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Fighting Terrorism with Global Trade Management

Written By: Predrag Jakovljevic
Published On: June 15 2005

The Tradeoff of Improved Global Trade versus Security

Prior to 9/11, ensuring shipment security mainly meant preventing theft and pilferage. Needless to say that post 9/11, security concerns have shifted to clearing receiving parties, identifying who gets in touch with the shipment during its journey, and meeting new and evolving government requirements related to previous notification and documentation. Future security measures may include the identification of consignees and other parties that are notified when the shipment arrives in the US, and even the genealogy of component parts, documenting the origin and travels of each component in a final product.

Part Two of the Will 2005 Validate the Realm of GTM—Unifying Financial and Physical Supply Chains? series

The US federal government has completed its legislative agenda receiving Congressional approval for a series of laws, including the Maritime Transportation Security Act and the creation of the Department of Homeland Security (DHS) that has realigned 22 former federal agencies and 170,000 federal employees. A result of the legislation is the need for shippers, carriers, and ports to introduce technology to better coordinate global trade processes. New transportation and trade security legislation has instituted far stricter compliance and asset tracking requirements, making technology vital to meeting the demands of these regulations.

For shippers before 9/11, process was all about getting as much work done as possible prior to reaching the border. Manually keying manifest information, for example, can take a few days, and in the past this would mean that US Customs would receive cargo data only after the ship had sailed. Now most work needs to be completed before the ship even sails. For example, the new 24-hour Automated Manifest Rule from December 2002 requires ocean carriers to provide the Department of Homeland Security's Bureau of Customs and Border Protection (CBP) with a cargo manifest, twenty-four hours before a ship sails from its original port for a US port. As a result of this new rule, there are significant ramifications on a shippers' contract management and streamlined collaboration with customers and delivery scheduling. Overall, the magnitude of work is great given that approximately 11 million sea containers enter the US waters annually.

Container Cargo Security

Another security measure is that all cargo must have a seal ID number that verifies that the shipment has not been altered since originally packed at the warehouse, and documentation listing the names and addresses of the shipper and consignee must also be available. To further avoid potential delays, shippers also need include in their documentation that they are compliant with the Customs-Trade Partnership Against Terrorism (C-TPAT) requirement, whereby, for compliance, a shipper has to have a document on file showing that the ports used meet US standards for security of facilities and personnel.

This is Part Two of a six-part note.

Part One defined GTM.

Part Three will discuss managing global trade flows.

Part Four will note the GTM leaders.

Part Five will cover dealing with GTM complexity.

Part Six will present challenges and make user recommendations.

In addition to the 24-hour Automated Manifest Rule, the Department of Transportation, and US Customs have launched Operation Safe Commerce, which is intended to enhance security for international container cargo, and which will make global logistics systems even more dependent on timely, accurate data collection regarding shipment contents and movement. Since manual data entry is time-consuming and prone to errors, global logistics systems operate much better when supported by data collection based on automatic identification technologies, such as bar code labels and radio frequency identification (RFID) tags, which can be scanned at strategic locations between point of origin and destination. RFID is one of the emerging technologies that will drive increased supply chain visibility, control, and compliance. Additionally, suppliers such as Albertsons, Target, Wal-Mart, and the US Department of Defense (DOD) are pushing the RFID mandate on their suppliers, proving that RFID will have a significant impact on future supply chain operations (see RFID—A New Technology Set to Explode?) and will play a notable role in streamlining trade in the global trade management (GTM) realm.

Thus, no matter which import/export or package a shipper buys or uses, GTM should, in principle, save thousands of hours work while dramatically cutting costs. For example, export control laws require shippers to screen buyers against denied-parties lists. There are more than thirty of these constantly changing lists, which name entities with ties to terrorists, criminal groups, and unfriendly (unsavory) governments. Some exporters review tens of thousands of orders annually, thus it is difficult, if not impossible to conduct adequate checks manually. Conversely, software that is updated daily, by knowledgeable professionals, can do the job in a few seconds, and mitigate the major risk of selling to, or buying from, any of a number of prohibited individuals or organizations known as "denied parties". There are almost 12,000 of these named on lists maintained by the US state, treasury, and commerce departments, and a few thousand of which are deemed to be terrorists, or fronts for terrorist organizations. Others appear on the list for different reasons, such as unsavory states government, or because of their contribution to the proliferation of prohibited narcotics, chemical or biological weapons, and missile or nuclear technology.

