Discussion Board Q's Chapter 14-20

Chapter 15: International Logistics Security 15- 11

Chapter 16

International Logistics Security

lEARNING oBJECTIVES

At the end of this chapter, YOU SHOULD:

1 Understand the impact of a major disruption on international trade.

2 Identify the major international organization with an impact on logistics security.

3 Identify the security programs put in place by the United States

4 Identify the security programs put in place by the European Union

5 Understand the fallacy of 100-percent inspections.

6 Understand the impact of Type I and Type II errors.

Preview

In this chapter, we look at the efforts of international organizations, national governments and business corporations in respect to international logistics security. The impact of a major disruption is presented, as well as the common misunderstandings regarding one-hundred-percent inspections and Type I and Type II errors.

Chapter Outline

Vignette: The Fallacy of One-Hundred-Percent Inspections

The first vignette is about the fallacy of one-hundred-percent inspections, which generates extraordinary costs without insuring an improvement in security:

a. The personnel needed would be considerable, given the time that it takes to inspect a container and the number of containers that transit worldwide

b. The space necessary to handle all of these inspections does not exist in any port

c. The number of container movements from the loading/unloading quay to the inspection area would hamper the port operations

d. Inspections would likely be rushed, and therefore ineffective

e. TSA is evidence of that ineffectiveness; multiple tests of the TSA screening system have found it to be ineffective at detecting partially-concealed dangerous goods. Efforts made at “passing” well-concealed dangerous goods have been essentially always successful

16.1 Impact of a Significant Disruption in International Logistics

I. Natural disasters have a significant impact on international logistics, causing delays and disruptions

II. Terrorist acts have the potential to have similar or greater impact:

a. 9/11 had an impact for several weeks on airfreight

b. 9/11 shut down airports for three days, and one more day was spent repositioning aircraft worldwide

c. Booz-Allen-Hamilton’s study predicts three months of backlog for freight at U.S. ports

d. The eruption of a single volcano in Iceland shut down all air transport in Europe for a week in April 2010

III. The costs of delays and disruptions from a natural or man-made disaster can be staggering

IV. Terrorist acts are not directed only at the United States or Western Europe; terrorists of varied agendas have attacked the U.S., Japan, France, Northern Ireland, Spain, India, Pakistan, Egypt, Russia, Indonesia, etc.

16.2 International Organizations

I. After 9/11, several international organizations implemented plans to prevent terrorist acts from occurring

16.2.1 International Maritime Organization

I. Implemented the ISPS (International Ship and Port Facility Security) Code in December 2002

II. Made ISPS part of the International Convention for the Safety of Life at Sea (called SOLAS). Since SOLAS had been signed by 148 countries, it was mandated for those countries to follow ISPS

III. ISPS mandates for ports:

a. Monitor access to port facilities (workers’ ID cards, only authorized persons allowed, visitors must provide ID)

b. Monitor activities in the port (video recordings stored for a few weeks, duration dependent on the port)

c. Install a secure system of communication to raise alarm when a security breach is detected

IV. ISPS mandates for ships:

a. Creation of a company security officer and ship security officer for each carrier

b. Creation of a ship security plan

c. Restrict access onboard

V. Data show very uneven and very different implementations of ISPS for ports. Little data available for ships and carriers

16.2.2 World Customs Organization

I. WCO (actually called the Customs Cooperation Council) quickly saw its role as complementing what IMO was doing

II. Since its role is to harmonize Customs procedures, it worked on harmonizing security requirements to prevent multiple national standards to be implemented unilaterally

III. Created a SAFE (Security and Facilitation in a Global Environment) model, which mandates:

a. All Customs authorities have to adhere to a set of advance electronic information standards for all international shipments. What is required of shippers should be identical, regardless of country of export and country of import

b. Each country must have consistent risk management approaches to address security threats

c. Exporting countries’ Customs authorities must comply with a reasonable request from the importing country’s Customs authorities to inspect outgoing cargo, preferably by using non-intrusive technology (X-rays) if possible

d. All Customs authorities must provide benefits to companies that demonstrate that they meet minimum standards of security. Such companies are called Authorized Economic Operators, and benefit from faster processing of Customs clearance and lower inspection rates

16.2.3 International Chamber of Commerce

I. The ICC mostly acted by recommending that countries do not implement unilateral requirements that would be detrimental to world trade

