Two years after Sept. 11, a confusing array of legislation and regulation has been implemented by various government agencies to address cargo security. While the results have been largely positive, many issues still need to be sorted out.

The United States maritime transportation system includes more than 300 ports with more than 3,700 cargo and passenger terminals, according to Congressional statistics. The top 25 ports nationwide account for 98 percent of the more than 6 million container shipments entering U.S. ports each year. Since Sept. 11, it has become apparent that the vast maritime transportation system is particularly susceptible to terrorist attempts to smuggle personnel, weapons of mass destruction and other dangerous materials into the U.S. In addition to causing widespread damage, a large-scale terrorist attack on a U.S. seaport could seriously affect the U.S. economy.

In the past two years, a number of government and regulatory agencies have taken on the huge task of addressing the maritime security issue.

With the establishment of the Department of Homeland Security (DHS) in March 2003, several formerly independent agencies, including U.S. Customs, the U.S. Coast Guard and Border Protection and the Transportation Security Administration, among others, were placed under DHS control. This has led to a confusing array of rules and regulations regarding cargo security that both international and domestic transportation companies and shippers are struggling to get their arms around.

To illustrate the point, notes a press release from the Inland Marine Underwriters Association, "On July 23, 2003, U.S. Customs issued proposed rules for advanced data reporting requirements for cargo. Customs also established the Customs-Trade Partnership Against Terrorism (C-TPAT) initiative in November 2001 to help speed cargo delivery. Almost concurrent with the July Customs release, U.S. Secretary of Homeland Security Tom Ridge signed an order giving TSA overall responsibility for cargo security. In addition, Congress has passed various laws, including the Aviation Security Act of 2001, the Maritime Security Act of 2002 and the Trade Act of 2002, as well as several other well-meaning proposals that are working their way through enactment.

"As international and domestic transportation companies and shippers try to expedite movement of goods and merchandise through the supply chain, they are becoming enmeshed in a web of potentially conflicting rules, regulations and processes," notes the IMUA release. "The 22 or so agencies now under DHS are competing for a slice of the $450 billion budget that private industry opines if far too little."

While many of these agencies are making significant headway, "The opportunity should not be lost to extend and enhance the work (of U.S. regulatory agencies) and put together a global package that is workable, practical and facilitative in terms of commerce with achieves the security objective, while not hindering the freedom to trade," says Kay Pysden, head of the Marine & Goods in Transit Department at Davies Lavery Solicitors in London. "If the global transportation chain is not regulated in a uniform manner, there will be many practical problems which will affect the everyday activity of international commerce," she stresses.

Cost Factors

"The big question is, who is going to pay for all of these initiatives," says Ron Thornton, president of the IMUA. "While most of these initiatives are well-meaning, it's important to identify who is responsible for what, and who's going to pay for their implementation."

Jim Craig, president of the American Institute of Marine Underwriters, notes that shippers are working hard to get these mandates implemented and ports are willing to implement all of the recommended security measures, but they need to know how it's going to be funded. "While all of these initiatives are a step in the right direction, the possible fly in the ointment could be the actual funding of the proposed safety and security initiatives."

"The ultimate goal," says Peter Scrobe, vice chairman of the National Cargo Security Council, "is to protect our supply chain and economy without impeding the progress of getting goods from source to destination. It's easy to come up with programs to address these issues, but the funding has to be in place in order for these initiatives to be successful."

Concern about the implementation of these new rules and regulations is not limited to the United States. The Container Security Initiative, a DHS program incorporating teamwork between U.S. and foreign port authorities to identify, target and search high-risk cargo in 20 major ports, in addition to areas of the Middle East, Turkey and Malaysia, places U.S. Customs official in foreign ports to examine cargo before it is shipped to the United States.

According to Pysden of Davies-Lavery Solicitors, there has not yet been an agreement between the United States and the European Community regarding the implementation of the CSI in E.U. ports, although some European ports have already entered into individual bilateral agreements with the U.S., preempting the official E.U. position.

"Unfortunately, there is no guarantee that all ports and port facilities will be physically able to comply with the requirements under the CSI," says Pysden. "There is concern among many countries that are not a part of the European Community as to the costs this initiative involves, in terms of implementation, and the fact that there is no guarantee that the use of technology, such as scanners, would provide the required level of security.

"The essential question is, will the U.S. government, as well as the E.U., embrace other proposals by other countries that are likely to be less expensive but just as effective, which will improve security in such a way that commerce will not be adversely affected," she asks.

Moving Forward

Despite these concerns, port authorities, shippers and companies affected by these regulations are moving forward in implementing these initiatives.