In theory, enterprises have to screen everybody that is party to any transaction, including suppliers, forwarders, customers, and so on. For example, Section 326 of the USA Patriot Act was implemented to address terrorism and money laundering, enhance reporting on suspicious customer activity, and verify customer identity in an effort to curtail global money laundering and terrorist financing. It requires financial institutions, such as banks, insurance companies, credit card companies, money services businesses, mutual funds brokers or dealers, and casinos to establish minimal procedures to verify the identity of new customers when they open accounts. This section also requires cross-checking account holder and requester names against government lists of known or suspected terrorist organizations.

Banks must also have compliance programs in place to ensure that, under the rules issued by US Office of Foreign Assets Control (OFAC), their corporate customers are in no way dealing with a blacklisted party. On the other hand, any manufacturing plant that is suspected of breaching one or more trade compliance regulations, might even be temporarily shut down and its property impounded by agencies like the US CBP service, Export Enforcement (EE), or the Immigration and Customs Enforcement (ICE) service, to name a few. Even inadvertently dealing with denied parties that have shell, front-office operations in non-embargoed countries is alarmingly easy, thus the need for timely and accurate information becomes even more pertinent.

Security Initiatives Boost GTM Software

Given all of the compliance and regulatory issues that exporters, importers, shippers, financial institutions, etc. must adhere to, time and cost savings are not the only reason why there is an increased interest in the GTM software these days. With increasing security concerns and demands for supply chain visibility, companies are looking for more functionality from their existing enterprise software packages and providers, while spending cautiously on new technology. Because of post 9/11 security issues, many of GTM products include modules for checking orders against denied-parties lists, tracking suppliers' and end users' activities, and checking compliance with export control regulations, while some shippers leverage the software to create electronic advance shipment notices (ASN) required by US CBP and to comply with C-TPAT.

The challenge for government and industry is to secure trade without impeding growth and the best way to do this is through the electronic transmission of data. Thus, many new laws and initiatives have been created that require a shift away from traditional paper-based trade systems to new electronic formats. Emphasis is placed on collecting information on trades earlier in the supply chain, effectively "pushing back the borders", while securing them. These initiatives are summarized in Table 1.

Table 1: Global Trade Security Summary

Initiative Description
Container Security Initiative (CSI) A government initiative for stationing US Customs employees and equipment in major foreign ports for pre-screening of containerized freight prior to sailing to US destinations.
24-hour Automated Manifest Rule A mandatory requirement that all shipping manifests must be filed with US twenty-four hours prior to departure from the foreign port of origin for containerized ocean freight
Free and Secure Trade (FAST) A security certification for all truck traffic entering the US from Canada. Carriers with FAST certification will be granted expedited border clearance
Customs-Trade Partnership Against Terrorism (C-TPAT) A voluntary certification program for US importers whereby they can obtain expedited customs clearance by documenting and submitting a self-audit of international supply chain partners, physical security procedures and escalation procedures to US Customs.
Sarbanes-Oxley US congress requires corporations to provide ongoing reports and visibility into the flow of information and funds pertaining to financial processes.
Bioterrorism Act 2002 Initiated under the Food and Drug Administration (FDA), this policy is under review and discussion and may require importers of food products into the US to disclose product level detail. It requires registration of foreign and domestic "food facilities"; record retention to be made to FDA within four hours; and prior notice of food import shipments before allowed entry to the US
Patriot Act of 2002 This Act, signed into law by the US president, requires that financial institutions know their customers and, to the greatest extent possible, their customers' customers.

(Source: TradeBeam)

One should notice a multitude of complex interactions between the global trade flows within a secure supply chain. Namely, across few dozens of required pertinent processes, global trade requires managing the flow of goods, funds and information. That is to say, the flow of information must support the tracking and management of the goods to enable the secure and compliant entry and exit to and from countries for the correct funds to flow to eligible business and trading partners.

This concludes Part Two of a six-part note.

Part One defined GTM.

Part Three will discuss managing global trade flows.

Part Four will note the GTM leaders.

Part Five will cover dealing with GTM complexity.

Part Six will present challenges and make user recommendations.

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