Managing global supply chains

Contents Foreword ...xv Acknowledgments ...xvii Introduction ...xix Chapter 1 The Events of 9/11 and How They Affect Global Supply Chains ...1 Overview of Issues and Concerns ...1 9/11:

Managing Global Supply Chains

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New York London

Managing Global

Supply Chains

THOMAS A COOK Compliance, Security, and Dealing with Terrorism

Boca Raton, FL 33487-2742

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Cook, Thomas A., Managing global supply chains : compliance, security, and dealing with terrorism / Thomas A Cook.

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ISBN 978-1-4200-6456-8 (hardback : alk paper)

1 Business logistics Safety regulations 2 Freight and freightage Security measures 3 Shipping Security measures 4 Terrorism Prevention 5

Exports Management 6 Imports Management I Title

The World Trade Center and the United States are attacked on 11 September 2001

in New York City The photograph below shows the attack on the Pentagon These

events have changed global supply chains forever This book becomes the best

navi-gation tool for supply chain executives to utilize in managing their import/export

responsibilities

To the heroes of 9/11 and all those who continue to be placed

in harm’s way to reduce our threat of terrorism

Contents

Foreword xv

Acknowledgments xvii

Introduction xix

Chapter 1 The Events of 9/11 and How They Affect Global Supply Chains 1

Overview of Issues and Concerns 1

9/11: How Were Supply Lines Affected? 2

It Cost More to Ship 3

More Attention Had to Be Paid to Documentation and Logistics Detail 3

Regulations Changed, Making It More Cumbersome to Import and Export 4

Corporations Had to Modify Their Supply Lines 4

Purchasing and Selling Decisions Were Altered 4

Carriers’ Futures Were Uncertain 5

Increase in Potential Fines and Penalties 6

An Entirely New Corporate Responsibility Was Created in Security and Compliance 6

The Mind-Set of the United States Government 7

The Big Picture 8

The Risks of Global Trade: Now, Add Compliance and Security 11

The Security Concern in Our Transportation Infrastructure 13

Operation Safe Commerce (OSC) 14

Free and Secure Trade (FAST) 15

What Is the FAST Program? 15

What Are the Benefits of the FAST Program? 15

Who Is Eligible to Apply? 16

Where Is FAST Available? 16

Chapter 2 Compliance and Security: Import Supply Chains 19

Protecting our Borders Against Terrorism 20

CBP’s “Twin Goals”: Anti-Terrorism and Facilitating Legitimate Trade and Travel 21

Better Targeting 21

Pushing Our “Zone of Security” Outward 22

Partnering with Other Countries 22

Partnering with the Private Sector (C-TPAT) 23

Inspection Technology and Equipment 23

Keeping Weapons and Money from Falling into Terrorist Hands: Outbound Inspections 24

Protecting the Miles of Open Border Between Official Ports of Entry 24

Basic Import Management 25

Classification 25

Valuation 26

Origin Markings 26

Record Keeping 27

Importers 27

Customs Brokers 28

Records Storage Methods 28

Customs Initiatives Since 9/11 29

Highlights of CBP’s Accomplishments 29

Strengthening Our Control of U.S Borders 29

Improving Selectivity, Screening, and Targeting 30

Private, Public Sector, and International Partnerships 30

Importer Self Assessment (ISA) 32

Food and Drug Administration (FDA) (Imports) 33

New (Interim) Final Rules Require Registration of Facilities, Prior Notice Filing for Food Shipments 34

Automated Commercial Environment (ACE) 35

Managing Inbound Supply Chains: Purchasing Control 37

Chapter 3 Export Supply Chains 39

Department of Commerce Census Bureau 40

Department of Commerce Bureau of Industry and Security 42

USPPI 42

Export Licensing 42

Denied Parties Screening 45

Deemed Exports 46

Anti-Boycott Compliance 47

Department of Treasury Office of Foreign Asset Controls 48

Department of State 51

Contents ◾ xi

Implementing a Successful Export Compliance Program 52

Designating Responsibility 52

Senior Management Support 53

Developing Standard Operating Procedures 53

Best Practices 54

Internal Assessment 54

Chapter 4 Developing a Compliance and Security Management Program 57

Analysis of Risks 57

Obtaining Senior Management Involvement 59

Forming a Committee Structure 60

Creating Standard Operating Procedures 60

Infrastructure and Communication Systems 60

Resource Development 61

Risk Management Attitude 65

Disaster and Contingency Planning 65

Self-Assessment 66

Chapter 5 Managing Vendors, Suppliers, Freight Forwarders, Customhouse Brokers, and Service Providers for Compliance and Security Issues 67