16.2.4 National Governments

I. Despite efforts by the IMO, WCO, and ICC, many countries implemented their own measures of security requirements, not the least of which was the United States

16.3 The United States’ Approach

16.3.1 Interdiction

I. The United States first implemented a strategy of interdiction, which denies entry to goods and/or persons that the U.S. deems suspect or potentially harmful

II. Creation of the Transportation Safety Administration (TSA) from a myriad of smaller airport security firms in 2001:

a. Systematic screening of passengers and luggage

b. Creation of a “no fly” list (persons not allowed to fly)

c. Although visible, TSA has been found to be most ineffective “theater”

III. Creation of the Department of Homeland Security (DHS)

a. DHS is made up of the 22 services that were more or less independent

b. U.S. Customs Services renamed “Customs and Border Protection”

c. Investigative arms of U.S Customs and Immigration and Naturalization Service renamed “Immigration and Customs Enforcement” (ICE)

Vignette: Understanding Type I and Type II Errors

I. The second set of vignettes is about Type I and Type II errors:

a. Type I error is a “false positive:” the process detects a dangerous product when in reality there is none. Often the probability of a Type I error is in the 5-percent range

b. Type II error is a “false negative:” the process does not detect a dangerous product when it is present. Often, the probability of a Type II error is in the 5-percent range as well

c. Most students, when asked which of Type I or Type II errors is the most worrisome, will choose Type II

d. However, Type I error is most problematic; since most shipments/pieces of luggage are innocuous, and 5 percent of them are “detected” to have a dangerous item, there are thousands of shipments that are selected for closer inspection. Since these inspections are the results of thousands of Type I errors (due to the millions of shipments/pieces of luggage going through the system), thousands of times, the inspector finds nothing wrong with the shipment s/he is inspecting

e. The single time where the system actually detects a shipment or a piece of luggage with a dangerous item, the inspector will not find it, as s/he has been accustomed to never find anything. If the item is well concealed, it will make it through inspection, even though it was detected by the automated system

16.3.2 Customs-Trade Partnership Against Terrorism

I. Creation of Customs-Trade Partnership Against Terrorism (C-TPAT) in 2001

a. Recognized that most shipments are not worrisome, and that companies that are commercial trade should not be hampered by enhanced security efforts

b. Promises lower probability of Customs inspection to companies that join priority inspections if they are necessary, priority processing

c. Promises assistance from CBP in matters of security

d. Creates three “tiers” of corporations, depending on their internal levels of security, from “Tier 1” lowest level, to “Tier 3” highest. In 2008, there were 8,000 tier 2 companies, and 300 tier 3 companies. Tier 3 companies go beyond the requirements of CBP.

e. A handful of companies involved in 2002, 137 companies by 2003, and more than 10,500 in 2012

f. In 2012, 55 percent of shipments to the US are made by C-TPAT participants, and 100 percent of these shipments were in compliance

g. C-TPAT was originally a “volunteer” program, but has evolved into a mandatory one

h. C-TPAT is similar in spirit to the guidelines of the WTO and ICC (limit impact of security efforts on normal international trade)

16.3.3 Maritime Transportation Security Act (MTSA)

I. U.S. also implemented a Maritime Transportation Security Act (MTSA), which is conceptually similar to the ISPS of the IMO

II. MTSA requires ports to have a security plan, monitored by a Security Officer. Plan must be approved by U.S. Coast Guard

III. Vessels calling a U.S. port must also have a security plan, monitored by a Security Officer and approved by the USCG

16.3.4 Security and Accountability For Every Port (SAFE)

I. U.S. created the SAFE (Security and Accountability For Every Port) Act, giving responsibility for enforcement of port security to the Coast Guard

II. The SAFE Act modified the Container Security Initiative, the C-TPAT, and created the Transportation Workers’ Identification Credential (TWIC) program

III. The U.S. Safe Act is unrelated to the WTO SAFE initiative

16.3.5 Transportation Workers’ Identification Credential (TWIC)

I. U.S. created a Transportation Workers’ Identification Credential (TWIC) program that issues ID cards to all who have access to port facilities

II. 2.5 million workers have the card

III. Government has considered it ineffective, as very few requirements need to be met to obtain a card

16.3.6 Container Security Initiative (CSI)

I. Container Security Initiative is a program whereby US CBP stations employees in foreign ports to screen containers bound for the United States

