number of programs to make the country more secure. But from a supply chain perspective at least, these efforts may be falling short of the mark.
First, let's take a look at what the federal government hopes to accomplish. Through programs like C-TPAT (Customs-Trade Partnership Against Terrorism) and Operation Safe Commerce, the government seeks to partner with the private sector to define and implement effective security measures. The common objectives of these initiatives are to:
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Create virtual borders away from American soil. By requiring freight inspection at foreign ports, the government can proactively assess the risk associated with a shipment—in effect, making the U.S. ports the last line of defense. Many countries have agreed to these guidelines to appease the United States as well as to maintain the flow of commerce in their economies. Programs like the Container Security Initiative (CSI), for example, help identify high-risk freight at overseas ports before it sets out for our borders.
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Gather and analyze supply chain data as early as possible. The federal government requires carriers to submit shipment information prior to loading the cargo at the foreign port. This gives authorities time to assess the risk level associated with each shipment. For example, they can verify that the supplier and the importer are not on a denied party list. U.S. Customs' 24-Hour Manifest Rule requires carriers to submit cargo declaration information 24 hours before the freight is loaded at the foreign port.
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Identify and focus on high-risk freight. Given human resource constraints and the technology currently in use, it's not possible to inspect each and every container arriving at a U.S. port. Customs believes that allowing low-risk freight to enter the country with minimal inspection gives them precious time to concentrate on high-risk shipments. C-TPAT provisions, in particular, allow importers to conduct and submit a self-assessment of their supply chain security to Customs. The agency evaluates the company's security profile, conducts a physical inspection, and, if satisfied, certifies the importer as C-TPAT compliant. This means that their shipments will be considered low-risk cargo.
Critical Weak Spots
While the government initiatives are laudable in their intent, they do have some underlying weaknesses. For one thing, most of the initiatives are voluntary. The net result is that only forward-thinking companies with the necessary bandwidth to commit to the required level of effort are participating. Moreover, Customs and Border Protection is still defining the final rules and regulations for many of these programs. Thus, the only companies having any input in the process are the ones actively participating in the programs. The answer is to make these compliance programs mandatory for all importers.
Another problem is that the security efforts are placing a heavy financial burden for investment on states, privately held companies, and public authorities like ports. This is not entirely fair. The federal government must acknowledge that each U.S. port is a gateway into and out of the rest of the country—and that the benefits of a secure port extend well beyond any state or even any region. For example, securing the Ambassador Bridge—which processes about 8,000 trucks a day between Detroit and Windsor, Ontario—not only protects the state of Michigan against a major disruption but also the United States economy at large. Since the benefits are being shared beyond Michigan, the security costs should be shared as well.
Finally, it's possible for terrorists to infiltrate the existing programs. C-TPAT, for example, relies primarily on a company's ability to self-report its security procedures and on a one-time inspection. After obtaining the compliance, the company's freight is considered low risk, meaning that it will typically receive only minimal inspection at the U.S. port. But as the events of Sept. 11 demonstrated, terrorists have the means and the patience to plan their attacks for years. A terrorist group can pose as an importer or a carrier, get C-TPAT certification, and use this status to stage an attack.
New Actions Needed
As it begins a second term, the Bush administration must quickly assess the progress of the security initiatives in place and take aggressive steps to address the weaknesses we have identified. Four actions, in particular, deserve high priority:
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Define minimum mandatory security requirements for importers. The Department of Homeland Security through its Customs and Border Protection agency must require a minimal level of security compliance from every importer. For example, the government could require each importer to confirm that its overseas suppliers and the carriers handling its freight are not on any restricted-party list. If an importer does not provide this guarantee, its freight would not be allowed into a U.S. port.
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Invest in technology that makes full inspection feasible. Thanks to recent advances in technology, it is now feasible to inspect each shipment—without affecting processing speed. Experts believe that a combination of low-cost, high-speed gamma-ray inspection and high-accuracy X-ray inspection systems at U.S. ports would allow Customs to verify most incoming shipments. To achieve this level of security, the government must move beyond pilots (such as the vehicle-mounted gamma-ray technology being tested at the Port of Seattle as part of Operation Safe Commerce) and help fund wide deployments of these systems across all ports.
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Define tangible benefits for new voluntary programs. New security programs that are essentially voluntary must have greater incentives for participation. A program like Free and Secure Trade (FAST), for example, offers compliant importers and carriers expedited border processing and fewer freight inspections. Yet, it's not clear how this translates into a significant return on investment. Customs must help companies build the business case for participating in these initiatives by quantifying the benefits—such as higher productivity or increased revenues thanks to speedier cargo movement—or by offering financial incentives to participate.
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Improve accountability and visibility. To guarantee the integrity of incoming shipments, the U.S. government must require safeguards at every point at which freight could be tampered with. This can only be accomplished through supply chain-wide visibility and accountability—starting with the original manufacturer and going all the way to the end consumer. The burden of this effort most likely will fall on the importer. So an importer like Boeing, for example, would need to establish the pedigree of imported airplane parts along various multi-tier suppliers, distributors, and logistics providers. To meet this requirement, user companies would likely seek the service of global organizations with worldwide technology and operations infrastructure. Candidates could be heavy-hitter logistics providers like DHL that have been fortifying their multimodal global visibility with advanced technologies like radio-frequency identification (RFID).
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Protecting the Supply Chain
Many security experts believe that the next terrorist threat will be aimed not at citizens and buildings but rather at the supply chain. With 80 percent of global freight moving by sea, it's likely that terrorists will seek to manipulate weak points in maritime supply chains either to enter the country or to smuggle in weapons of mass destruction. In addition to protecting lives, the kinds of actions recommended above could help prevent any such actions from succeeding.
The United States cannot afford a supply chain catastrophe. Consider that the West Coast port shutdown of 2002—a non-terrorist action—resulted in estimated losses of $2 billion a day. Just imagine the impact of a similar supply chain catastrophe caused by a terrorist act. The task of strengthening the weak points in the supply chain can't wait.
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