Overview of Global Service Providers 67

Customhouse Brokers and Freight Forwarders 69

Specific Compliance and Security Reference Points for Forwarders and Brokers 70

Carriers: Air, Ocean, Truck, and Rail 70

Warehouses and Consolidation/De-Consolidation Facilities 72

Selling Distributors and Agents in Export 72

Purchasing Distributors and Agents in Import 73

Third-Party Providers 74

Banks and Other Finance Houses 74

Miscellaneous Companies and Services 75

Cost-Effective Logistics 78

Chapter 6 Critical Issues in Compliance and Security 93

Sarbanes–Oxley and the Interface with Global Supply Chain Management 93

DOT Hazardous Material Regulations (49 CFR 100-179) 98

Purpose 98

Overview 98

Shipping Papers 99

Marking and Labeling 100

Labeling 100

Placarding 101

Segregation of Hazardous Materials 102

Packaging 102

Selection of Proper Packaging 102

Employee Training 103

Materials of Trade 104

Managing Hazardous Materials Transportation as Part of Compliance in Global Supply Chains 104

Facility Security Checklist 105

Security Checklist for Shipper 106

Carrier Safety Assessment 106

Employee Background Check Guidelines 107

International Port Security Program 107

The SAFE Port Act 109

Technology Issues In Compliance and Security 111

Department of Homeland Security (DHS): “Best Practices for Container Seals” 111

Plan to Require Container Seals Motivates Adoption of 13 Cargo Security Best Practices 111

Standards and Deadline to Come 112

Getting Ahead of the Curve 112

Best Practices Outlined 113

Radio Frequency Identification (RFID): Smart and Secure 115

SST Phase I Results 117

SST Phase II Objectives 117

SST Phase II Benefits 118

SST Phase II Deliverables 120

Required Shipper’s Resources 120

Supply Chain Benefits 121

Foreign Corrupt Practices Act 121

Food and Drug Administration/Environmental Protection Agency Propose Security Restrictions 122

Food and Drug Administration 123

Environmental Protection Agency 123

Ultimate Consignee 125

INCO Terms 128

Use of the Term “Ex Works” by Parties in International Contracts and Purchase Agreements 128

Routed Export Transactions under the July 10, 2000, Federal Register Notice 129

Responsibilities of Parties in a Routed Export Transaction 130

Contents ◾ xiii

Record Keeping: A Vital Issue 132

Transfer Pricing: A Serious and Potentially Costly Compliance Issue 133

IRS, CBP, SEC, and DOJ Involvement? 133

What Business Travelers Need to Know 134

Container Security Update 2007 137

Customs-Trade Partnership Against Terrorism 137

Security Requirements for Validation of Participants 138

Business Partner Requirements 139

Security Procedures 139

Security Training and Threat Awareness 147

Information and Technology Security 147

CBP Proposal for Advance Trade Data Elements 148

Background 148

Security Filing: Proposed Data Requirements 150

Vessel Stow Plan: Container Status Messages 151

Security Filing: Responsible Parties 152

Notes 153

Annex A: Proposed Data Definitions 153

Annex B: Data Elements Comparison 155

Customs Bonds 156

Parties to a Bond 156

Types of Bonds 156

Amounts of Bonds 156

Continuous Bond 156

Breach of Bond 157

Chapter 7 Ten Steps to a Secure and Compliant Supply Chain 159

Acknowledge the Issues 160

Identify the Point Person 161

Obtain Senior Management Authorization 161

Develop an Initial Execution Strategy 162

Obtain External Resources and Support 162

Develop a Compliance and Security Committee 163

Complete a Facilities Review 164

Prioritize the Issues Finalize an Action Plan Implement the Program .165

Training and Education 165

Self-Audit 168

Concluding Remarks 171

The Challenges of Compliance and Security in our Global Supply Chains 171

Appendix 173

Legislation Related to the Attack of September 11, 2001 173

Bills and Joint Resolutions Signed into Law 173

Other Resolutions Approved 174

Legislation with Floor Action 176

New Government Cargo Security Rules Call on Forwarders to Work with Agents on Securing the Supply Chain 181