II. The CSI follows the WCO’s SAFE program, and therefore the screening must be done in a non-invasive manner (X-rays) that does not delay goods

III. As of 2011, CBP has employees in 58 ports that represent 80 percent of all cargo bound for the United States.

16.3.7 Free And Secure Trade (FAST)

I. Free and Secure Trade is an agreement between US and Canada, as well as US and Mexico

II. Entities involved in import/export must be cleared by the program. If all three (exporter, carrier, and driver) are FAST members, then they have access to FAST lanes that allow faster clearance

III. FAST is a voluntary program. 78,000 drivers have joined

16.3.8 Importer Security Filing (ISF)

I. Importer Security Filing [a.k.a. “10+2] is a program implemented in 2010, replacing the “24-hour rule.”

II. ISF follows guidelines of the WCO’s SAFE program, which required uniform requirements in what Customs would require from shippers in terms of information before a shipment

III. There are 10 items required from the shipper, and 2 from the carrier (listed on page 585)

16.4 The European Union’s Program

I. Most of what Europe did was implement the initiatives of the IMO (ISPS), and the WTO (SAFE)

II. Because terrorist acts were not new to Europe, and because several plans were already in place, reaction after 9/11 was much less virulent

III. Emphasis is more on prevention than interdiction (poverty-reduction programs, restoration of democratic governments, increased international cooperation on criminal investigations

16.4.1 Authorized Economic Operator (AEO)

I. Authorized Economic Operators are companies involved in international trade (exporters, importers, carriers, ports, …) that meet minimum security standards as determined by Customs authorities

II. The program follows WCO’s SAFE program that mandates that companies that meet minimum standards be given privileges

III. AEOs enjoy faster clearance and reduced inspection rates

16.4.2 Customs Security Programme (CSP)

I. Importers are required to provide information to Customs authorities prior to shipment, as required by the WCO’s SAFE program

II. EU Customs cooperate with other Customs authorities to identify cargo that may present security threats

16.5 Other Countries’ Approach

I. In most countries, the efforts have been limited to implementing ISPS and SAFE, with differing levels of enthusiasm and [financial] support

II. Many countries perceive these efforts as irrelevant to their specific situation, and see terrorism as a “Western” problem

III. Many countries’ governments perceive that they have more pressing problems than terrorism (for example, poverty, crime, possible unrest) and only will implement the minimum required

IV. Since the terrorist attacks on Mumbai and Bali, perceptions are slowly changing

I. Companies are implemented measures that are more focused on the prevention of theft and other criminal acts

II. Many companies have implemented a system called “Total Security Management” (TSM), modeled after W. Edwards Deming’s Total Quality Management, which stipulated that all employees were responsible for quality. Under TSM, all employees share responsibility for security

III. The elements of TSM include:

a. Protection of fixed assets (plants, warehouses) against intruders, with a monitoring of access points, identifications and background checks of employees, locking of gates and other access points and so on

b. Protection of shipments (inbound and outbound) with seals, “geo-fencing” of cargo, protection of shipment information, policies designed to deter theft (trucks are not allowed to stop at rest stops within 4 hours of a plant)

c. Protection of corporate information (creation of secure systems of communication and information sharing)

d. Hiring practices designed to limit possible exposure to poor employees

Key terms

Authorized Economic Operator (AEO)

An E.U. program that implements the Security and Facilitation in a Global Environment (SAFE) guidelines of the World Customs Organization.

Container Security Initiative (CSI)

A U.S. Customs and Border Protection program that consists of inspecting overseas the shipments that are bound for the United States.

Customs Security Programme (CSP)

An E.U. program that implements the Security and Facilitation in a Global Environment (SAFE) guidelines of the World Customs Organization.

Customs-Trade Partnership Against Terrorism (C-TPAT)

A voluntary partnership program between companies involved in international logistics and the U.S. Customs and Border Protection agency, in which companies that implement security measures obtain priority processing and reduced inspection rates.

Free And Secure Trade (FAST)

A joint Canada-U.S.-Mexico voluntary program. Participating companies enjoy dedicated fast lanes when crossing the Canada-U.S. border or the Mexico-U.S. border.

geo-fencing

A technique based on Global Positioning System that alerts management when a shipment is diverted from its intended itinerary.

