A few years ago the idea that terrorists would conceal a nuclear weapon in a cargo container and detonate it at a busy U.S. port might have seemed like another inventive plot in a Tom Clancy thriller. The scenario is no longer just fantasy, however.
The issue of cargo security is now blinking on the radar screens of logistics professionals. A terrorist attack at a major U.S. port is “very, very possible,” said Erik Hoffer, president of CGM Security Solutions and educational director for the National Cargo Security Council (NCSC).
Although the U.S. is putting more focus on security at ports since the terrorist attacks of Sept. 11, 2001, the issue of cargo security is as old as the shipping industry. Worldwide cargo theft totals $30-50 billion annually, according to a 2000 report. When container fraud is added, the loss is much higher. One study estimated the tariffs and excise taxes lost from container fraud at $170 billion in 2000. Cargo security has been a concern for many years, but it has been accepted as a cost of doing business.
Since 9/11, however, the federal government has acted to increase port security. The Bush administration’s Container Security Initiative (CSI) and Customs-Trade Partnership Against Terrorism (C-TPAT) seek to provide greater security of supply chains. The CSI is a joint effort between government and industry to improve security. Companies that ensure the safety and integrity of supply chains through the program will be rewarded with quicker border crossings through dedicated ‘fast lanes’ and reduced inspections. In order to comply, companies must examine their entire supply chain and develop and implement a formal security program.
U.S. Customs officials recently began enforcing a new requirement for 24 hours advance notice of shipments departing for American ports; a complete shipping manifest must be electronically transmitted to Customs. If documentation is not adequate or the agency has suspicions, Customs officers can issue a ‘no load’ order. “Some containers have already been issued ‘no load’ orders,” said John Healy, president of 360 Solutions, a logistics and supply chain consulting firm. Under the ‘no load’ order, containers are quarantined at the port or returned to the shipper.
Although increased security at ports is certainly desirable, such measures may have obvious drawbacks: shipping delays and uncertainty about whether cargo will arrive.
“Pallet people may not have heard about this issue,” said John, former president and ceo of the National Wooden Pallet and Container Association, “but cargo security is overtaking everything else.” New rules for imported containers already are in effect, he noted, and new security rules for other modes of transport will follow.
John believes that the direct impact of cargo security initiatives on the pallet industry itself will be minor in the short term. He has noticed that some shippers have added a day to their supply chain to accommodate new rules, a move which may require one more day of inventory and more pallets, depending on the supply chain.
Nonetheless, the sheer magnitude of developments surrounding cargo security issues suggests that pallet suppliers should get up to speed on them. It already is a topic of conversation among pallet users, according to John. “About 30% of importers-exporters are reporting that they are adding time to their supply chain,” he said. “During the 80s and 90s, companies created lean supply chains and worked at driving inventory out of them.” In the wake of the West Coast dock strike and these new Customs mandates, however, supply chains are under pressure. “It’s adding a day in the supply chain, a day of inventory, and all of the costs that are tied into that.”
Trucking Delay
While import shipping containers are the initial focus of increased security requirements, other transportation modes also will be scrutinized. One proposal would require four hours advance notice of a load manifest prior to beginning loading a truck destined for the U.S., a measure that has outraged the trucking industry and other industries. In one automotive supply chain, John said, a part is manufactured in Detroit, trucked to Windsor, Ontario for plating, and then returned to Detroit for assembly. The plating and shipping back and forth across the border takes less than three hours. Imposing four hours advance notice would play havoc with the automotive industry’s ‘just-in-time’ approach to manufacturing.
Border delays caused by tighter security already are exacting a big cost, according to Paul Landry, president of the British Columbia Trucking Association. “Based on surveys of our members over the last four or five years, our drivers typically would experience a 45 minute delay from the back of the line to getting across the border and on their way. Today it is more like an hour and 15 minutes to an hour and a half. So I would say it is about a 50 to 100 percent increase in time, with quite a bit of uncertainty built in there. You can dispatch a truck to the border and it can sit there for three hours. You just never know.”
Border delays could slow lumber, pallet and pallet stock shipments between the U.S. and Canada, but pallet suppliers who were asked about this indicated that delays have not been a factor. Doug Hunter, sales manager at Pacific Pallet in Aldergrove, British Columbia, said his company’s shipments have not been delayed at the U.S. border. It is important to make sure that paperwork necessary for the crossing is properly completed, he added. Other forest products companies are concerned that the proposal to require advance notice of load manifests would eliminate the flexibility they currently enjoy to ‘bump’ or remove certain products from loads in order to meet last minute customer requirements.