General Aviation Security: Increased Federal Oversight Is Needed, but Continued Partnership with the Private Sector Is Critical to Long-Term Success, GAO-05-144, November 10, 2004 181 Key Acronyms 182

Glossary 185

Index 193

Foreword

I was totally engaged and focused while reading this book I intended to read one

chapter each night over a week or so I ended up reading it all in one night I found

it to be completely intriguing and encapsulating

Tom, who was directly affected by the 9/11 attack, lays out the most detailed

and comprehensive overview of all the issues facing supply chain executives, and

goes on to review all the compliance and security rules, regulations, and

govern-ment initiatives that anyone who is involved in importing, exporting, and domestic

transportation needs to know He then provides a very in-depth analysis of logistics,

operations, purchasing, and international sales management problems that have

been created since 9/11 This is followed up by hands-on, cost-effective strategies

and solutions, and a cost-effective outline of how to develop a working compliance

and security program integrated into your supply chain

I was totally impressed with Tom’s ability to grasp all the issues, provide

com-mon sense resolutions, and keep it interesting and well articulated I have had this

book for six months now and continue to utilize it as my desk reference on all

compliance and security issues

I have read many of Tom’s books, which have all had my advocacy, but this

one is by far the best This is a must-read for every import/export manager and for

personnel engaged in supply chain process

Neil Lenok

PresidentThe World Academy

Introduction

The events of 9/11 changed my life

for-ever They changed the world of global

trade, too At no time in history did

such a small focused act of terrorism

have such a huge effect on the people of

the world and how they conduct

busi-ness with one another

The supply chains of the world have

been forever altered Any person or

corporation who imports, exports, or

transports goods and services within,

to, or from the United States has had to

rethink how they manage the logistics,

documentary concerns, and regulatory

maze And a new vocabulary of words

and acronyms has developed: AES,

CSI, 24-Hour Manifest Rule, USPPI,

ACE, The Patriot Act, ISPS, and ISA, to name a few

This book sorts out all the issues and frames a comprehensive strategy for the

supply chain executive in successfully dealing with all the compliance and security

changes post 9/11

In this book I have made an attempt to provide a current and single source

composite of the world of compliance and security from a supply chain manager’s

perspective A comprehensive guide that outlines issues, problems, and changes in

rules and regulations in a logical format, this guide is easy to read without

“lega-lese” and the overcomplexities created by recent government intervention

The world of import, export, and domestic transportation now engages

a realism that includes compliance and security as a main staple of traffic,

purchasing, and operations management. The truly successful global company

has wrapped itself in new initiatives that deal with the new order of terrorism that

threatens global supply chains and how best to maintain competitive advantage

while thwarting serious threats

At the end of the day the supply chain executive has to spend his or her time

with efficiency This book provides the executive with an end-all, one-stop resource

It is comprehensive, hands-on, and full of quality advice and counsel One of the

most important benefits is it instructs the reader on how to implement a

compli-ance and security program, which currently every corporation is being forced to

accomplish, if it is to maintain competitive global supply chains

Chapter 1

The Events of 9/11

and How They Affect

Global Supply Chains

This chapter reviews the events of 9/11 and how supply chains involved in

global trade have ramifications in cost, regulation, and logistics

infrastruc-ture The chapter becomes the “eye opener” for management to take security

and compliance more seriously.

Overview of Issues and Concerns

On September 11, 2001, the world was engaged in trade Supply lines were for the

most part open and running smoothly The big issue for supply chain executives

was establishing cost-effective purchasing, logistics, and operations Disruption

from a terrorist threat was not a proactive thought

No one in global trade anticipated the 9/11 events No “contingency planning”

or “disaster programs” were thought out prior to that occurrence Such plans would

have offered a “safe harbor” recourse or plan of action to mitigate the chain of

occurrences that would follow and continue to disrupt global supply chains to this

very day

It is amazing to me and my associates that, in the aftermath, a vast majority of

firms involved in import, export, and domestic trade and transportation have done

very little in disaster planning or paying attention to the new regulatory concerns

that have and will affect their ability to manage supply chains

9/11: How Were Supply Lines Affected?

