The rationale behind much of the existing and upcoming legislation is, the further away from the country cargo is checked, the less chance there is a bomb will explode in a major US harbour.
While this obviously makes sense from a security perspective, the demands on businesses exporting to the US are extensive.
There is an array of different initiatives with which New Zealand organisations need to familiarise themselves [see the box on page 27] and, as with most areas of change, IT directors will be called upon to make sense of it all.
If the research for this article is any indication, it is clear one of the biggest challenges will be wading through the documentation. There are numerous similarly named public authorities in the US kicking off parallel plans under different names, leading to a danger of incoherent messages and a lack of coordinated publicity catching businesses with their trousers down.
Transparent supply chain
Perhaps the area of greatest concern for many IT directors is the requirement for transparency in the supply chain. At the end of 2002, the US introduced a ‘24-hour rule’, whereby contents of containers arriving at US ports had to be detailed a day in advance.
This measure comes on top of the Container Security Initiative (CSI), which is focused on delivering the ability to scan the contents of all containers being shipped into the country. Given present estimates suggest only 2 per cent of the seven million containers arriving annually in US ports are physically searched, exporters potentially face significant backlogs when these measures take hold.
The abridged version of these US Government advisory leaflets is, exporters who can provide a clear view of shipments and their component history will enter the country through the equivalent of the Customs green lane, whereas those who cannot will be held up for an undetermined length of time until they have been checked.
“These security measures are important to the protection of America and the American people. Advanced cargo information is essential to not only preventing instruments of terrorism from being shipped into this country, but also to speed the flow of legitimate cargo across our borders,” said a statement from Homeland Security secretary, Tom Ridge, in July 2003.
Gartner Group research director Kristian Steenstrup observes defence initiatives are frequently the trigger for breaking a technology deadlock. He believes the moves by the US could see supply chain practices advance to a new level and lay the foundation for long-term benefit.
Noting the US government is keen for other countries to follow its lead, he predicts transferable technology development. “For containerised shipments, this will allow a leap forward in electronic supply chain management because everyone will be forced to have electronic bills of lading and RFID secured containers. Electronic monitoring of goods in transit will be much more accurate than ever before,” says Steenstrup.
“However, it does lead to a situation where the lowest denominator in the supply chain may not be compliant with tracking regulations and lead to shipments being held up.”
Kerry Elton, IT manager of CentrePort in Wellington, says there are two legislative initiatives pending in this area that would affect New Zealand enterprises. The first relates to Customs and includes assurance of the export cargo. The second is with the Maritime Safety Authority (MSA) and concerns heightened port security.
Like Gartner’s Steenstrup, she points out the “substantial improvements” to be gained throughout the supply chain in using information exchange and electronic seals/RFID tags.
She believes the key, however, is standards and rules requiring people to comply. “There are many issues in terms of costs, and which parties will bear those costs ... NZ Customs, MSA and MAF (which has an initiative underway for biosecurity which relates to container imports); ports, shipping companies and exporters both large and small, CBAFF (Customs Brokers & Freight Forwarders Federation), EMA (Employers and Manufacturers Association) and airlines.
It is a major issue for those involved in the export and import supply chain, she notes. “While the initiatives apply to US cargo, the flow-on effect is that all cargo will have the same rules applied, as it is more of a problem to have one set of processes for one party and another for the rest. The risk being, that something will slip through and break the confidence of the export supply chain.”
Operation Safe Commerce
One key program recently launched by the US Transportation Security Administration is Operation Safe Commerce, with a remit to find innovative new ways for ports to track and protect cargo entering the US from around the world.
Rod Gallagher, Asia-Pacific managing commercial partner for Unisys, is involved with pilot projects and says although some companies are not yet aware of the US-centric legislation, they should prepare for the fact they are going to have to communicate in a much more transparent and sophisticated manner with their supply chain partners.
According to Gallagher, there are implications for IT directors from an operational management viewpoint, where event management will be required within the supply chain to handle tracking data and alerts. On top of this, supply chain management will need to be equipped for communicating the security status of shipments to relevant overseas authorities, and this will need to incorporate considerable amounts of data from various sources in the supply chain.
