The New Frontier of Border Security
Are you committed to protecting the safety and security of goods in transit? Pretty soon, you'll have to be. Here's a look at the latest security initiatives affecting transportation and logistics, and what you need to know to comply.
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A lot has gone on since Sept. 11, 2001, in the way of protecting the safety and security of the country, and the logistics industry is no exception. As the industry becomes increasingly global, stronger emphasis must be placed on maintaining secure borders for transporting goods. With new government regulations constantly coming into play, heightened security continues to be a top priority.
But as government initiatives continue to evolve to meet the needs of shippers and consignees and enhance border security, you may be more confused than ever as to what these new regulations mean to your company.
To help you stay in the know, Inbound Logistics talked to transport buyers, carriers and industry experts to get the scoop on some of the new regulations mandated by the Department of Homeland Security and the U.S. Customs and Border Protection.
Two of the biggest initiatives to recently affect transportation and logistics are the Customs-Trade Partnership Against Terrorism (C-TPAT), a voluntary partnership between Customs and businesses, and the expanded 24-Hour Rule, requiring shippers using all modes of transportation to submit electronic manifests to Customs before cargo arrives at U.S. borders.
The Customs-Trade Partnership Against Terrorism, more commonly referred to as C-TPAT, is quickly becoming the industry norm for any company hoping to do business globally in the near future. The joint government-business initiative is a voluntary partnership intended to help strengthen overall supply chain and border security. But for those who do not elect to participate, getting goods through Customs may turn out to be a long and tedious process.
The general feeling is that "Customs will look at non-certified carriers much more closely than it has been as security measures increase," says Paul Londynsky, director of safety, quality and environmental affairs at San Francisco-based Matson. This could add significant delays—in some cases anywhere from three to 10 days—for importers and exporters who are not involved in the program.
The benefits of C-TPAT extend to every link of the supply chain. The idea is that through continued cooperation with the U.S. Customs and Border Protection (CBP), companies can ensure a more secure supply chain for their employees, suppliers, and customers.
CBP also offers additional benefits to C-TPAT members including a reduced number of inspections (which lead to shorter border times), an assigned account manager, access to the C-TPAT membership list, eligibility for account-based processes, and an emphasis on self-policing rather than CBP verifications. To participate, applicants must submit signed agreements to CBP, representing their commitment to the C-TPAT security guidelines.
Making the Commitment
Although participation in C-TPAT may seem like a no-brainer for many companies, the application process does require real commitment. The entire validation process can take a while, according to Chris Corrado, vice president of customer support at Oakland, Calif.-based APL Logistics.
"We submitted a letter of agreement stating APL's decision to participate in January of last year," says Corrado. "In April we heard back from Customs that our certification had been approved, and in September we completed the validation process."
If nine months seems like a long time to wait for validation, think about this: Many companies who have submitted agreement letters around the same time as APL still have not heard back from Customs.
"I think Customs is overwhelmed by the number of companies that have expressed interest in the program," notes Corrado. "They are going to have to work through this to keep up with the demand."
Each application requires a great deal of attention on the part of Customs officials so the process can be a time-consuming one. The company first sends a letter of agreement to Customs stating its desire to participate. From that point, the company has 60 days to submit its security profile.
"If a company needs more time, however, Customs will usually grant it and work with you to make this partnership happen," notes Corrado.
In the security profile, the company details its plan to enhance security throughout the supply chain. This plan is based on the security guidelines outlined in each section of the forms that Customs supplies. Once a request has been approved, the company receives a letter of certification.
Then the process of validation begins. Before a company can be validated, teams of inspectors communicate with the company and conduct site visits to determine that the company is implementing proper security measures and conducting business in a manner in line with the initiative.
Signing 'Em Up
As the word "partnership" implies, C-TPAT is an ongoing process and from the response so far, it is apparent many companies are eager to take part. The original goal for Customs was to have the top 1,000 importers enrolled in C-TPAT by the end of last November.
By the end of 2003, however, about 4,000 companies, according to Corrado, had already submitted security profiles. Not a bad response, considering participation is not mandatory.
Perhaps part of the reason for the high level of interest in the program comes from the fact that it is a voluntary initiative.
"The fact that this is a voluntary program that creates a collaborative relationship between shippers and Customs is definitely an advantage," says Earl Agron, director of port and container security for Oakland, Calif.-based APL Ltd. "Voluntary guidelines from the government are always better than mandated ones. If instead of C-TPAT we had unforgiving regulations, the program might become more costly to implement and less effective."
As more and more companies elect to participate, the pressure increases for those who haven't yet to get on board.
"Participation in C-TPAT is becoming a requisite of doing business," notes Corrado. "Customers are requiring that their service providers become C-TPAT participants."
Certification is even becoming a necessity for importers and carriers who want to be eligible to participate in initiatives such as the Green Lane program outlined by Commissioner Bonner last November (see sidebar, below).
The benefits of C-TPAT are not exclusive to carriers, however, notes Matson's Paul Londynsky. "This initiative makes the supply chain more secure for our customers as well. Every part of the supply chain is participating and taking precautions, from the original manufacturer down to the final delivery of goods.
"Security is everyone's responsibility and C-TPAT raises awareness by formalizing the process and making everybody step up to the plate," he says.
"The program gives companies a good outline of the necessary security procedures to implement, and provides a structured approach to evaluating where a company stands in its security plan. It is a good benchmark to evaluate any gaps in the existing organization," says Corrado.