When the world realized what was happening in New York City at the World Trade

Center, over Pennsylvania, and at the Pentagon, it was just after 9:00 a.m Shock,

disbelief, and rage combined with fear were everyone’s original sentiments

The U.S government took action shortly thereafter, shutting down areas of

New York and Washington Air traffic was brought to a halt Within an hour there

were no commercial planes in the air Inbound air traffic was stopped, diverted, or

halted Truck transportation in certain areas was curtailed Vessels coming in and

out of U.S ports were restricted as to what they could do People moving in and out

of the United States were put on hold Basically everything in motion or in transit

was brought to a halt

International business was now at a standstill.

In the ensuing hours, days, and weeks, the situation was assessed, trade was

re-established, and transportation corridors and lanes were re-opened Some supply

chains re-opened in a few days, others a few weeks Some never opened again or,

when they did, they were forever altered Every import and export company was

affected Time frames, processes, documentation, or regulatory concerns impeded

transportation infrastructures There was no more doing business as usual The

Figure 1.1 The World Trade Center Building of the United States are under

attack on 09/11/2001 from foreign terrorists.

The Events of 9/11 and How They Affect Global Supply Chains ◾ 3

Purchasing and selling decisions were altered

It Cost More to Ship

Carriers were requested and mandated to improve security Most passed the cost

on to the shippers Fees from $25 to as much as 5 percent per shipment were added

to freight bills These charges were added in the name of security surcharges and

excess handling fees all associated with the new regulatory atmosphere between

carriers and the government Let it be known that while most of the fees were very

legitimate, many were bogus or the amount much too high and became a windfall

for the carrier In any event international and domestic shipping cost more

More Attention Had to Be Paid to

Documentation and Logistics Detail

For the individual traveling businessperson, there were now layers of

documenta-tion required to enter and depart the United States Any executive who traveled

internationally had to spend at least one to two additional hours going through

security at certain airports As we approach 2008, it is still very difficult to travel

internationally Domestic travel too is not easy, but it is tolerable

Freight coming to and from the United States has undergone new

documen-tary procedures before being allowed to transit This is covered in greater detail in

Chapters 2 and 3

Figure 1.2 Customs Border and Protection inspects inbound ocean freight

containers with x-ray technology screening.

One example of the government’s response was the 24 Hour Manifest Rule,

which is covered in more detail in Chapter 2 This United States regulation requires

carriers to transfer detailed manifests to U.S Customs and Border Protection on

inbound ocean freight 24 hours prior to the vessel sailing from the foreign port The

new 24 Hour Rule has placed very tight communication and information transfer

responsibilities on the overseas supplier, the inbound carrier, and the importer here

in the United States

Regulations Changed, Making It More

Cumbersome to Import and Export

The new focus on Deemed Export Rules, as an example, covered in greater detail

in Chapter 3, certainly made it more difficult for both importers and exporters to

transfer information, knowledge, and wherewithal to foreign nationals The deemed

export regulations are cumbersome controls that redefine exports to include the

transfer of information to foreign nationals to be handled as if it were a physical

export So if a corporation brought a foreign national from an overseas subsidiary

plant to train in the United States, the U.S corporation would have to determine

the “export readiness” of that learning process before it could be done The nature

of the knowledge transfer, the specific individual, and the country of utilization,

along with the end use of the information, would all have to be taken into

consid-eration, before the training could begin, if at all

Corporations Had to Modify Their Supply Lines

Many importers and exporters had to modify their supply lines Infrastructure,

choice of providers or carriers, third-party partners, modes of transit, packing,

mark-ing, and labeling all became issues of change for logistics executives post 9/11

As mentioned before, the 24 Hour Manifest Rule required importers who utilized

ocean freight modes to make sure their suppliers provided detailed cargo manifests

to carriers prior to export Many overseas suppliers, to this day, struggle to meet that

requirement and are forced to find other modes such as air and ground These modes

might prove to be more expensive, adding cost to their landed calculations

The increased threat of terrorism caused shippers of hazardous materials to raise

the bar of due diligence in how their goods were packed, marked, and shipped This

added inconvenience, cost, and retraining of personnel and operational procedures

Purchasing and Selling Decisions Were Altered

When overseas suppliers refused to cooperate with certain CBP initiatives such as

C-TPAT, CSI, and the 24 Hour Manifest Ruling, purchasing managers often had

The Events of 9/11 and How They Affect Global Supply Chains ◾ 5

no choice but to find more willing and cooperative contract manufacturers and

suppliers

Many U.S exporters who chose not to exercise greater due diligence on

reviewing Denied Parties Lists or paying attention to the OFAC Sanctions List

(both covered in more details in Chapter 3) found themselves in trouble with

fines, penalties, and loss of export privileges.

