Supply chain security investments: A Balancing Act

By Peter Hurme

Supply chain security solutions are abundant, even though funds are not. How to plan and choose? Customers, consultants and vendors weigh in.

How many different solutions do you need to secure your supply chain? From an overseas factory to your local warehouse, there are no less than 15 principal security nodes along a typical global supply chain, and there are far more than 15 different types of security solutions.

The principal challenges inherent in the post-9/11 world of supply chain security are well documented: terrorist threats, drugs, contraband, theft and stowaways.

The most effective methods, systems and technologies to battle these various threats are still somewhat subjective. Moreover, there are several moving parts within one piece of the supply chain, such as in the largest, most crucial point on a container’s logistical journey the cargo port.

Ford F150 or Cadillac?
“Imagine I have a lot of black boxes, and each box represents a technology investment. The problem is all of these black boxes are not integrated into one platform,” said Charles White, the director of port security at the Port of Jacksonville (JAXPORT).

“The fundamental issue facing our ports is if you look at where we’ve spent our dollars, the investments early on were basic building blocks: fences, lighting, barrier systems, gate access points. Then we got into sensors, alarms… unfortunately, the way we went about those investments, due in part to how federal security funds were being allocated, was not always conducive to the complete security package,” said White.

The U.S. Department of Homeland Security (DHS) announced the release of its ninth round of security funding in April, allocating $388.6 million towards the Port Security Grant Program. According to the DHS, from 2003 through 2009, more than $26.7 billion has been federally allocated towards terrorist defense and response, major disasters or other emergencies.

However, the economic climate is not as favorable to private investment in security solutions as it once was, even if the level of risk is no less credible.

“Historically, businesses have viewed security as an unnecessary expense. The pre-9/11 paradigm was ‘I won’t spend money until I’m told I have to,” said Ron Thomason, assistant vice president, security, for the consulting engineer firm TranSystems.
“Security is an odd business. If nothing happens, we’ve done our job; but then it becomes tougher to justify the expense in budgets,” he said.

George Cummings, the director of Homeland Security at the Port of Los Angeles agreed:
“In these economic times, it’s a perfect storm for us now. We have to show these line items.”
Balancing the validity of security threats with return on investment is key before investing a lot of money in new systems and technologies, according to Bill DeWitt, the director of security for SSA Marine, one of the largest terminal operators in the world.
“If you have an operation with a valid threat requirement and there is a return on investment for the operation, I’m all for it. You need a valid threat analysis, not just a vulnerability analysis. If you have a Ford F150 pickup, why buy a Cadillac?”

DeWitt said SSA Marine ceased applying for federal grants “that put the company into situations like buying boats for security purposes.”

“You had to match [federal funds] at 50 percent and when you look at the aggregate of that investment, we have a linear cargo chain, like a TV from Asia that goes to Chicago why should we bear all of that 50 percent cost?”

“AAPA (American Association of Port Authorities) has done a magnificent job of convincing [the Federal government] that terminal operators receive the cargo, so from Round 7B onward, we now only have to match 25 percent. But that money from Round 7B and 8 is still sitting. Now we’re at Round 9. How many CCTVs can you buy? We still need an ROI,” DeWitt said.
“You don’t want to be on the bleeding edge of technology,” said JAXPORT’s White.

Shippers can follow the box
One of those edges of technology is at the beginning of a container’s journey at the point of origin.

Keeping tabs on a container via electronic seals that utilize radio frequency identification (RFID) or GPS is an option for end-to-end inventory tracking and warning if there have been any anomalies along the way.

Again, it can all come down to cost and to what level of sophistication a customer is willing to spend on this type of technology.
One company that has been at the forefront of container tracking for several years is Savi Networks, a Lockheed Martin company.
“When our customers look at security, they’re looking at safety and security of cargo from a financial point of view, such as reducing shrinkage and loss,” said Steve Sewell, senior vice president for Savi.

“They ask: can we get value from this solution?”

Savi uses GPS with cellular technology as part of its SaviTrak package of solutions. As long as the container is in cell range, a sensor inside the door of the box communicates to a GPS mechanism outside, transmitting changes such as tampering, shock or humidity changes. It feeds that information directly to a Web-based network visible to the customer. Sewell said the GPS information can be connected via Web services to Customs or a customer’s own enterprise system.

