Washington Briefing 2004: Enemies at the Gate

The practical implications of the 24-Hour Rule and C-TPAT will reverberate in 2004. Here’s an update to help you meet the requirements and responsibilities of being a logistics partner in Homeland Defense.

“Good Morning! Today will be sunny and cold, with a high temperature in the mid-30s. Your threat advisory from the U.S. Department of Homeland Security (DHS) is Code Orange—high. Law enforcement remains at a heightened level of readiness and citizens are urged to report any suspicious activity.”

On Jan. 5, 2004, according to a report in The New York Times, “U.S. immigration officers began fingerprinting and photographing tens of thousands of foreign visitors required to have visas, in what federal authorities described as a sophisticated new security measure designed to monitor who enters the country and how long they stay.”

Since Christmas Eve, 2003, about a dozen flights into the United States from abroad have been grounded or delayed over security-related fears. British Airways, in particular, cancelled several flights between London and Dulles International Airport outside of Washington, DC, over such concerns.

Perhaps these new security procedures we hear about on the news are the most visible realities of heightened alert in America 2004—procedures such as fingerprinting foreign visitors, eavesdropping for terrorist chatter, and cancelling or delaying flights.

But security concerns go much deeper. Security, in fact, is the driving force behind regulatory changes that are re-shaping both commerce and how U.S.-based companies and enterprises manage their inbound supply chains.

“The deadly threat of terrorism does not justify Draconian measures,” said Tom Ridge, Secretary of Homeland Security, speaking at the Customs and Border Protection Trade Symposium held in Washington, DC, in November 2003.

“We could pass regulations that would so tightly constrict legitimate trade and commerce that our economy would slow to a crawl. Yes, such rules might prevent a terrorist attack someday, but such rules would also cause economic dislocation and disruption every day, literally in every corner of the globe.

“To cripple our economy without firing a shot, that’s not just counterproductive, that’s a terrorist’s dream, and that should be our nightmare,” Ridge said.

One Face at the Border

In this world of color-coded security, the federal government faces a dual challenge: how to create a regulatory structure that both facilitates trade and secures a nation. In 2003, the feds took steps toward attaining these goals and 2004 will see a continuation of these efforts.

From an inside-the-beltway perspective, the biggest change instituted in 2003 was the creation of the U.S. Department of Homeland Security (DHS) and the new Customs and Border Protection (CBP) agency within it.

“With our federal government’s prevention, preparedness, and response capabilities now under one roof, in one department of government,” says CBP Commissioner Robert Bonner, “our nation will be safer and better able to deal with the threat of terrorism.

“Responsibility for protecting our borders was fragmented among four separate agencies in three different departments of government,” he notes.

CBP, created on March 1, merged most of U.S. Customs with the immigration inspectors and the Border Patrol from the former Immigration and Naturalization Service (INS), and the agriculture border inspectors from the Department of Agriculture. DHS Secretary Ridge has dubbed this massive reorganization effort “One Face at the Border.”

In the past year, DHS and CBP undertook a number of initiatives that will have a major impact on U.S. trade in general and imports in particular. CBP’s Customs-Trade Partnership Against Terrorism (C-TPAT) program was first made available to importers and continues to expand its participant base. It now includes ocean carriers, intermediaries (brokers, NVOCCs, forwarders), and overseas suppliers to U.S. companies.

The most recent expansion of C-TPAT, announced in November 2003, includes foreign manufacturers (Mexico). Currently, C-TPAT has 4,600 participants.

“C-TPAT has become a new benchmark standard for import supply chains,” says Richard Bank, a partner in the Washington, DC, law firm Thompson Coburn, and well-versed in trade matters. “Many U.S. importers now require that their transportation providers—ocean carriers, NVOCCs, brokers—participate in the program.”

Despite its widespread adoption by the trade community, C-TPAT has come under fire from critics. A report by the Government Accounting Office, for example, notes that CBP has not created any performance measures with which to gauge the program’s impact on participating companies’ actual supply chain security.

Nor has the CBP staffed up properly to conduct performance reviews of C-TPAT members’ security programs. CBP will have to address these issues in coming months.

The Smart Box

This year, CBP will begin to tackle the risk issues surrounding ocean container trade. The federal government is all too aware that security experts view import containers as a potentially perfect delivery system for weapons of mass destruction. One key C-TPAT program initiative in 2004 is the development and implementation of the so-called “smart box,” according to Commissioner Bonner.

A smart box consists of a secure seal placed on the container, and a device placed inside the container that transmits information relative to the shipment’s location and handling. This device also records if the container is tampered with during shipment.

Why do we need to develop a smart box? “Because,” says Bonner, “the best factory and loading dock security, and the best supply chain security, is of little value if the box is not secure—if a terrorist can simply break open a container in transit and conceal a terrorist weapon including, potentially, a weapon of mass destruction.”

The technology used to make a container “smart” is not expensive, Bonner adds.