Carriers’ Futures Were Uncertain

As air travel became restricted immediately following 9/11, the airline industry

took a big hit Some airlines such as United, Delta, and U.S Airways have not been

able to recover; others such as Continental and American have had to institute

major cutbacks

All of the air carriers have reduced service parameters, cut the number of

planes, and stopped flying certain routes This has had a tremendous impact and

effect on shippers in reduced capacity and loss of certain trade-lane competitive

pricing options

The economy took a hit from 9/11 Many transportation providers were

affected: they merged, were bought out, or went out of business The landscape of

trucking companies, third-party providers, and freight forwarders dramatically

changed (e.g., Tower Group, Fritz, Con-Way, CF Freight, Roadway Global, and

Menlo) Traffic managers now had to pay attention much more closely to whom

they were purchasing logistics services from It became as much an “art” as a

“sci-ence.” The due diligence of purchasing became much more intense

Figure 1.3 The CSI program places U.S Customs’ offices in foreign ports.

Increase in Potential Fines and Penalties

There are no specific statistics for the volume of fines and penalties that we can

identify, but in direct communication with mid- to senior-level government

offi-cials and in-depth search of the Web site, we were able to determine:

Dramatic increases in several government agencies’ scrutiny of supply chains

We were made aware that many carriers, including the integrated

mega-carri-ers, were being fined regularly for violations such as but not limited to hazardous

material movements, Customs failures, and improper filing of SED information

Shippers found themselves under increased scrutiny for an array of subjects that

led to direct fines and penalties Fines ranged from a “slap on the wrist” to more

than $25,000 Loss of import and export privileges can have even greater effects on

supply chains

Additional consequences of this scrutiny are internal costs in time and

per-sonnel involvement, mandated infrastructure changes, and legal costs Some cases

have even included criminal prosecution of corporate executives A sampling of

some of these cases can be found in the Appendix

An Entirely New Corporate Responsibility Was

Created in Security and Compliance

When I graduated from the Maritime Academy, I served in the military and

eventually came to the world of business and global trade in the late 1970s, just

as OSHA regulations were beginning to dominate corporate cultures

Corpora-tions were now forced to comply with government regulaCorpora-tions on workplace,

personnel, and work environment scenarios or face serious fines, penalties,

man-dates, and possible shut down Eventually every corporation had to create a new

management position: the OSHA Compliance Officer Today, it is a stalwart of

corporate infrastructure

Currently, we are in the same situation in managing import and export

com-pliance Corporations are not sure what to do with the new regulatory

environ-ment in import and export supply chains Do we ignore the current atmosphere

and react only to mandatory issues? Do we become proactive and take

signifi-cant initiatives in compliance and security? Do we take a moderate position and

only do what is necessary now, leaving some contingency planning for future

mandates?

The Events of 9/11 and How They Affect Global Supply Chains ◾ 7

This is a perplexing problem with an easy answer The best response is a

methodic, proactive strategy that tackles the more immediate issues, CSI, 24

Hour Manifest, Denied Parties List, USPPI, etc., and plans a program over an

18- to 24-month response to all the longer term issues facing the supply chain

in compliance and security (C-TPAT, creation of SOPs, training of operations

personnel, etc.) This strategy incorporates a new position and, if not an

“inde-pendent” job, then certainly another “hat” for someone to wear: Import/Export

Compliance Officer

The Mind-Set of the United States Government

Atno point can I possibly make that statement that I speak for the government of

the United States and more specifically any of the various departments and

agen-cies involved with terrorism or homeland security/compliance Nor can I make an

absolute representation of what the government is thinking Why?

1 The events of 9/11 have set a chain of events in motion that still is a “work

in progress.”

2 As the political landscape changes, so do compliance and security issues

3 Various government agencies such as the Departments of Commerce, State,

and Treasury are taking a different approach to terrorism Although the

“ulti-mate goals” may be similar, their approaches can be very different

4 Different individuals in “power positions” are interpreting laws, regulations,

and initiatives differently

Figure 1.4

What I can do is offer an intelligent, informed opinion of what the government is

thinking, as a result of significant analysis and in-depth review of Web sites, media,

presentations, and contacts with various personnel “in the know.”