While implementing changes in an organization requires an investment, participating in C-TPAT can actually be more cost-effective for both carriers and transport buyers. By keeping the supply chain operating at full speed, shipments can move through the import process more quickly.
"A big advantage of using a certified vendor is that transport buyers get expedited approval when their containers hit the United States," says Agron. In an industry where speeding inventory translates into increased profits, keeping goods flowing smoothly through Customs is a challenge most companies do not take lightly.
Customs is no doubt pleased with the results of the initiative so far. CBP has already started rolling out C-TPAT to manufacturers based in Mexico. The program is also expanding to include overseas manufacturers and exporters in Asia and Europe.
As part of its Container Security Initiative (CSI) to safeguard the United States and global commerce from terrorism, the U.S. Customs and Border Protection announced the 24-Hour Rule for ocean inbound shipments. The rule first went into effect in February 2003 and CBP has since extended the regulation to include all modes of transportation.
The final rules for advance electronic notification were released in November and will take full effect in the coming months. Once the final rule goes into effect, rail, truck, air, and sea importers and exporters will be required to submit advance electronic notification to Customs prior to shipments reaching U.S. ports of entry for importers, and prior to departure from the United States for exporters (see sidebar, below).
Previously, most non-maritime inbound shipments were not screened by automated targeting systems before coming into the United States. As a result, Customs could not assess most cargo shipments for risk prior to arrival. But the Advance Notification rules aim to change all this.
"It is a bold but necessary move to better secure our borders against the terrorist threat without delaying the flow of legitimate trade," says CBP Commissioner Robert C. Bonner.
Little Trouble Adapting
The 24-Hour Rule for ocean inbound shipments has been in place for about one year now and, according to many people involved, there have not been too many problems associated with compliance.
"Importers have been subject to U.S. government regulations concerning documentation and classification for some time," says Hank Selby, president of Global Trade and Logistics Services, Richmond, Va. "They have had little trouble adapting to the additional requirements of more accurate product description."
Things may start to get a bit trickier, however, now that all modes of transport are required to submit advance notification. One main issue of concern for air, truck and rail carriers is the threat of penalties and delays associated with submitting the required manifests correctly.
"The real problems will come in when exporters from the United States have to modify their invoice descriptions to approximate the Harmonized Tariff Schedules of the U.S. (HTSUS). They will have to provide this information to their transportation service provider in sufficient time to have the manifests filed with CBP," notes Selby.
Selby predicts a kind of domino effect occurring with carriers imposing deadlines on freight forwarders in order to submit manifests to CBP in time. The freight forwarders will then, in turn, impose a deadline on the shippers, with each party forced to submit this data in a much shorter time frame than they are used to. "I see this affecting air cargo—particularly last-minute shipments," says Selby.
Ocean exports may also prove to be a challenge under the ruling. In most cases, if the shippers miss the cutoffs for submitting the manifests, they will have to wait a week for the next vessel to arrive. This could result in shippers incurring additional charges to move cargo to the next port in rotation if they are not able to load at the original port, notes Selby.
Another potential problem area is on the Northern and Southern borders of the country—for imports and exports to and from Mexico and for imports from Canada. The advance requirements are completely new to these lanes, says Selby, "so there is a potential for massive pileups at the borders unless the carriers do a good job of educating the shippers as to their requirements for information."
For retailers, trucking is expected to be the biggest adjustment because most carriers do not have electronic manifest systems already in place. The biggest problems that have occurred so far, according to Erik Autor, vice president and international trade counsel for the National Retail Federation, have been on the domestic side, once goods are already at the port.
X-ray machines at the port must screen the loads, and each machine takes about 45 seconds to screen a container. "That sounds very fast but the problem is waiting on line for your box to get to the machine," says Autor. "That process can take up to a week, which is a lifetime in terms of your supply chain."
Selby's advice to transport buyers is to make sure their forwarders and carriers are completely up to speed on these regulations. He also notes that all service providers for importers should be C-TPAT certified to avoid delays in the supply chain as much as possible.
While it is ultimately the shipper's responsibility to file the manifests electronically, regulatory language raises some questions as to who is responsible for their accuracy.
The main source of confusion, notes Autor, "is that Customs is still grappling with the definition of the term 'shipper.' That term can cover a lot of different entities from importer, to 3PL provider, to transaction broker, to freight forwarder. A big concern is sorting out each party's responsibilities under the ruling."
But what about the costs associated with implementing additional security measures? Aside from the cost of delaying a shipment, Autor says the "smart container" initiative, which will soon become a requirement for anyone involved in cross border transport, is expected to add a considerable sum to the cost of doing business.
Under the initiative, containers will be required to have global positioning transponders, smart seals that indicate whether the cargo has been tampered with, and other technologies. These devices can be expensive to install.
"We're talking tens of millions of containers that are affected by this ruling and if you are required to have a smart seal on each of these containers, it is going to get horrifically expensive," says Autor.
It remains to be seen how much of that additional cost will be passed on to transport buyers. For right now though, Autor says the government is working on coming up with a technology that will make the devices as inexpensive as possible to implement.
Easier Compliance, Fewer Delays
For the most part, response to increased government security measures has been positive. "From my experience, things have gone very smoothly so far," says Autor. As participation in C-TPAT continues to grow, Autor expects that compliance will become easier and delays will be minimal.
Companies realize their cooperation in these initiatives is critical to securing cargo.
"If we want to continue to operate in 'the new normalcy,' as the government refers to it, we are all going to have to take responsibility for cargo security," says Londynsky.
"The ultimate goal is that the community we serve is kept safe."