Will CBP mandate the use of smart box technology on every container bound for the United States? “Probably not in the near future,” Bonner says. “But I believe that the CBP will see the use of such a smart container as a supply chain security best practice for C-TPAT shipments.”

“Those companies that use the smart container and go the extra mile to secure their supply chains will be seen as low risk,” suggests Ashley Craig, also an attorney with Thompson Coburn. “Those companies will receive the greatest benefits from being C-TPAT members.”

“In the not-too-distant future,” Bonner says, “I see essentially two types of shipments entering the United States—those that are low risk, allowing them to speed through the green lane into the U.S. economy, and those that are not.”

Just what will a “green lane” shipment look like? It will:

  • Originate at a foreign vendor that meets C-TPAT security standards at the point of loading or stuffing, or a C-TPAT importer that has assured its foreign vendors meet these standards
  • Use a C-TPAT smart container
  • Ship through a CSI port
  • Be carried onboard a C-TPAT carrier’s vessel
  • Be entered by a C-TPAT broker, or in-house by a C-TPAT importer
  • Be delivered to a C-TPAT importer.

Delays in import processing naturally increase costs for importers. Thus a green lane shipment produces its own financial rewards.

CBP Systems Upgrade

Information is a powerful weapon in the government’s security arsenal. “CBP must be able to process huge amounts of commercial trade data through automated systems designed to catch possible compliance and security anomalies in real time, and assess and evaluate risk,” says Bank.

CBP’s legacy Automated Commercial System (ACS), however, which was designed in 1984, is antiquated and not up to the task, according to most in the industry.

In an effort to improve this situation, Customs began developing a new commercial trade data processing system called ACE (Automated Commercial Environment) several years ago. ACE will “revolutionize” how the agency processes goods imported into the United States, according to the CBP. It will provide an integrated, fully automated information system to enable the efficient collection, processing, and analysis of commercial import and export data.

ACE will incorporate two important new security features:

Account Management Facilities Security Analysis. This system will enable CBP to transition from a transaction-by-transaction process to a consolidated account approach for tracking import and export shipments and in-transit goods in a single comprehensive view. Account management will provide the trade community, CBP, and others with consolidated information that will enable a more informed decision-making process.

Centralized Information Sharing. For the first time, Customs officers nationwide will be able to collaborate with each other online, while reviewing the same or related information on their screens. Officers from different regulatory or law enforcement agencies will be able to exchange data easily.

In addition, the new system will capture advance data electronically and process it through sophisticated risk analysis tools, helping CBP identify and confirm potential violations of U.S. laws.

In November, Customs began testing an early element of ACE—a secure data portal. Delivery of ACE functions is tentatively scheduled to begin in the spring of 2004 and continue in phases through 2006.

One key tenet in CBP’s security efforts is advance knowledge of freight destined for the United States. Late last year, DHS issued final rules implementing the Trade Act of 2002. These rules give CBP the authority to collect cargo information before a shipment reaches the United States.

“In the post-Sept. 11 era, our border, our zone of security, must extend to the loading dock of a foreign manufacturer that exports goods to the United States,” Bonner stresses. “Our border is the foreign airport where people board airplanes to the United States or ship air cargo to the United States. It is a foreign seaport where a container is loaded for the United States. If we are to have a smart border, our zone of security must extend to all those places.”

Under the new rules, CBP can process advance cargo information into an automated targeting system linked to various law enforcement and commercial databases. This enables the agency to efficiently identify shipments that pose a potential risk.

Previously most non-maritime inbound shipments were not screened by an automated targeting system prior to entry in the United States. As a result, most cargo shipments could not be assessed for risk prior to arrival.

The Trade Act rules set the following advance-notice requirements for all modes of transportation:


  • Air and courier— four hours prior to arrival in U.S., or “wheels up” from certain nearby areas.
  • Rail— two hours prior to arrival at a U.S. port of entry.
  • Vessel— 24 hours prior to lading at foreign port.
  • Truck— Free And Secure Trade (FAST): 30 minutes prior to arrival in the U.S.; non-FAST: one hour prior to arrival in the U.S.


  • Air and courier— two hours prior to scheduled departure from the U.S.
  • Rail— two hours prior to the arrival of the train at the border.
  • Vessel— 24 hours prior to departure from U.S. port where cargo is laden.
  • Truck— one hour prior to the arrival of the truck at the border.

“There are two driving factors behind CBP’s decision to set timeframes under the Trade Act requirements for advance shipment electronic data,” says Craig. “First, the agency needs to ensure that it has enough time for the Automated Targeting System (ATS) to analyze the data, and for its targeting experts to review the ATS results and take appropriate enforcement action.

“Secondly, CBP says it wants to minimize the disruptive quality of the new regulations to the international trade community, minimize sweeping changes to business practices, and limit the overall costs associated with the new rule,” Craig says.

How will CBP gauge whether a shipment is, in fact, high risk?

