The development and globalization of container security.

The nations of the trading world and non-government organizations (NGOs) have recognized and published the need for global supply chain security. Most of those nations have also created laws and programs to specifically address supply chain security issues. The growth of this movement has taken place and can be described in three phases: Phase I, the need for Customs harmonization, or pre-9/11; Phase II, post-9/11 or Maritime Model; and Phase III, the Electronic Global Chain of Custody (EGCC) model. The development of these models demonstrates a natural maturing in understanding the vulnerabilities, threats, technological changes, market forces, and the role of government action in accommodating a more sophisticated, robust, and vulnerable global supply chain. Understanding these phases should put into perspective current and future concerns and needs in preserving these supply chains because of their importance to not only the growth and well-being of a society, but also a its very survival.

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THE IMPORTANCE OF THE SUPPLY CHAIN

One of the most comprehensive descriptions of the absolute value and need for protection of the global supply chain was done recently by Robert W. Kelly, JD, a senior advisor to the Reform Institute's Homeland and National Security Center. He describes the global supply chain as a "thing of beauty that defines the notion of efficiency (1)." To Kelly, the beauty is as much in the global transportation efficiencies as it is in the concept of floating inventories needed at a certain time and place in the world. For this efficiency to be present, coordination and protection of the supply line, as well as the security of the nations handling these international carriers of cargo, are essential.

The interdependency of nations is seen in almost any area of business activity. Component parts are often made in countries far removed from manufacturing origin. Pharmaceutical needs and medicines vary worldwide, from AIDS patients in Africa, to a flu epidemic in the US, to supplies for victims of tsunamis or earthquakes in Asia. At any given time, a supply chain disruption can be catastrophic. The growth and sophistication of supply chain efficiencies began fairly recently. The modern development of trade facilitations, harmonization of tariff schedules, harmonization of Customs procedures, inter-Customs cooperation, and the cooperation among trading nations really began about 20 years ago with the Revised Kyoto Convention of 1999, which ushered in the first phase of global supply chain modernization and security. The purpose of this paper, however, is not to prove the importance of the supply chain, but rather to demonstrate the developed level of the security, particularly container security, within the supply chain in the face of terrorism, and to show where the major trading nations stand in that regard.

PHASE I (PRE-9/11): HARMONIZING DIVERGENT CUSTOMS PRACTICES (2)

Before 9/11, the major concern about the global supply chain was its harmony among trading nations. Customs administrations around the world had differing views, attitudes, and procedures when it came to allowing the entry of goods. Tariff schedules differed with respect to the classification and taxation of goods; Customs documents varied among nations; and procedures were becoming more inefficient because of the reliance on unique paper-document requirements at a time when the volume and complexity of international trade was growing. In addition, certain questions became commonplace with respect to a shipment. When did it leave? Where is it? When will it get here? What's its condition? If it left the port ten days ago, why isn't it here now? These are familiar questions to any firm depending on a global supply chain. But governments have similar questions for different reasons. Who's the shipper? Where is it coming from? Is it coming through a CSI port? What do we know about this container? With the incredible increase of container volumes, seaport growth, and unpredictable seaport selection and usage, industry leaders and governments are looking for more knowledge faster.

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The genesis for improving and modernizing Customs practices around the world was the Revised Kyoto Convention of 1999 (3). It specifically supported the concept of applying new technology to Customs practices. The Revised Kyoto Convention of 1999 had the goals of simplifying Customs procedures with an emphasis on information technology and risk management involving automated systems to target and select high-risk shipments for inspection based on pre-arrival information. The essence of the Revised Kyoto Convention of 1999 can be summarized by 5 areas of focus:

a. simplification of Customs procedures,

b. information technology;

c. creation of automated targeting systems;

d. maximum use of information technology; and

e. the importance of e-commerce.

It entered into force on February 3, 2006 [4].

PHASE II (POST-9/11): THE EMERGENCE OF THE MARITIME MODEL, 2001-2004

The events of 9/11 were a defining moment in history, especially for the United States. Terrorism on a grand scale became a fact of life for Americans. As a result, the United States responded to a new potential supply-chain threat by creating security programs that focused primarily on the maritime factor, since 90% or more of US international commerce is a result of maritime transportation. Given its importance in the global supply chain, it seemed to make perfect sense to address the security issues linked to containers arriving into the United States from around the world. Although the container is the life line conveyance of needed cargo, it could also be a Trojan Horse carrying not only explosives, but also weapons of mass destruction (WMD). The first programs that influenced the creation of the Maritime Model were the US Customs Trade Partnership Against Terrorism (C-TPAT), and the Container Initiative (CSI).

