Homeland Security vs. Global Supply Chains

Global supply chains may be on a collision course with homeland security. Sweeping changes are taking place as the U.S. Customs Service shifts from interdicting smugglers to preventing terrorism.

Global supply chains may be on a collision course with homeland security. Sweeping changes are taking place as the U.S. Customs Service shifts from interdicting smugglers to preventing terrorism. Customs is a mandatory way station for all international shipments. Facing new inspections, “paperwork,” and potential delays are foreign-produced, auto parts and import/export vehicles. However, information technology may help a traditional bottleneck from becoming a major chokepoint. The flow of goods entering the United States is immense. As an example 11 million containers enter by land and another 5.7 million by sea annually. Customs never has and never will inspect every shipment. Instead, Customs agents want to know and focus only on high-risk cargo.

Captain Salloum, CEO of Carriersnet, says this is extremely difficult to determine with the information Customs is now given on a shipment. Important information is often unavailable to them today, as in the following three instances. Cargo may have already been consolidated from multiple shippers before arriving at the United States unbeknownst to Customs. Alternatively, the shipment may have originated from an unfriendly country; it moves in-transit from a friendly port to the U.S without its origin disclosed. Or, up to 30 different companies may participate in a single shipment, notes Peter Schwartz, CEO of Descartes Systems. These include freight forwarders, customs brokers, and so forth. Ideally, Customs would like to know the complete history of the shipment and security ratings for all the firms that touched the shipment. Manufacturers, on the other hand, want unfettered, invisible borders. With goods flowing uninterruptedly, a manufacturer can then base sourcing and networking decisions on economic factors not governmental “interference.”

Lean/Just-in-time (JIT) practices strive for continuous material flow with minimal inventory. Ideally this assumes continuous flow through border crossings too. Customs, likewise, wants low-risk shipments to pass without manual inspection. Robert Perez of the U.S. Customs Service said their goal is for 80 percent of the shipments to be “fast laned” through Customs. The only way Customs can allow this is to know what cargo will be coming to the port of entry before hand. It must be reasonably convinced the cargo is what it says it is. Lastly it wants documented proof that it has been properly secured in all facilities from the point of origin.

Some Customs needs, unfortunately, conflict with JIT practices. For instance, manufacturers may not know the timing and specific content of a shipment until a couple hours before it leaves the dock. For instance, this could be a parts plant in Windsor, Ontario, shipping to an assembly plant in Detroit that is only minutes driving time away. Customs, meanwhile, wants the manifest sent electronically 24 hours before the truck hits the border–far before the parts plant even knows what it will be asked to ship by its customer.

To resolve many of these competing interests, U.S. Customs is launching C/TPAT, the Customs/Trade Partnership Against Terrorism. It hopes that by collaborating with industry, Customs will be able to complete its mission and not simultaneously harm international commerce. DaimlerChrysler and other auto industry firms are participating. Still to be decided is who will pay for the information systems necessary to support the new data exchanges. Hopefully it will not impose a costly “security tax” on all international shipments.

Some information-technology vendors may serve as clearinghouses for these new security compliance requirements. They include the startup Carriersnet, Vastera, and Descartes Systems Group.

The formation of C/TPAT is a move in the right direction. Only by both parties understanding the needs of each other will Customs and the auto industry find mutually satisfactory solutions. The alternative would be extraordinarily costly—namely a shift to domestic sourcing and sales. Expect at least in some cases for a manufacturer to shift to “dual-sourcing.” In this case it will insist that a foreign supplier have a domestic “backup” plant as well as the foreign plant. Regardless of specific solutions, industry must plan and prepare for a different world. Security concerns are now a major factor in all global supply chains.