July 2003 | Commentary | Viewpoint

Building Security Into the Supply Chain

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Prior to Sept. 11, 2001, the term "security" primarily addressed cargo theft. Now the term addresses the broader set of security requirements and challenges associated with the increasing terrorist threat.

Historically, competition has heightened information-sharing tensions among regulatory agencies, manufacturers, freight forwarders, carriers, and retailers—they have "protected" their piece of the information technology system.

The whole information system has been documented, but changing it is the challenge! Evolving improvements in security hardware and information technology systems must be coordinated to ensure that implementation costs and challenges contribute to both boosting security levels and providing meaningful improvements in freight business practices.

The most proactive IT security improvements have occurred at the U.S. Customs Service' s initiative. Customs now requires cargo manifests, in electronic form and providing accurate commodity information, 24 hours before the loading of the ocean carrier' s vessel bound for a U.S. port. A similar requirement is pending for cargo shipments crossing land borders into the United States.

Customs has modified its Automated Commercial Environment (ACE) program to include the data elements from the International Trade Data System, ensuring electronic support to all government agencies involved in import and export. As part of the Container Security Initiative (CSI) program, companies that are certified participants in the Customs-Trade Partnership Against Terrorism (C-TPAT) receive special benefits in the import process. Large shippers, importers, and transshipment ports get priority.

Information connectivity is the key to combating the increased security threat to cargo shipments. Sharing and linking information throughout the supply chain means identifying suspicious shipments more accurately. Shippers, carriers, and trading partners need to share more information.

A new concept of information management may be evolving—regional databases that provide a repository for import and export information, including forwarding required data to regulatory agencies. In some cases, ports are taking the lead to bring enforcement and regulatory representatives together to assess possible threats and recommend appropriate action.

In an ideal world, shared supply chain information will include the shipper' s letter of instruction, commercial invoice, certificate of origin, carrier' s bill of lading/import manifest, financial information, customs cargo release, and inland shipping instructions/manifests by mode. The result will be a global, real-time, in-transit information technology system networked to provide the required information to regulatory and enforcement organizations. These information systems must be properly fire-walled.

The result will be increased accountability of the cargo movement process, with the carriers benefiting from major improvements in asset and personnel utilization efficiency.

Progress on security "hardware" is not proceeding as well. Vendors are pushing for the adoption of electronic seals as part of the security improvement process, hoping that their product will be granted ad-hoc standard status.

Two organizations—the U.S. DOT' s Maritime Administration' s Cargo Handling Cooperative Program and the Washington State DOT—are currently engaged in testing electronic seals. To date, the tests have highlighted the need to develop coordinated recommendations for a standard international frequency for electronic seals.

Testing programs need to continue in the "shipper to consignee" operational environments to determine performance and functionality requirements before standards are adopted and regulatory agencies mandate their use.

Part of the security seal debate is the implementation cost for both the seals and their supporting infrastructure. Some electronic seal vendors market their product as reusable but at an increased per-item cost. Other vendors offer low-cost, disposable electronic seals that operate at different frequencies.

Related is the recently initiated work on sensors internal to the cargo container—the so-called "smart container." This may create the need to integrate the communications of the container sensors and the electronic seal to the transportation infrastructure.

Who will bear the cost burden? Will the implementation costs be subsidized? The good news is that a number of effective mechanical seals are available at a reasonable per-unit cost that will significantly improve cargo security until the future role of electronic seals can be determined. A good mechanical seal provides strong physical prevention against unlawful opening of the doors and unambiguous, non-erasable evidence of unauthorized access. The seals must be inspected to ensure they have not been defeated.

Increased emphasis on securing the transit of hazardous materials is also creating hardware and information technology security requirements. Carrier tracking centers are emerging, employing modern location and communication sensors on the transporting vehicles. Movement of hazmat materials may be one of the first areas that will see mandated application of location and shipment security protection technology.

Reducing Cargo Theft

Cargo theft continues to increase. The size of the increase is difficult to measure because there is no common cargo theft database.

Estimates of U.S. cargo theft costs are $1 billion a month, with most of the thefts occurring in the transportation process. Carriers are still reluctant to report cargo thefts to avoid further increases in their insurance rates and the associated image problems. Lax penalties, the low risk of tracing stolen goods, and increasing profits remain the root causes. Security improvements will reduce cargo theft.

The increased terrorist risks to the movement of cargo are a given. Parallel improvements in cargo security hardware and information technology systems will be justified on both the incremental improvements in security and increased contribution to the efficiency of business processes. Improved intermodal freight location and content accuracy systems, including exception reporting, can significantly increase the utilization of intermodal carriers' assets and personnel.

Key to achieving results acceptable to the industry will be the success of joint industry-government programs that identify the candidate technology improvements and conduct operational tests that document meaningful upgrades to the security of the freight transportation system.

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