C-TPAT was announced in 2001. It was--and is--a voluntary program for industry, initially focused on large US importers and exporters, ports/terminal operators, and carriers. Other participants were added, and today it has 12 different categories of participants. It began with only 7 major importers. In 2008, it has more than 8000 certified members. In the beginning, it had only 7 security areas of concern with respect to the supply chain: business partner requirements, physical access security, personnel security, procedural security, personnel security, container security, and education/training security.

In 2002, CSI was initiated. CSI had as its sole focus maritime security. It required that the vessel carrier send to US Customs and Border Protection (CBP) the manifest of every container destined for the United States 24 hours before the container was loaded into the vessel in the foreign port of export. One of its goals was to have foreign nations cooperate with the United States by allowing US Customs officials to operate in their ports. The target number of ports worldwide was 58, with the aim of reaching that number by 2007. Those 58 ports account for 85% of inbound container traffic to the United States (5). Changes in the traditional maritime and Customs process were also made. For instance, all goods coming into the United States had to be described by, at least, a 6-digit tariff number or a more comprehensive description if the 6-digit treatment was not specific enough. The use of terms like FAK (freight of all kinds) and STC (said to contain), among others, was no longer permissible.

Then the Trade Act of 2002 as amended by The Maritime Transportation Security Act in November 2002 (MTSA) were both passed and signed into law in the United States. The focus of the MTSA was also related to maritime operations. It covered areas such as:

a. advance cargo data (electronically);

b. Security-related issues;

c. vessel identification systems;

d. vessel security plans;

e. port security assessments; and, in the operational and efficiency matters,

f. a maritime intelligence system.

There were also actions within international organizations like the Transported Asset Protection Association (TAPA) and the International Maritime Organization (IMO).

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In 2001, TAPA, an association of security professionals from high technology companies and associated business partners, released its Freight Security Standards (FSR) that specify the minimum acceptable security standards for assets traveling throughout the supply chain and the methods to be used in maintaining those standards. In addition, the FSR outlined the processes and specifications for suppliers to attain TAPA certification for their facilities and transit operations (6).

In 2004, the IMO created and released its International Ship and Port Facility Security (ISPS) Code. The ISPS Code lays down requirements with respect to maritime security and recommendations on ways in which these requirements shall be met. The ISPS Code includes security measures at three levels. Level one is the level at which ships and ports work in normal situations. Level two is merely an intensification of level one when a high risk is determined. Security level three is an amplification of level two. It is activated in exceptional cases where there is an imminent risk of a security incident, which leads to a further intensification of the routines (7), (8).

In 2004 the U.N. Economic Commission for Europe approved Recommendation 33, a recommendation for a "Single Window." A Single Window is an electronic portal through which trade-related information and documents are sent. It provides the capacity to transmit electronically through a single entry point all the import, export, and transit-related regulatory requirements, harmonizing differing modes of transmission (9).

Thus, from 2001 to 2004, the focus on supply chain security was on the "port-to-port" linkage. This focus became a Maritime Model of supply chain security. It became apparent, however, that perhaps the worst place to find a dirty bomb in a container was at a major international seaport. Additionally, there was concern that a bomb could easily be put into a container at a foreign origin and be moved with ease into a major port facility with no intention of ever leaving that port, only detonating there. Therefore, beginning in 2004, the emphasis began to switch to a new concept, one of origin-to-destination, moving back the security area away from the seaports.

PHASE III: ELECTRONIC GLOBAL CHAIN OF CUSTODY MODEL (EGCC), 2004-2008

The movement away from the Maritime Model began in 2004. In that year, the Kyoto Convention Information and Communication Technology (ICT) Guidelines were published. The Guidelines were specifically related to the use of information technology and the electronic transmission of Customs-related data through and among government and non-government agencies. For the first time, the focus became one of a chain of "electronic" data, a single global schema linked electronically from beginning to end.

In the same year, the EU became active in defining a supply chain. It considered a supply chain as beginning at origin and ending at destination. EC Regulation No. 1935/2004 included the concept of traceability from origin to destination with respect to the safety of foodstuffs. In 2005, EU report #40008032-6-2--2005 highlighted the need for security as essential to a supply chain. The European Union fostered the concept that the supply chain be secure from origin to destination. Then, in 2005, the World Customs Organization (WCO), released its Framework of Standards to Secure and Facilitate Global Trade. Section 1-2-4 of the Standards pronounced that supply chain security begins at stuffing (loading) the container and ends at unloading the container at destination. Appendix 1 to Annex 1 of the Standards is more specific, spelling out that continuous control from stuffing through intermediate handling, loading on a carrier, offloading, terminal security, and unloading at destination are essential. Finally, the Standards required the electronic transmission of trade data and the use of Edifact and XML as EDI protocols. Also in 2005, the United States adopted the WCO Standards joining other Customs Administrations around the world who are members of the WCO and who believe that security begins at origin and ends at destination, managed with electronic documentation and communication.

