Separating hype from reality: is the customs-trade partnership against terrorism all it's cracked up to be? Here's the scoop on what's really going on.
Ask that question of officials at the Bureau of Customs and Border Protection (CBP) in Washington and they'll tell you that C-TPAT is moving forward quite nicely, adding hundreds of new members and expanding to include more parties in the international trade community.
Ask U.S. importers the same question and you're likely to get another perspective. Although they say they understand the need for the federal security compliance program and support its aims, they're frustrated at the slow pace of implementation and C-TPAT's lack of specific standards.
Trouble is, both of those assessments are accurate. The roots of their disagreement lies in the two sides' differing definitions of success.
From CBP's perspective, C-TPAT is doing what it was intended to do: get international traders to improve security throughout their supply chains in order to reduce the risk of terrorist attack. The program consists of a four-step process. First, applicants sign a memorandum of understanding (MOU) stating that they agree to comply with C-TPAT'S security guidelines. Second, they submit a document detailing their security practices and summarizing those of their service providers and overseas suppliers. Third, CBP reviews the document; based on its contents, the agency either provisionally accepts the applicant or asks it to improve its security plan. Finally, inspectors make site visits to verify that all parties are actually doing what they say they're doing.
C-TPAT membership initially was open only to U.S. importers, but the program soon expanded to include ocean carriers, freight forwarders, customs brokers, port authorities, and, most recently, foreign manufacturers. As of March, more than 6,400 companies had applied for membership in C-TPAT. A little more than half had been provisionally accepted, and CBP had initiated more than 700 validations. (See Figure 1.)
CBP officials consider the high level of participation to be an important indicator of C-TPAT's success. But both sides acknowledge that there's more than patriotism behind the rush to sign up.
Officially C-TPAT is a voluntary program. In practice, however, it has become a condition of doing business with big importers such as JCPenney, Home Depot, and Target. To ensure the security of their supply chains, they and many other companies insist that vendors either be C-TPAT members or at least meet security standards the retailers themselves have set. As a result, thousands of companies are clamoring to join, in part because they stand to lose business if they don't get with the program.
That's created a backlog of applications that continues to tax CBP's resources. Earlier this year, importers were reporting waits of three or more months just for acknowledgments that Customs had received their MOUs.
The entire application process can take well over a year. Hasbro, the Pawtucket, R.I.-based toy importer signed its MOU in May of 2002. It submitted a C-TPAT security profile in August of that year, received a certificate of provisional acceptance in November, and finally underwent validation inspections in September of 2003. By mid-May of 2004, Hasbro had not yet received a certificate of validation.
That will change, according to CBP's Robert Perez, who heads up the C-TPAT program. The agency is in the process of hiring and training about 100 specialists who will be dedicated to evaluating C-TPAT applicants and conducting validations, he said at the American Association of Exporters and Importers (AAEI) annual conference. Perez also attributed some of the delay in processing applications to a lack of automation. "We're working to automate more processes," he said. "It's still a paper-oriented system."
BE CAREFUL WHAT YOU WISH FOR
Paper-oriented may be an understatement. When freight forwarder Expeditors International applied for C-TPAT membership covering all of its offices, the security plan's executive summary was well over 70 pages long, said Peter Mento, a principal with Expeditors subsidiary Tradewin LLC at the Coalition of New England Companies for Trade (CONECT) annual conference.
CBP evaluates those security plans to determine whether or not they are effective--and that's another area where Customs and the trade community don't always see eye to eye. It's not entirely clear what is acceptable because CBP has provided only general guidelines. Perez said the agency went that route in response to the trade community's concerns. "We heard you, loud and clear, that one size does not fit all," he said.
That's just fine with mega retailers like Target, which does business with some 15,000 factories in 82 countries, said Michael Laden, president of Target Customs Brokers. Because Target works with suppliers in so many countries, the company needs flexibility to devote appropriate levels of attention to each one. "Our asset-protection group assigns a risk score to each country," he explained. "Vendors in higher-risk countries have to meet security standards that are stricter than for some other countries."
Many other importers would like to see less flexibility in C-TPAT. In a classic case of "be careful what you wish for," many are now complaining that the lack of specific security standards has placed significant burdens on them.
Because there is no single, fill-in-the-blanks form for surveying suppliers' and service providers' security plans, importers develop their own questionnaires. That means suppliers and service providers that serve many customers may be bombarded with demands for information that can go well beyond what CBP is looking for.
Meeting the retailers' requirements can be very time-consuming and costly. "Large retailers require all of their vendors to be C-TPAT certified," said the import manager of a Massachusetts-based giftware supplier. "But they still demand that we complete huge questionnaires on security, then they send their own inspectors to the factories--and they charge us for each visit."
What's more, said one importer in the CONECT audience, the lack of specific requirements makes it difficult to know whether existing security measures will meet with CBP's approval. "Our overseas suppliers keep having trouble," he said. "It's a pass/fail system, and we don't know what constitutes passing or failing. We've hired third-party consultants to help, and it's gotten very expensive."
How expensive? Target had to hire some additional staff, but because the company already had established security and quality-control organizations that visit overseas vendors, the additional cost to administer C-TPAT compliance has been "reasonable," Laden said.
Hasbro, which sources the majority of its products in China, spent nearly $200,000 to get C-TPAT off the ground, said Barry O'Brien, director, global trade and customs, in a presentation at the CONECT conference. That figure includes both foreign and domestic expenses. Hasbro expects to spend about $112,500 annually on C-TPAT compliance. (See Figure 2.)