The Big Picture

The government felt very naked, vulnerable, and exposed as the result of the

terror-ism of 9/11 All areas of government purview were now under scrutiny:

How was our intelligence gathering mechanism working?

More questions, then answers The government had both immediate, intermediate,

and long-term issues to deal with Some of the critical issues:

Ensure 9/11 does not happen again

impact our interests overseas

Improve government interagency coordination and cooperation

◾

Reorganize the government to deal with terrorist issues effectively

◾

So what is the government thinking, and how does it affect my supply chain?

The government believes the following:

Figure 1.5 The DOJ prosecutes compliance claims in Federal Courts.

The Events of 9/11 and How They Affect Global Supply Chains ◾ 9

The borders had to be better secured from persons and cargoes

lutely necessary, but would improve opportunities for success

The mind-set of the government followed these thoughts that ultimately led to

actions, laws, regulations, reorganization, and military action Just to name some

that had an effect on global supply chains:

USA Patriot Act

Automated Targeting System (ATS) and Automated Export System (AES)

◾

used to assess cargo

Student and Exchange Visitor System (SEVIS)

These acts, changes, and new directional headings can be summarized as follows:

The U.S government is going to be proactive in fighting terrorism at the

◾

source and not wait for it to hit our shores

Individuals and corporate America will be enlisted in providing various levels

◾

of cooperation in these new initiatives

Additionally, individuals and corporate America will trade off and

compro-◾

mise certain liberties, freedoms, and privileges in this effort

The government will enforce very strict guidelines on receiving prior

infor-◾

mation on inbound freight and people

This book examines in great detail all the new regulations, laws, and procedures

that affect supply chains and, more importantly, how one needs to manage the

import and export business with the least amount of disruption

The U.S government agencies that are peripherally involved in compliance and

security and their user-friendly Web sites are listed in Table 1.1

Table 1.1 Government Websites

California Intelligence and Terrorism Alert

Network

http://www.catitan.org/

Infragard: Guarding the Nation’s Infrastructure http://www.infragard.net/

International Association of Chiefs of Police http://www.theiacp.org/

Internet Fraud Complaint Center http://www.ifccfbi.gov/index.asp

National Center for Missing and Exploited

Children

http://www.missingkids.com/

National Executive Institute Associates, Major

Cities Chiefs’ Association & Major County

Sheriffs’ Association

http://www.neiassociates.org/

The Events of 9/11 and How They Affect Global Supply Chains ◾ 11

Regional Computer Forensic Laboratory,

National Program Office

http://www.rcfl.gov/

Texas Coastal Region Advisory System http://www.tcras.org/

The Risks of Global Trade: Now, Add

Compliance and Security

There has always been a certain amount of risk in buying and selling in foreign

markets Risks can be classified as follows:

Dealing with foreign cultures

The key to successful global trade has always been to mitigate these risks and

exposures One can rarely eliminate the risks; but one can make sure that everything

is being done proactively to ensure the opportunity for occurrence is significantly

diminished and, if these risks should occur, there has been a risk management

ini-tiative put in place to limit disruption to the supply chain

The risks and exposures in global trade are too vast and too opportunistic for

any one individual or company to secure a 100-percent effective loss control

pro-gram There are too many potential exposures and risks over which we can only

exercise “influence” and have little control

The most successful global enterprises have learned a three-step process in

eval-uating risks in their supply chains and then developing cost-effective initiatives to

manage them The three steps are covered in Chapter 4: risk assessment, setting up

personnel who are responsible and accountable, and then developing a risk

manage-ment action plan Personnel who are held accountable and responsible develop

the “skill sets” of global trade. They become experts, professionals in:

Evaluating risk and exposure

finance and insurance

Mastering technology solutions

◾

Choosing the right providers for banking, accounting, logistics, legal, consulting