In 2006, the United Nations Conference on Trade and Development met in Geneva to discuss the application of the Kyoto Convention ICT Guidelines to facilitate cross-border trade (10), adding more pressure and credibility to an electronic end-to-end chain of custody. Also in 2005/2006/2007, C-TPAT added new standards for importers and carriers that required compliance with the mandate that security begins at stuffing and ends at destination. Satellite tracking and monitoring were also encouraged by offering special CBP treatment to their users. C-TPAT also added two more areas of security compliance: the requirement that the foreign business partners comply with C-TPAT guidelines and information technology security. In 2006, the United States passed the SAFE Port Act, in which security is defined to include advance electronic information, origin-to-destination security; and the benefit of Green Lanes (Tier-3) specialized treatment for importers using smart container technology. The Act included many of the already established WCO supply chain security components. The Act also codified C-TPAT and CSI into US law.

Changes were not only occurring in the United States. The European Union established its AEO (Authorized Economic Operator) program in 2006 to be implemented in 2008. Components of it will be mandatory in 2009 for "traders to provide customs authorities with advance information on goods brought into or out of the customs territory of the European Community (11)." AEO requires the use of advance electronic data, electronic records, security compliance to the WCO's Standards, adopts the Single Window concept, allows access to cargo and the control of seals on containers by authorized personnel only, and mandates control of cargo from loading to unloading. Most of the AEO is consistent with C-TPAT, indicating a movement toward a universal concept of global supply chain security.

More changes took place in 2007. The United States passed the Implementing the 9/11 Commission Recommendations Act of 2007, which requires breach detection and access "prior" to entering the economic zone of the US. Additionally, the Act requires electronic notification of breach in the supply chain and requires the application of origin-to-destination security for all truck, rail, and vessels in international commerce with the United States. One issue in the Act, however, is still connected to ports--the issue of 100% scanning. This issue, however, is one that may not be accepted by the rest of the trading world. In fact, in June 2008, the WCO will have a 2-day conference to examine the future of the 100% scanning position of the United States in light of SAFE Framework of Standards to Secure and Facilitate Global Trade and the Revised Kyoto Convention on the simplification and harmonization of Customs procedures.

Finally, and perhaps as significant as US legislation, was the change to US Federal Rules of Civil Procedure that went into effect in 2007. This change made electronic data discoverable for litigation in civil matters and has a direct and critical impact on the role and value of electronic data in demonstrating the existence of a legal chain of custody. Its application also suggests that the role of third party control of electronic data in their servers and hard drives now has legal weight in litigation and in the verification process used by Customs authorities in resolving questionable inbound shipments, for instance, problems of transshipment.

These events taken in their chronological order signify clearly that the Maritime Model of supply chain security is now obsolete. The trading world is using the Electronic Global Chain of Custody model. The new EGCC paradigm is now origin-to-destination, impacting the current level of technology typically used in the Maritime Model that focused on port-to-port security. No longer will RFID-only and satellite tracking-only be the standard technologies employed. In fact, Greg Olsavsky, CBP's Director of Cargo Control, has said, "RFID is only an interim solution and that ultimately CBP will use container security devices [12]." Smart containers will be able to tell their users if they are being breached; whether they are being hijacked; who supervised their stuffing; and whether they contain explosives, radio active materials including shielded enriched uranium, drugs, or human cargo (13). Technologies such as GSM/Zigbee will also be employed. RFID will likely see less utilization given its use as a potential IED (Improvise Explosive Device) at our US port (14). Moreover, these more applicable and appropriate global technologies will be usable in a Single Window application. New international communications and control centers will be used to monitor and manage these technologies and the flow of data from them. These new centers will monitor smart-container communications, control container access, record container events, report unauthorized container access or movement to law enforcement or first responders, preserve electronic records of its transactions, and provide third party verifications of global movements of containers from origin to destination.

