Expert Insight: Guest Contribution

By James Giermanski,

President

Powers International, LLC

Date: January 14, 2011

Global Logistics Comment: Traceability: Why is the U.S. Out of the Loop?

While DHS Doesn't Employ Traceability Processes, It Is Common Practice Elsewhere
...we need to convince people that counterfeiting spells trouble for America, pure and simple, all right. We all know it robs Americans of jobs. It robs Americans of innovation and creativity. We need to make the point that it fuels organized crime, not in the abstract -- it's not, the corner of 4th and Main -- it is organized crime, and that's where the money goes; and our focus here today, is that it creates a serious risk of harm to consumers.   And we've got to make sure that that latter point, that counterfeiting threatens the health and safety of Americans, is not just taken as an abstract concern. It's an immediate problem.

Counterfeit Merchandise, Foodstuffs and Medicine Are A Growing Concern

We often see headlines like this: Dec. 14, 2010 - ICE seizes more than $350,000 worth of counterfeit merchandise, cosmetics at area swap meets or Dec. 16, 2010 - ICE arrests 13 on document fraud, conspiracy, identity theft charges.  Why don't we see headlines like these: "ICE intercepts and prevent the entry into U.S. commerce a container of counterfeit Viagra," or "ICE, in cooperation with Mexican Customs intercepts container with a weapon of mass destruction (WMD) added to banana shipment from Guatemala through Mexico to Port of Long Beach. "   We don't because the Department of Homeland Security (DHS) does not use electronic traceability and container security solutions to control the entry of unlawful or dangerous cargo.   In fact, DHS and Customs and Border Protection(CBP)still require paper documentation as indicated by CBP, itself.  In its statement, Overview of Textiles: A Priority Trade Issue (PTI) CBP stated the following: Some importers circumvent quotas by transshipment-changing the country of origin of their goods. Still others use false documents or labels or provide incorrect descriptions of the merchandise.  Although CBP is doing significantly more in electronic data collection, it stills depends in some areas like textiles on the validity of the documents furnished.

 

There are also concerns about food safety.  For instance, in a recent article in American Shipper, butter seemed to be contaminated by the use of certain plastic pallets carrying  fire retardant, known as decabromodiphenyl ether (decaBDE).   The National Wooden Pallet and Container Association suggested close examination of these pallets.  Today, this retardant and more chemical preservatives can be detected in containers before they reach the U.S.  Of course the importation of some Chinese food products have also been shown to be contaminated.  A recent example reflects the seriousness of the issue.  U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) investigation revealed that Chung Po Liu, 70, of Bellevue, Washington, plead guilty to Federal charges involving the purchasing honey in China ...from Changge Jixiang and had it shipped to the Philippines or Thailand. The honey was re-labeled there to make it appear it was a product from these countries.  When the honey arrived in the United States, Liu submitted documents to U.S. Customs and Border Protection (CBP) falsely claiming that the imported honey was produced in Thailand or the Philippines, when in fact it originated in China.      

 
While DHS doesn't employ traceability processes, it is a common practice elsewhere.  The EU, through its regulation EC Regulation No. 1935/2004, has required all foodstuffs to be monitored from origin to destination.  Thus, the EU makes it a requirement that these products be monitored in their movement from one country to another.  Why is it not a normal requirement and practice of CBP to mandate the tracing of incoming cargo, especially foodstuffs, and pharmaceuticals?  The answer could be that traceability necessitates the use of container security solutions about which DHS seems to know very little.

 

Container Security Devices and Traceability


Container Security Devices (CSDs) are able to monitor movement of containers internationally and domestically from origin to destination.   However, there is much more that CSDs can do than just report location.  The smartest containers
are smart because they can carry on a conversation.  The user or their international control center (“platforms”) can communicate with them, depending on the programming, sensors, and technology used, in real-time or close to real-time.  Tracking and tracing functions only, a trait of a mentally-challenged smart container, merely monitor location by RFID fixed antennas or by satellite or cellular, depending on the level of communication latency the user is willing to accept.    However, the very smart containers not only tell you electronically the contents of the container;  who supervised loading the cargo and who is accountable for the accuracy of the contents at origin; the time the container was sealed; when it left origin; its route; its internal environment; its progress; whether it deviated from its course; its arrival at port of embarkation; when it was loaded aboard the vessel; whether it was breached; when it arrived at the destination port; and who opened it and verified the cargo. 

 

And there are companies out there that can provide smart containers now.  Just a few examples of these companies are: European Datacomm, Lojack, GlobalTrak, SecurTrack, and soon Telnav.  There are also multiple satellite service providers like Iridium, Orbcomm, Inmarsat, Europe’s Galileo, and the Chinese entry into satellite communication, Compass that can provide position detection at relatively low costs.