◾

Although all these skill sets hold water in today’s global markets, the events

of 9/11 have created a new “skill set” necessary for achieving supply chain

excel-lence: compliance and security management, learning how the new regulations

specifically affect your import or export supply lines, and developing capabilities to

mitigate their effects and structuring initiatives to afford the best opportunities for

maintaining competitive advantage

So what we are saying is that all the old skill set requirements have been

main-tained and a new one has been added Either the company hires an experienced

individual to tackle these responsibilities or it trains existing personnel Either the

company creates this new skill as its own independent position or it places the

burden on an individual as another “hat” to wear It really depends upon the

vol-ume of global trade, the intricacies and complexities of the supply chain, and the

overall commitment of senior management to determine which is the best option

to exercise Either way a company goes, the real point here is to acknowledge that

compliance and security is a necessary “skill set” that the company must acquire if

it is to tackle post 9/11 issues seriously

The Events of 9/11 and How They Affect Global Supply Chains ◾ 13

The Security Concern in Our

Transportation Infrastructure

With all the concern about safety and security, it is time to ask just how safe

trans-portation and logistics truly are these days That’s exactly what consulting firm

Deloitte Services (www.deloitte.com) undertook when it hired the U.S Chamber of

Commerce’s Statistics and Research Center (www.uschamber.com) to survey more

than 100 senior executives employed by transportation providers The major

con-clusion was that the transportation industry recognizes the serious security threats

it faces, and is concerned that not enough is being done to counter those threats

Among those surveyed, maritime (84 percent) and air cargo (70 percent) are the

two sectors at highest risk, as reported by various industry experts Highest cargo

risk areas for the industry are perceived to be when goods are in transit (55 percent)

and during dock operations (44 percent) While ten different security measures

were cited as being important, not one of them was found to be used effectively

Background checks of employees was seen as most important (62 percent), but

was perceived as being effective by only 14 percent of survey respondents Physical

security measures are also thought to be important (57 percent), but only 9 percent

of respondents believe they are effective

Although air and maritime executives expect to give high priority to Homeland

Security issues during the next 12 months, just 60 percent of rail executives say they will

be doing the same Homeland Security will be a priority during the same time frame for

just 26 percent of truckload carriers and 25 percent of less-than-truckload companies

In seeking funding for new security measures, 55 percent of respondents expect

to take money from their profit and reserves, while 47 percent will increase rates

to meet requirements Of all respondents, 48 percent plan to use outside services

to implement their Homeland Security strategy The maritime sector will be the

heaviest user of these services (76 percent), followed by rail (50 percent) and air (50

percent) Physical security (49 percent) and training (47 percent) are the two areas

most expected to be outsourced

Figure 1.6

According to the survey, 41 percent are Customs-Trade Partnership Against

Terrorism (C-TPAT) certified, and an additional 18 percent have certification

action in process

One of the eye-catching things about the study was that respondents thought

they were doing a good job in compliance, but the industry as whole had a long way

to go Not all regulations are finalized right now, so the respondents did not want

to make a major financial investment until they can be sure they are investing in

the right thing at the right time

Industry experts predict a shift from federal mandates to shipper mandates in

the supply chain

Operation Safe Commerce (OSC)

Operation Safe Commerce (OSC) is a program to fund business initiatives designed

to enhance security for container cargo moving throughout the international

trans-portation system and was the predecessor to many of the new programs since 2002

in cargo security

OSC will provide a test-bed for new security techniques that have the potential

to increase the security of container shipments DOT and Customs will use the

pro-gram to identify existing vulnerabilities in the supply chain and develop improved

methods for ensuring the security of cargo entering and leaving the United States

Those security techniques that prove successful under the program will then be

recommended for implementation systemwide

Congress, through the 2002 Supplemental Appropriations Act, provided $28

million in funding for OSC to improve the security of container shipments through

pilot projects involving the United States’ three largest container ports of entry

In a Federal Register notice issued previously, DOT’s Transportation Security

Administration (TSA) solicited proposals from the ports of Los Angeles/Long

Beach, New York/New Jersey, and Seattle/Tacoma for projects that included

rep-resentation from all components of the supply chain, including major and minor

ports and their feeder locations, overseas customers and port partners, and the

shipping lines serving these locations The notice invited comments on the proposal

from interested parties no later than December 4, 2002

An Executive Steering Committee (ESC) co-chaired by DOT and Customs

will select projects for funding and provide oversight for the program The ESC also

includes representatives from TSA, the U.S Coast Guard, the Departments of State,

Justice, and Commerce, and the White House Office of Homeland Security

“Securing America’s ports is essential for protecting our homeland, which is

why I developed Operation Safe Commerce and pushed it through Congress,” said

Sen Patty Murray, Chair of the Senate Transportation Appropriations

Subcom-mittee “Container traffic is critical to the health of our economy, but we do not

know enough about what is in the more than six million containers that enter

The Events of 9/11 and How They Affect Global Supply Chains ◾ 15

our nation each year This initiative will ensure the security of the containers that

will pass through our ports and onto America’s highways and railways TSA and

Customs should be commended for taking this important step and I look forward

to continuing to work with them on this and other initiatives.”

