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Global supply chains must now address government logistics mandates, a post-9/11 legacy that is only becoming more complex.
John Edwards, CFO Magazine
July 1, 2006
As the North American international trade director for German auto-parts maker Robert Bosch, Karl J. Riedl has worked for more than 35 years on import/export issues. During that time he has seen the logistics world evolve in any number of ways, but little prepared him for the present situation. "When 9/11 hit," he says, "it caused a radical change. The public suddenly got very nervous about these 40-foot metal boxes coming in on ships by the thousands."
Spot inspections by the U.S. Customs Service provided what little security there was, but that soon changed as a number of new oversight measures took hold. A more muscular customs service — now renamed U.S. Customs and Border Protection (CBP) and working under the auspices of the Department of Homeland Security — and a raft of new or expanded programs, mandates, and offices continue to force companies to devote much more energy to both imports and exports, ratcheting up the risk that supply chains could become bound in red tape.
Perhaps the biggest change is the Customs-Trade Partnership Against Terrorism (C-TPAT), which was launched in 2002 and continues to evolve. A joint government-business initiative, C-TPAT aims to build cooperative relationships that will strengthen international supply-chain and U.S.-border security. Through the project, CBP asks importers, carriers, brokers, warehouse operators, and manufacturers to ensure the integrity of their security practices, communicate their security guidelines to business partners within the supply chain, and verify the guidelines of those partners.
C-TPAT is a voluntary program, but companies have plenty of incentive to participate. "When you're in C-TPAT, you're supposed to try to use other C-TPAT member-certified companies," says Terrie Gleason, a trade regulation and customs attorney for Baker & McKenzie, in Washington, D.C. "So there can be a funneling of business" toward companies that adhere to the standard. C-TPAT membership also sends a signal to both current and potential customers that a company is serious about security and its relationship with customs authorities. "There is a sense of 'good citizenship' in all of this," notes Gleason.
Once a company has received the C-TPAT seal of approval, which is granted by the CBP and places companies into one of three tiers depending on their security practices, participants benefit from fewer security- and trade-compliance examinations. That can help a company streamline its logistics management and speed shipments. "Tier-1 C-TPAT members have five to eight times fewer exams than non-C-TPAT members," notes Jane Taeger, director of compliance with Samuel Shapiro & Co., a Baltimore company that provides import/export consulting and logistics services. Tier-3 firms, the highest level, benefit from an extremely limited number of inspections and access to new paperless systems that ease various bureaucratic requirements. And C-TPAT member companies with truck fleets that cross into Mexico and Canada can also take advantage of Free and Secure Trade lanes that provide expedited clearances and can cut border waiting times by up to two-thirds.
But those benefits don't come easily, companies say. They complain that CBP's validation process is too slow. As of May, the agency had reported it had completed 1,900 validations, or 32 percent of the 5,900 firms that have been accepted into C-TPAT. Another 2,200 are in some stage of having their supply-chain practices reviewed by CBP specialists. At press time, CBP's goal was to have 45 percent of validations done by July 1 and 65 percent by December 1.
C-TPAT's overall impact on businesses has been uneven, with some companies struggling harder than others to meet the program's requirements. "Big-box retailers with a lot of consumer-oriented products, for example, already had in-house professional security groups," says Bosch's Riedl, and thus had a relatively easy time meeting the program's requirements. But many other firms, including smaller businesses and those with shipments that aren't particularly theft prone, have experienced compliance problems. "We didn't have a theft risk, so we didn't have an internal security group," says Riedl. "We really had nothing that addressed logistics security."
The only acceptable solution, says Riedl, was to embark on a cram course covering security practices and procedures. "We basically trained ourselves," he says. "We had to relearn the whole process of containers and security and seals." Many firms have had to turn to outside consultants to meet C-TPAT standards. "It's become a thriving business," says Taeger.
Shaping Up What Ships Out
Historically, customs authorities have concentrated on incoming shipments, concerned that businesses might elude import duties, smuggle illegal drugs, or violate product embargoes. The 9/11 attacks widened that focus to include searches for weapons, including nuclear, biological, and chemical materials, and now the focus has widened again, to include exports. The rationale is that outgoing shipments of computer products, military technology, or other resources may ultimately play a role in an enemy attack. But that deeper scrutiny is a shock to companies like Bosch that deal in mundane, trailing-edge products.
"Until about the late 1990s, you had to be a Boeing or someone involved in very high-tech stuff to pay a lot of attention to exports," says Riedl. Today, companies in virtually all industries have had to embrace the Shipper's Export Declaration (SED), a form required by the U.S. Commerce Department that describes the value, weight, destination, and other basic information about an export shipment.
That new requirement has triggered an overwhelming torrent of paperwork, prompting the government to propose mandating electronic SED filing, which is expected to become a requirement later this year. The vast majority of large companies have been filing such forms electronically for some time, but once again, smaller firms may have to play catch-up. In some cases, freight carriers can handle the chore on behalf of clients, or companies can do it themselves via the federal Web-based Automated Export System.
While the switch to an all-electronic system will no doubt cause some start-up headaches, many say it will pay long-term benefits. "When you automate a process, you have much more consistency, a lower error rate, and it takes a lot of the guesswork out of it," says Colby Bower, policy coordinator for the Border Trade Alliance, a free-trade advocacy organization headquartered in Phoenix.
Riedl predicts that the government will continue to push businesses to enhance security measures, and will enlist technologies such as global positioning systems and radio frequency identification tags to advance its efforts. "This whole security issue is not going away," he says. "This is going to be continually ramped up."
John Edwards is a technology writer based in Gilbert, Arizona.
Benefits of C-TPAT Participation, as Outlined by U.S. Customs and Border Protection