“A number of standards bodies have already been formed. In the retail space, for example, the packaging companies have been working with their key customers to develop standards of how they are going to interchange data,” says Gallagher.
“Our belief is that people are willing to pay a little bit extra if they are provided a higher level of insurance over their goods being transported. Manufacturers have also said that if they can lock their customers into their supply chain by providing this level of service, they are less likely to churn to one of their rivals.”
Perhaps, as would be expected from a representative of a vendor organisation involved in trials for a new initiative, Gallagher is positive about the long-term implications for businesses in this part of the world. He says those companies that get their act together early and demonstrate they are technically able to comply with US Customs requirements stand a real chance of stealing a march on global competitors and winning lucrative new business with American companies.
The reasoning is sound: If the US significantly ramps up the inspection of untracked containers, those companies that haven’t improved the visibility of their supply chains will risk their cargo being held up in ports. The knock-on effect is their US-based customers will no longer be able to rely on delivery dates and will have to invest in a greater amount of buffer stock and vastly increase their inventory expenses.
At the frontline of any changes in New Zealand, a degree of cynicism is likely to be demonstrated about the viability of some of the initiatives and, more specifically, their implementation.
But Gartner’s Steenstrup says IT directors who do just enough to comply with any regulation changes regarding the tracking of their supply chain are being shortsighted. He reasons America is the world’s largest trading nation and is determined to take the lead on secure cargo supply chains. This, he says, removes the risk of rival systems springing up and guarantees companies will either invest in these processes now or do it later when they are playing catch up.
“Those CIOs who view this as a necessary evil and drag their feet will find themselves de-selected in circumstances, or not be seen as a preferential supplier,” says Steenstrup.
“Trading partners will want to have something that is clear and transparent and easy to adhere to international requirements. If that means adhering to US Customs technology requirements, then they will prefer to do business with companies that have prepared.”
Future stumbling blocks
Conventions resulting from the Mexican APEC meeting of 2002 mean an increased focus on track and trace technology and it is likely to become standard practice.
The big stumbling block to development could be a lack of Government understanding – which, in Australia at least, has led to a consistent failure to set any standards.
The current Australian Customs initiative, Cargo Management Re-engineering, is simply a re-packaged version of the Trade Modernisation Bill, which started out seven years ago, with new security elements tacked on to it.
Commentators have said there is a lack of clarity around who is expected to pay for all the improvements and the areas in which people need to invest.
A snapshot of initiatives
Container Security Initiative: The US Bureau of Customs and Border Protection launched this initiative to establish security criteria for identifying high-risk containers through advanced information. This involves pre-screening as early as possible, the use of technology to quickly pre-screen high-risk containers and the development of ‘smart’ containers.
Operation Safe Commerce: Pilot program of the US Transport Security Administration seeking to bring together private business, ports, local, state and federal representatives to analyse cargo security procedures. Current funding totals US$58 million and is essentially a venture capital fund for technology able to monitor the movement and integrity of containers through the supply chain.
Smart and Secure Tradelanes (SST): Launched by the US-based Strategic Council on Security Technology, the SST is an industry-driven initiative looking at deploying an end-to-end supply chain security solution from point of origin to point of delivery across multiple global trade lanes. Initial results of Smart and Secure Tradelanes released in May claim its baseline automated network can dramatically improve the ability to track, locate and detect the integrity of intermodal shipments in real-time, creating greater levels of security, efficiency, information accuracy and collaboration.
Secure Trade in the APEC Region (STAR) Initiative: Asia Pacific Economic Cooperation’s (APEC) strategy to protect the region from terrorism, launched at the Mexican APEC meeting of October 2002. The STAR initiative commits APEC economies to accelerate action on screening people and cargo for security before transit; increasing security on ships and aeroplanes while en route; and enhancing security in airports and seaports. These include providing advance electronic information on containers to Customs, port, and shipping officials as early as possible in the supply chain, implementing common standards for electronic Customs reporting by 2005 and promoting private-sector adoption of high standards of supply chain security.
Customs Trade Partnership Against Terrorism (C-TPAT): A joint US Government and business initiative to build cooperative relationships for strengthened supply chain and border security. Membership requires a certification and approval process involving the assessment of physical and IT assets, scrutiny of the supply chains and the submission of specific information to Customs
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