"We all have a common interest in protecting the supply chain, making sure goods get from point A to point B and managing the risk of exposure," says Mark Sanna, director of corporate security at Altria Group Inc., parent company of Kraft Foods, Philip Morris International and Philip Morris USA, based in New York. "While the multiple touch-points of the various regulations have been difficult to sort out and the regulations have yet to be synthesized, most of the new initiatives have not been onerous to adopt and have not had an adverse impact on business," he says.

"Fortunately, we were already focusing on much of what's being done by the government today prior to Sept. 11, as part of our quality assurance programs. Due to the nature of our business, security has always been wrapped into the quality assurance program, as part of customer service, speed of delivery objectives, corporate safety, etc.," Sanna continues. "These new regulations provide an opportunity on the enforcement side to appreciate how security is part of routine business operations for many companies. We welcome the opportunity to be publicly engaged in government efforts to improve port and supply chain security, and create new processes and procedures to achieve those objectives."

One of the public-private initiatives having the biggest impact on supply chain security is Custom's C-TPAT program. Implemented in November 2001 to offer businesses an opportunity to play an active role in the war against terrorism, there are now more than 4,000 companies participating in the program, says Barry Wilkins, director of global transportation and supply chain security at Pinkerton Consulting & Investigations in Seattle and co-chair of the Homeland Security Advisory Committee of the National Cargo Security Council.

Businesses that apply to participate in C-TPAT are required to implement security policies and procedures, conduct periodic self-assessments and communicate C-TPAT guidelines to other companies in their supply chain, in exchange for their goods being "fast tracked" through the border. Customs provides participating companies with a reduced number of inspections, assigned account managers, reduced wait times, and a chance to self-monitor their shipments.

"The program has been opened to all companies and their trade partners, including shippers, ocean carriers and freight forwarders, all of which are working to improve their own security policies, practices and procedures," says Wilkins.

In addition, Customs is working with the TSA, a division of the U.S. Department of Transportation, to implement Operation Safe Commerce, a federally funded pilot program designed to test new security techniques to protect container shipments from point of origin to point of destination. The initial demonstration projects are being tested in the Ports of Seattle and Tacoma, Wash.; Los Angeles and Long Beach, Calif.; and New York/New Jersey, the nation's top three major load centers. Each group will work with private and public entities to identify supply chain vulnerabilities and develop improved methods and technologies to ensure container cargo security.

Pinkerton is assisting the Pacific Northwest Load Center of Seattle/Tacoma in identifying areas of vulnerability and producing a report that identifies the best policies, practices, procedures and technology that can form the basis of national and international policy for implementing an effective supply chain security architecture.

"Our vision is to create a world standard of supply chain security in practices, policies and technology that can help fight the war against terrorism, have these standards adopted across the United States, then take them on to some international organization like the IMO (International Maritime Organization), the World Customs Organization or another world governing body to implement these best practices," says Wilkins.

Future Considerations

"The work the states have done thus far is good, but it still needs to be improved upon," says Pysden of Davies-Lavery Solicitors. "There is still much work to be done in order to make these regulations more uniform on a worldwide basis," she stresses. For example, the E.U. does not currently support the 24-Hour Rule enforced by the U.S. Customs and Border Protection agency, a division of the DHS. Effective December 2002, the 24-Hour Rule requires an advance cargo declaration from sea carriers designed to identify and eliminate potential terrorist threats before a vessel sails from a foreign port into the United States.

The rule requires carriers to provide Customs with a manifest containing information that includes the name and address of the U.S. importer or consignee, in addition to the name and address of the shipper and specific details of the consignment.

"There is much concern over the publication of this information," says Pysden, "which includes the fear of the ability of third-parties to access this information or give out patterns of information that could be used by terrorists to plan their attacks. In addition," she notes, "the rule has raised issues of an anti-competitive nature, which could allow certain companies to gain commercial advantage, and there are also questions about data protection."

An amendment to the 24-Hour Rule was proposed in July that would extend these principals to any mode of commercial transportation, including sea, air, rail or truck. Under the proposed rule, there is an acknowledgement of the fact that one notice should be sufficient for all other federal departments' security requirements, which is encouraging, as previous rules have suggested possible multiple multiplicity in this regard, according to Davies-Lavery.

"It is our opinion that one document should have all the necessary information to guarantee the security of the goods throughout the transportation process," says Pysden. "The only solution is not the creation of an extensive legislative corpus, but legislation that is simple, practical and uniform, that will accommodate the needs of all nations and parties involved in international commerce."

By Mindy W. Toran, Risk & Insurance