This year, Savi Networks hit the 50,000-container-mark of commercial cargo shipments tagged with e-Seals moving through its global wireless network. Savi said that Western Digital, a SaviTrak customer in Asia, had 5,000 containers a month tagged out of Thailand. The customer was able to show per-trip costs had been reduced by $40 for point-to-point shipments from the company’s manufacturing facilities to Royal Thai Customs authorities in Bangkok because the automated security devices helped speed government clearances, or “green lane” treatment.

Plan accordingly
In the post-9/11 world, the approach to security investments has changed dramatically, according to TranSystems’ Thomason.
“It’s more about being proactive; identifying credible threats and vulnerabilities,” he said.

Thomason said TranSystems goes into a security planning project looking at the regulatory environment the customer operates in, such as whether the client is C-TPAT (Customs Trade Partnership Against Terrorism) certified, or where Customs and Border Patrol has to validate security and vulnerability assessments at any point along that supply chain.

“Then we look at what the client’s own requirements are, such as the type of cargoes handled; transportation modes what their costs are,” he said.

Inland ports are more akin to a seaport and might look at access control and accountability, such as CCTV cameras, Thomason said.
An inland distribution facility is more likely to look at credible threats like theft.

“Sometimes you can tweak existing procedures and equipment; even re-orienting illumination fence perimeter lighting,” said Thomason.

“With CCTV systems, is the use of it just to alert your guard force, or are you looking to use the imagery in any subsequent prosecutorial activity?” Thomason asked.

“You need to check with your local enforcement to see what, if any, law enforcement requirements might be accepted or not in court, such as the level of pixel strength,” he said.

Thomason said a client had posted cameras on top of light poles because that is where the hook-ups were, but the lights were mercury vapor lights, so they washed out the images.

“Lighting usually falls to the maintenance and engineering folks and in this case they were not educated on what the security requirements and limitations were.”

Don’t forget the human element
Proper training of the management and labor force connected to your cargo movement business can make a huge difference one that can even trump technological advances.

Michael McNicholas, managing director of Phoenix Management Services and the author of “Maritime Security,” published by Elsevier, has been involved extensively in a variety of security roles throughout his career on the governmental, military and private sector sides.
“Equipment should be looked at as a tool to a larger program. The human element is really important,” McNicholas said.

“You should have a systems component that, for instance, identifies certain types of cargo coming; where you can identify container anomalies.”

“Ports around the world are increasingly purchasing VACIS machines [for container screening]. They’re nice but you’d need a whole lot of these to get a good sampling. The different CSI ports (Container Security Initiative) installed this type of equipment. It’s somewhat effective, but you can still only inspect so many, unless it was a very small port without much trans-shipment; but for those ports it wouldn’t be cost-effective to implement this type of equipment,” he said.

McNicholas pointed to a hair-raising case study that showed the benefit of good staff training at SSA Marine’s Panama cargo facility, where a container arrived at the freight station destined for Turkey. The customer ordered the box to be trans-shipped to another box with a new bill of lading bound for Maryland on a different shipping line.

McNicholas said there was no way to see that the cargo originated in Columbia but it was found when one of the warehouse personnel who was doing the documentation thought this situation was out of the ordinary. At inspection, 50,000 pounds of compressed marijuana was found inside hermetically sealed cans. The container was one of four shipments, with another one going to Turkey and doing the same thing: sending it to Europe and then back the U.S., McNicholas said.

“You can wash documentation. Today it’s all computer-generated. When there used to be a hard paper trail, you could hook it together better,” he said.

McNicholas conceded that if the container had gone through an imaging machine, inconsistencies would have been caught immediately on a color screen and recognized as drug contraband.

Calculate risk investment with sustainability
Ultimately, it all gets down to the balancing act of moving cargo efficiently in an age of greatly heightened security risks, coupled with a new economic reality the private funds to invest in secure solutions are not as prevalent as they once were.

According to Chuck White at JAXPORT, “You have to think of the risk and consequences. You have to be critical in the analysis of the technology purchased to deal with that risk. Will it be sustainable? Ports have made investments without calculating sustainability.”

In This Issue

News, Trends & Analysis
New Items

Don’t Get Carried Away

Supply Chain
So, how much is this worth, anyway?

Compliance Corner:
Service Providers and Trade Compliance Freight Forwarders need apply!

Five things you should know about auto and logistics software

Distorted Web Sites

Supply Chain product review
Security Software Solutions

Features
Gateway at a Glance Gulf Coast

Supply Security Investments: A Balancing Act

Ports & infrastructure
Major retailer to Southern Cal ports: Requirements are many, costs are high

Port Product Review
Security Equipment

Commentary
Security Issues Impacting the Supply Chain

Who, What, Where, When

Final Say