Importer Security Filing

A U.S. program that implements the Security and Facilitation in a Global Environment (SAFE) guidelines of the World Customs Organization.

interdiction 

A security strategy that attempts to prevent all imports of potentially dangerous goods, and all entries of potentially dangerous persons.

International Chamber of Commerce (ICC)

The largest business organization in the world. Its goal is to champion international business growth and its members are the national chambers of commerce.

International Convention for the Safety of Life at Sea (SOLAS)

An international convention, signed by 148 countries, that outlines the safety requirements that merchant ship owners must put in place. It was first implemented after the sinking of the Titanic and has been regularly updated since.

International Maritime Organization (IMO)

A United Nations agency responsible for improving maritime safety and preventing pollution from ships.

International Ship and Port Facility Security (ISPS) Code

A series of security requirements placed by the International Maritime Organization upon ports and ships.

Marine Transportation Security Act (MTSA)

The U.S. legislation that implemented the recommendations of the International Maritime Organization's International Ship and Port Facility Security Code.

one-hundred-percent inspection

A security strategy that attempts to inspect all imported shipments for potentially dangerous goods.

seal

A lock placed on a container door or truck trailer door that must be broken in order to access the cargo.

Security and Accountability For Every Port (SAFE) – U.S. program

A U.S. piece of legislation that created a number of security-related programs.

Security and Facilitation in a Global Environment (SAFE) – WCO program

A set of guidelines to increase the cooperation of national Customs administrations in fighting security threats.

security management

A corporate function that manages all of the security efforts of a particular company and coordinates the prevention of criminal activities against the company’s employees, products, and assets.

Total Security Management (TSM)

A management philosophy that posits that security is better achieved if every member of the organization is vigilent and pro-active in identifying security issues.

Type I error

A statistical concept whereby the researcher concludes that the null hypothesis should be rejected when, in reality, the null hypothesis is true and should have been accepted (e.g., in security management, concluding that a shipment is dangerous when in reality it is harmless).

Type II error

A statistical concept whereby the researcher concludes that the null hypothesis should be accepted when, in reality, the null hypothesis is false and should have been rejected (e.g., in security management, concluding that a shipment is harmless when in reality it is dangerous).

Transportation Workers' Identification Credential (TWIC)

A U.S. program designed to limit access to ports to persons without a serious criminal background.

World Customs Organization (WCO)

An international body whose mission is to improve the administration of Customs. Its members are the national Customs administrations.

PowerPoint SLIDES – STUDY THEM – PRINT THEM OUT !

· Disruptions (3 slides)

· International Organizations (7 slides, 2 photographs)

· National Governments

· United States (10 slides)

· European Union (2 slides)

· Other Countries (1 slide)

· Corporate Efforts (2 slides)

· Security Approaches (10 slides)

Additional reSources

Ritter, Luke, J. Michael Barrett, and Rosalyn Wilson, Securing Global Transportation Networks. New York: McGraw-Hill, 2007.

Gerencser, Mark, Jim Weinberg, and Don Vincent, Port Security War Game: Implications for U.S. Supply Chains, Booz-Allen-Hamilton, 2003, http://www.boozallen.com/media/file/128648.pdf.

United Nations Conference on Trade and Development, Maritime Security: ISPS Code Implementation, Costs and Related Financing, Report by the UNCTAD Secretariat,

March 14, 2007, http://www.unctad.org/en/docs/sdtetlb20071_en.pdf.

Boske, Leigh, Port and Supply-Chain Security Initiatives in the United States and Abroad, Lyndon B. Johnson School of Public Affairs, University of Texas at Austin, Policy Research Project Report 150, 2006, http://www.utexas.edu/lbj/pubs/pdf/prp_150.pdf.

Kruk, C. Burt, and Michel Luc Donner, Review of Cost of Compliance with the New International Freight Transport Security Requirements: Consolidated Report of the Investigations Carried Out in Ports in the Africa, Europe and Central Asia, and Latin America and the Caribbean Regions, World Bank, Transport Paper 16, February 2008, http://siteresources.worldbank.org/INTTRANSPORT/Resources/tp_16_ISPS.pdf.

Goldberg, Jeffrey, “The Things He Carried,” Atlantic Monthly, November 2008.

Customs-Trade Partnership Against Terrorism, “2008—A Year in Review,” http://www.cbp.gov/linkhandler/cgov/trade/cargo_security/ctpat/what_ctpat/2008_year_review.ctt/2008_year_review.pdf.