When new security regulations are implemented for the trucking industry, shippers such as Pacific Pallet will have to electronically transmit a load manifest to Customs in advance — possibly up to four hours in advance, John noted. Freight forwarders are preparing to fill this role for many shippers, he said.
The Cost of Security
Tighter security at ports also is requiring a huge investment in equipment and personnel. For example, devices to x-ray containers cost about $2.5 million, and that is only the beginning. A worldwide security protocol to prevent terrorism will cost an estimated $10-20 billion in technology, information systems, and security personnel, according to a top executive in the cargo security sector.
The additional technology will include scanning and radio frequency identification (RFID) tags for improved tracking in the supply chain, and several pilot projects involving RFID tags on pallet and containers are underway, according to John.
Pallets and shipping containers equipped with RFID tags and e-seals currently are regarded as the most cost-effective way to track inventory for cargo security purposes, said John. A lot of research also is being done into tags for individual consumer packages, he acknowledged, but pallet-level tracking remains the best solution for improving supply chain tracking and security. Aside from the added security, the technology also will improve supply chain management, he noted.
Security for Pallets, Containers
The private sector has been concerned mainly with complying with the CSI. “The average company is still complacent, still in denial, and very unlikely to take pro-active steps to reduce a loss that they haven’t experienced,” said Erik. “Even though cargo terrorism is on everybody’s lips, people still have a problem spending money pro-actively because they can’t feel the pain.”
Erik teaches classes on cargo security and cargo terrorism for the NCSC and recently gave a session at a meeting of the International Mass Retailers Association. “Here’s a venue where every major retailer of the world is represented,” he said. Of about 400 companies that attended the association meeting, only 10 were at his class. The companies most interested in his topic were the carriers.
“People don’t have the sense of urgency for cargo security that they should have based on their own internal threat,” said Erik, “but you couldn’t pick a better time to be pro-active. It’s in all of the newspapers.”
“The people at the top of these businesses, the CEOs, unfortunately are the ones that need to be prodded,” he added. “The people at lower levels, no matter how you slice it, are just charged with saving money, not spending money.”
Most businesses are rather complacent about receiving freight. Pallets and containers are unloaded from trucks, but receiving personnel do not know what they carry. “You have no way of making that determination,” said Erik. “So when you start to look at your potential vulnerabilities, you say you are going to be very vigilant and look at all of your containers. But what are you going to look at? They all look alike. They don’t know what to look for, and they have no template upon which to make decisions.”
CGM supplies a variety of products to prevent or indicate tampering. Tamper-evident seals are called ‘indicatives’ while tamper-resistant products are called ‘barriers.’
Containers present a significant security risk. The pins can be readily removed and the back doors opened without breaking a seal. One product recommended by CGM is a tamper-evident label across the back door. It will not keep people out, but it will indicate that the container has been tampered with since the point of loading. CGM also recommends the use of devices that secure the back door keeper bars. All bolt-type trailer door seals can be easily bypassed by removing the handle bolt, so securing the keeper bars is critical. “If they can’t get in, then there’s not a lot they can do,” Erik said.
CGM also offers a range of both indicative and barrier products for pallet loads, crates and containers. “We do the same type of thing with a pallet as well as with a box,” he said. “We have about a thousand clients, and they find these indicative and barrier systems to be very effective.”
Many segments of industry have yet to respond to the potential terrorist threat to cargo shipments, according to Erik. “Unfortunately, it is very simple. People are very, very unaware. They don’t understand that there is a threat, and that is a big problem. Most companies say, ‘It wouldn’t happen to us, so we are not going to spend the money.’ That’s the big deal of the week. They won’t spend the money on the counter-measure.”
The threat of terrorism aside, cargo theft has increased considerably in recent years, according to Erik. However, the new security measures and technology aimed at countering terrorists likely will have a ripple effect of improving cargo security, reducing cargo theft, and strengthen supply chain management.
Cargo security issues still are somewhat in a state of flux, noted John, and developments will continue to unfold. These issues likely will be on the front burner of many customers for many months to come.