OSC demonstrates the government’s resolve to make cargo traffic safe and has

provided direct funding for a variety of issues to study and provide specific

solu-tions to a complex transportation infrastructure on cargo moving to and from the

United States

Executives in global supply chain management need to pay attention to OSC,

as its efforts will set standards that carriers and principal shippers will need to

fol-low It will challenge the efficiencies of international logistics

Free and Secure Trade (FAST)

What Is the FAST program?

The Free and Secure Trade (FAST) program is a joint Canada–U.S initiative

involving the Canada Border Services Agency, Citizenship and Immigration

Can-ada, and the United States Bureau of Customs and Border Protection (CBP) FAST

supports moving pre-approved eligible goods across the border quickly and

verify-ing trade compliance away from the border It is a harmonized commercial process

offered to pre-approved importers, carriers, and registered drivers Shipments for

approved companies, transported by approved carriers using registered drivers, will

be cleared into either country with greater speed and certainty, and at a reduced

cost of compliance

In Canada, FAST builds on the Customs Self-Assessment (CSA) program and

its principles of pre-approval and self-assessment, as well as increased security

mea-sures under the Partners in Protection (PIP) program FAST includes aligning the

requirements of Canada’s PIP program and the U.S Customs-Trade Partnership

Against Terrorism (C-TPAT) program As part of these programs, companies will

have to adopt and implement security procedures to be compatible with guidelines

set by both customs agencies

What Are the Benefits of the FAST Program?

FAST, based on sound risk management techniques, focuses on greater speed and

certainty at the border and reduces the cost of compliance by:

Reducing the information requirements for customs clearance

Reducing the rate of border examinations

approved importers (Canada only)

Who Is Eligible to Apply?

There are three major participant groups who are eligible for FAST: importers,

carriers, and drivers FAST will be available to those who have a demonstrated

his-tory of compliance with all relevant legislation and regulations and have acceptable

books, records, and audit trails

Importers

◾

Importer Application Process for Importing into Canada

−Carriers

◾

Highway Carrier Application Process

−Drivers

◾

FAST Commercial Driver Information Guide

−FAST Commercial Driver Application Form

−Tips for Completing the FAST Commercial Driver Application

−FAST Commercial Driver Program — Participant’s Guide

−Information on Citizenship and Immigration Canada’s Criminal Reha-

−bilitation Program (FAST Applicants Only)

Where Is FAST Available?

Currently, Canada and the United States jointly offer expedited Customs

clear-ance processes to pre-authorized drivers, carriers, and importers at the following 12

major border crossings:

Stanstead (55), Quebec / Derby Line, Vermont

The Events of 9/11 and How They Affect Global Supply Chains ◾ 17

Coutts, Alberta / Sweetgrass, Montana

◾

Pacific Highway, British Columbia / Blaine, Washington

◾

In addition, plans were developed to have all major commercial crossings FAST

capable by the end of 2006 or the beginning of 2007 Companies with significant

trade activity with Canada would benefit in time and cost with access to the FAST

program This should be considered a serious option by all supply chain managers

Chapter 2

Compliance and Security

Import Supply Chains

This chapter reviews all the issues that the import manager will have to face

on their inbound supply chain and provides comprehensive considerations

for the purchasing manager who is sourcing from foreign manufacturers.

The more knowledge one has about the history and infrastructure of Customs, the

better one will be able to import successfully The United States Customs Service,

formerly under the direction of the Department of the Treasury since its creation

in 1789, was transferred to the Department of Homeland Security in March 2003

This was a significant amendment to process as a message was sent to the

inter-national trade community that Customs’ focus would be more concentrated on

enforcement of global security rather than a primary focus of protecting the

rev-enue of the United States through commercial operations actions of collection

Effectively in March 2003, Customs implemented a name change to the Bureau of

Customs and Border Protection, and its mission statement was updated to reflect

this new focus:

Vigilance is how we ensure the safety of all Americans We are continuously

watchful and alert to deter, detect, and prevent threats to our nation We

demonstrate courage and valor in the protection of our nation