To help keep those costs down and minimize the burden on foreign suppliers, Hasbro and other members of the Toy Industry Association are developing a questionnaire, standards for security practices, and a compliance-inspection protocol that will be acceptable to all members. Thus, a factory need only complete one survey and undergo one inspection to meet the requirements for dozens of customers. "Eighty percent of toy imports are sourced in China, and three or four thousand factories are involved," said O'Brien. "It did not make sense for Hasbro to send in its auditor to a factory, only to have Mattel send its auditor the next week, then Lego, and on and on." He predicts that once in place, the single inspection program could cut as much as $90,000 from Hasbro's annual C-TPAT costs.
Although CBP has listened to importers' complaints, the agency is standing firm on the need to focus on imposing good security practices on foreign manufacturers. "If we don't have complete security of the point of origin, then security is illusory, in my opinion," said CBP Commissioner Robert Bonner at the AAEI conference.
In an exclusive interview, Bonnet told LM that the answer to importers' concerns is to get their foreign suppliers to join C-TPAT. "It's critical that major U.S. importers secure their supply chains," he said. He suggested that importers use their leverage over foreign vendors to require that they take certain steps to improve security, and perhaps include those requirements in their contracts.
Still, CBP has been listening to importers' somewhat conflicting messages, and Bonner said more specifics are on the way. "We are moving toward more definition in [security] best practices that we expect from the supply chain," he said. "[C-TPAT] is an evolving process with continually changing dynamics based on our dealings with the trade community."
Some importers have accused CBP of failing to deliver on its promise of fewer inspections and faster processing for C-TPAT members. That's not the case, Perez insisted. "There absolutely have been reduced inspections, and we have the data to back that up," he said, adding that those benefits don't kick in until after a company has been "certified." According to Perez, C-TPAT members' shipments are inspected three to five times less often than imports in general, and they are subject to enforcement actions six to eight times less often.
O'Brien said C-TPAT helped make it possible for Hasbro to process more than 99 percent of its entries entirely without paper, and to reduce the number of Customs "holds" from 211 out of nearly 2,800 entries in 2001 to 45 out of 4,100 entries in 2003. The number of intensive physical inspections has plummeted from 31 in 2001 to just 5 last year. Making C-TPAT membership even more attractive, he said, is the fact that it is now a prerequisite for participating in some other Customs initiatives. Those programs included the Automated Commercial Environment (ACE) information system; the Importer Self-Assessment (ISA) program, which reduces inspections for low-risk importers; and the new monthly duty-payment option.
Laden said he's documented a direct correlation between requiring suppliers to adhere to security standards and a decline in cargo theft. Other importers report that because C-TPAT requires them to document shipment procedures and inspect overseas plants, they've found unexpected opportunities for improving their operations. While preparing its C-TPAT application, for example, The Gillette Company discovered that each of its subsidiaries had different ways of handling imports, said Global Customs Compliance Manager Norman Lubeck at the CONECT conference. He's now working on standardizing import procedures companywide, which will bring both cost and efficiency benefits.
C-TPAT is still evolving, and what's true today may not he true six months or a year from now. Judging from the questions that were asked at both the AAEI and CONECT conference, figuring out where C-TPAT is headed is a top concern for importers.
A frequent subject of speculation was whether C-TPAT will remain a voluntary program or if it will become mandatory. That will depend on how well the program works in its current form, responded Commissioner Bonner. One question being debated in Washington, he said, is "Can we [secure the supply chain] using an incentive-based program like C-TPAT--and I'm inclined to believe we can--or will we have to implement it by fiat?"
Some voiced concern about the opposite situation--that CBP might limit C-TPAT membership. There was even speculation about what might happen to C-TPAT if the Democrats win the White House in November.
Whichever path C-TPAT ends up taking, there are some things everyone can agree on: It won't be easy, it won't be cheap, and it will strain both public and private resources. But it will also force importers to be more aware of what their suppliers are doing, identify weak links in international supply chains, and help the federal government better protect the country from attack. As one observer recently summed it up, "What C-TPAT is about is reducing the size of the haystack so we can find the needle more easily."
Figure 1 C-TPAT: Where Does it Stand? As of March 12, 2004, the C-TPAT participation and validation numbers were as follows: Security Profile Certified Partners Received Partners Importers 3826 2763 1861 Carriers 1178 1018 591 Brokers/Forwarders 1196 1037 822 Foreign Manufacturers 202 120 90 Marine Port Authorities 43 37 26 & Terminal Operators Total 6445 4975 3390 Insufficient Security Validations Profiles Initiated Importers 450 310 Carriers 155 185 Brokers/ Forwarders 74 206 Foreign Manufacturers 22 0 Marine Port Authorities 9 20 & Terminal Operators Total 710 721 Source: Bureau of Customs and Border Protection Figure 2 Hasbro's C-TPAT Implementation Cost Analysis Actual Foreign and Domestic Expenses: $48,000 External Resources (Consultant, Legal) 64,000 Domestic Personnel Resources 8,500 Travel Expenses for Auditing 35,000 Far East Training and Education 25,000 Far East Personnel Resources 15,000 Far East Oversight Auditing 4,000 Equipment $199,500 Total Initial Expenses $112,500 Projected Annual Operating Costs Source: Hasbro Inc.
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|Author:||Gooley, Toby B.|
|Publication:||Logistics Management (Highlands Ranch, Co.)|
|Date:||Aug 1, 2004|
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