“We know where the container is coming from, who is shipping it, and who they’re shipping it to,” Bonner explains. “We know something about that container, and we are able to run it against a database of 20 years of trade data with respect to U.S. importers and shippers of goods to the United States. We run it against the databases that are involved in law enforcement and terrorist issues.

“Then we input the strategic intelligence that the Department of Homeland Security is getting from the intelligence community and from the FBI to determine which containers pose a potential risk for terrorism or concealment of a terrorist weapon and which do not. We can let the ones that don’t pose a risk through and let them through quickly.”

Regarding those shipments red-flagged as posing a potential risk, “100 percent of them get a security screening through large-scale X-ray equipment on arrival to the United States,” the Commissioner says. “And of course in the case of ocean-going containers, they may go through CSI even before they leave foreign ports.”

CSI, the Container Security Initiative, is a program in which U.S. CBP inspectors, located in major foreign seaports, pre-screen containerized cargo and notify local authorities of any potential problems prior to the cargo getting underway.

These stepped-up security procedures will definitely add costs to the supply chain, DHS Secretary Ridge acknowledges. “We have no breakdown of those costs. But I will tell you that during the course of our negotiations with the business community, I think we were successful in making a business case for this kind of investment.”

CBP did, in fact, conduct an economic analysis on all modes. It identified reporting changes that are likely to impose new costs on U.S. carriers, in terms of the time required to file advance manifests. The study found that air would bear the greatest cost burden. These costs derive from the fact that the rules mandate electronic data entry at a level of detail not currently required prior to arrival. This could necessitate operational changes to meet the filing requirements for short-haul flights into the United States.

Tougher on Air Cargo

At about the same time it issued the Trade Act of 2002 rules on advance notice, DHS Transportation Security Administration (TSA) issued security directives to require random inspection of air cargo, and to require foreign all-cargo air carriers to comply with the same cargo security procedures that domestic air carriers must follow.

Passenger aircraft that carry cargo and all-cargo planes, both foreign and domestic, will be subject to the random inspections on flights within, into, and out of the United States. Inspections will be done by the carriers.

Issuance of these requirements is an interim step in the implementation of TSA’s broader Air Cargo Strategic Plan that, as the agency describes it, employs a layered approach to securing critical elements of the entire air cargo supply chain.

This plan incorporates a threat-based risk management approach similar to that used by CBP in the maritime cargo environment. TSA says the plan calls for pre-screening all cargo shipments to identify suspicious cargo, inspecting all such cargo, establishing a database of vetted “known shippers,” banning cargo from unknown shippers, and strengthening the security of the air cargo operating areas at airports as well as the security standards for air cargo personnel.

The first main objective of the Air Cargo Strategic Plan calls for augmentation of TSA’s current Known Shipper Program, which prohibits air carriers from accepting cargo that does not originate from shippers who meet TSA’s Known Shipper requirements.

The plan provides for full deployment of the program’s Known Shipper Automated Database and Indirect Air Carrier Database, which will allow TSA and air carriers to have faster access and thorough information on applicants for Known Shipper status and those seeking to ship cargo aboard passenger aircraft.

A second component of the Strategic Plan is developing a cargo pre-screening system similar to that used at U.S. borders. TSA will use terrorist watch lists and federal and commercial databases to identify suspicious or higher risk shipments. From this they will develop a “risk score” for cargo shipments.

TSA is working closely with Customs and Border Protection to build on pre-screening technology existing in the maritime environment.

The increased need for tighter border security requires change for all global supply chains. Shippers must get to know their trading partners—up and down their supply chains—better than ever before.

All parties in the extended supply chain are now responsible and accountable for managing safe and profitable commerce.

The Bottom Line

What do all these security-related changes mean for companies importing goods into the United States? How should logistics managers operate in this new environment?

Richard Bank, a partner in the law firm, Thompson Coburn, Washington, DC, offers some advice:

Keep up to date. Constantly monitor and stay abreast of federal government activities with regard to trade regulations. The scenery is constantly changing.

Keep up with your technology. The better your IT infrastructure, the more efficient your supply chain. And stay abreast of government initiatives such as the ‘smart box’ and advance notice requirements. Thisis particularly important as the federal government increasingly emphasizes technology-based security initiatives.

Work with your umbrella organizations (trade and professional associations) to stay on top of these issues, and represent the shipper’s voice in Washington.

Maintain close individual ties with appropriate U.S. government agencies that regulate your freight. Work directly with these agencies to help them shape policies and procedures with which you can live. Don’t let government operate in a vacuum on your behalf. No need to be a sheep and just react to regulations after the fact.

Finally, recognize that trade is at least a two-way street. “Stay abreast of what is happening in the countries in which your trading partners/suppliers/manufacturers reside,” Bank advises.

The actions of the U.S. government can cause ripple-effect reactions around the world. These reactions may have important effects on your supply chain.

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