 

If traceability were required using these smart containers, why hasn't DHS required its use?  It is logical, functional and available today, and could serve as a weapon against the smugglers, counterfeiters, and terrorists.  With respect to the global supply chain, and perhaps in other ways, why does DHS react in an undeniably reactive fashion, waiting for something to happen before putting assets against it.  Actually, there is a case for mandating the use of traceability solutions because these solutions are actually beneficial to the bottom line of the user.  Realizing the cost to the private sector, CBP commissioned the University of Virginia to determine the cost/benefit outcome to taking security measures.  Published in a 2007 cost/benefit survey report, CBP reported the following with respect to benefits of simply participating in it Customs Trade Partnership Against Terrorism (C-TPAT) program which has no traceability requirement:

 

  • Fewer examinations (34.4% decrease)
  • Better supply chain visibility (29.4% better)
  • Predicting lead-time (24.3% better)
  • Tracking orders (22.2% better)
  • Disruptions in supply chain (28.9% fewer)

Unfortunately, it seems that the return on investment (ROI) is either not known to, appreciated by, or significant enough to the user to employ smart containers.  Or the user is simply focusing on the costs involved in using smart container technology, not weighing the bottom-line benefits of a visible supply chain. All agree that at a minimum there will be expedited treatment, at least, by U.S. Customs Authorities for the use of smart containers as defined in the SAFE Port Act. The benefits of expedited shipments, alone, vary from $600 to $700 per container per move (Bearing Point Study, 2003); and $1150 per move (AT Kearney Report, 2005).  Therefore, if a smart container costs you an additional $100 from origin to destination, and you save $1000 on the expedited treatment, what was the cost?  Costs are associated with the loss or delay of cargo; diversions; increased insurance premiums; supply chain disruptions; increased labor to reship or replace the cargo; business downtime; loss of seasonal promotions; or the costs of the sale.   Benefits include minimizing financial risks, reduced inventory carrying costs, protection against counterfeiting; reduced or eliminate diversion costs, reduced out of stock, and reduced insurance costs. 

Stanford University Study And Other Sources


A Stanford University recent study revealed that quantifiable benefits of security controls and technology included:

 

  • Improved Product safety – 38% reduction in theft/loss/pilferage, 37% reduction in tampering;
  • Improved Inventory management – 14% reduction in excess inventory, 12% increase in reported on-time delivery;
  • Improved Supply chain visibility – 50% increase in access to supply chain data, 30% increase in timeliness of shipping information;
  • Improved Product handling – 43% increase in automated handling of goods;
  • Process improvements – 30% percent reduction in process deviations;
  • More efficient Customs Clearance – 49% reduction in cargo delays;
  • Speed Improvements – 29 % reduction in transit times;
  • More Resilience -  30% improved response time; and
  • Higher Customer Satisfaction – 26% reduction in customer attrition and 20% increase in new customers.

 

Other sources offer different, but compelling, benefits to using smart container technology to include the U.S. Congressional Budget Office, in March 2006.   In a 2006 A.T. Kearney survey report, respondents stated that “…they need real-time data for accurate visibility into their supply chains.”  Since accurate data do not exist within the current logistics industry, smart boxes can provide that missing data deemed important to shippers.  The report further revealed that the U.S. Department of Defense is now utilizing smart containers even though they are not the smartest containers.  These smart boxes “…reduced overall losses (military supplies) to less than 8 percent.”   There is a favorable bottom line to using smart boxes based on speed alone.   The A.T. Kearney, Bearing Point, Stanford, and Congressional Budget office all, in one way or another acknowledged that control and speed through the supply chain, and especially through ports, pay off. 

Conclusion


If we take seriously Director Morton's words, then where are the container-related supply chain proactive measures that he or anyone in DHS can cite.  All he can say and has said is that the DHS and the U.S. Justice Department (DOJ) take this threat very seriously.  But there is nothing to show except "reactive" measures.  Why does DHS always wait for something to happen before taking action?  Is there really any leadership in this area?   
  

Agree or disagree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

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About the Author

Dr. James Giermanski is the Chairman of Powers Global Holdings, Inc. and President of Powers International, LLC, an international transportation security company.  He served as Regents Professor at Texas A&M International University, and as an adjunct graduate faculty member at the University of North Carolina at Charlotte.  He was Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University.

He has authored over 150 articles, books, and monographs with most focusing on container and supply chain security, international transportation and trade issues.


 

Giermanski Says:


If traceability were required using these smart containers, why hasn't DHS required its use?


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