All of these functions of international communication and control fit perfectly within the concept of a Single Window, adopted also by the United States (15). The US International Trade Data System (ITDS) requires the use of a Single Window. The US Single Window is the Automated Commercial Environment System (ACE) ACE will eventually combine the existing CBP systems:

a. Automated Manifest System (AMS);

b. Automated Broker Interface (ABI);

c. Automated Export System (AES); and the

d. Automated Commercial System (ACS).

In order to demonstrate the viability of this model, at the time of this writing the European Union's Seventh Framework Programme is reviewing for signature a comprehensive effort of some of the biggest participants in the global supply chain and those who study it to demonstrate the viability of the EGCC. Proposal No. 218547 has as one of its aims to develop a "Smart supply chain management in Intermodal door-to-door container transport" management system. One of the significant tasks of the program is to identify the synergies of a smart supply chain management system to be consistent with the needs of the trade community, the Customs administration of that community, and the security of the nations hosting those elements of that community.

Since 1999, the international trading community and its governments have found common ground--the need for a secure global supply system, not only for the security of a single nation's homeland, but also for the continued efficiency of a supply chain that needs to be monitored, managed, and protected. A secure international supply chain is the sine qua non condition of the continued existence of modern society. The global supply chain must be protected and preserved. The Electronic Global Chain of Custody Model is its best chance of preservation and survival.

Dr. Jim Giermanski is Professor of International Business and Director of Centre for Global Commerce at Belmont Abbey College. He is also a reviewer for the Transportation Research Board, US National Research Council, and is a regular contributor to Logistics Management, the Journal of Commerce, Traffic World, and Transport Topics among others. Dr. Giermanski is Chairman of the Board of Powers International, Inc., an international transportation security company.

REFERENCES

(1.) Kelly, Robert W. Chain of Perils: Hardening the Global Supply Chain and Strengthening America's Resilience. The Reform Institute. March 6, 2008:3.

(2.) For a more comprehensive treatment, see Giermanski, James. Is It Safe? Cargo Security International. February/March 2007:48-50.

(3.) World Customs Organization. Revised Kyoto Convention, 1999. http://www.wcoomd.org/kybodycontent.htm

(4.) World Customs Organization. http://www.wcoomd.org/home_wco_topics_pfoverviewboxes_tools_and_instruments_pfrevisedkyotoconv.htm

(5.) Remarks by CBP Commissioner W. Ralph Basham on Container Security at the Center for Strategic and International Studies. July 11, 2007. http://www.cbp.gov/xp/ cgov/newsroom/commissioner/speeches_statements/commish_remarks_csc.xml

(6.) Transported Asses Protection Association. FSR Certification Requirements. www.tapa-online.org/new/engl/fsr_certification.html

(7.) International Maritime Organization. Maritime Security. www.imo.org

(8.) Alabama State Port Authority. The International Ship and Port Facility Security Code. www.asdd.com/asd/ispscode.htm

(9.) Economic Commission for Europe. United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT). Recommendation and Guidelines on Establishing a Single Window to Enhance the Efficient Exchange of Information between Trade and Government: Recommendation No. 33. United Nations: 2005.

(10.) United Nations. ICT Solutions to Facilitate Trade at Border Crossings and Ports. United Nations Conference on Trade and Development, Geneva: 16-18 October, 2006.

(11.) European Commission, Taxation and Customs Union. Supply Chain Security: Update of the Community Customs Code. January 2007:1.

(12.) Olsavsky, Greg. Departmental Advisory Committee on Commercial Operations of the Bureau of Customs and Border Protection. Washington, DC: May 9, 2008.

(13.) For an expanded treatment, see Giermanski, James. Tapping the Potential of Smart. Supply Chain Management. January/February 2008:38-44.

(14.) In November 2007, Powers International, LLC and Zapata Engineering, Inc. in co-operation with the Gastonia, NC, Police Bomb Squad conducted a demonstration of a controlled detonation of explosives in a 20-foot shipping container. RFID tags actually used today on containers at US ports were used as IEDs when inter-rotated by RFID transceivers also used in US ports. The blast demonstration was validated as true and accurate by representatives of the Office of the Secretary of Defense, Supply Chain Integration, who were sent to the demonstration as witnesses and examiners. Copies of the Powers International report sent to the House Homeland Security Committee are available at Powers International, LLC, Belmont, North Carolina.

(15.) International Trade Data System (ITDS). ITDS e-Newsletter. Winter 2006. http://www.itds.gov/linkhandler/itds/news/e_newsletters/ITDSe-Newsletter_winter06. ctt/IFDSe-Newsletter_winter06.pdf

by Dr. Jim Giermanski