WHAT CARGO SECURITY MEANS FOR TRADERS
(Published in the Journal of Commerce on January 21, 2002 )

While current newspaper headlines describe the fallout from the apparent failure of one large energy company, in the long run, a greater impact on all international traders is the heightened security concerns which have understandably arisen out of the events of Sept. 11.

While Customs and Treasury have been at the forefront of efforts to identify voluntary guidelines for cargo security (including their conveyances, and people where appropriate), just about every other U.S. government agency is also looking at the issue. Unfortunately, most are operating independently.

Most also have not mastered the benefits of reaching out to the private sector before rather than after decisions are made. As a result, there is a real possibility these unconnected actions could undermine the overall success of the government's efforts.

Many companies already have security programs in place. Larger companies often have such programs (which are sometimes quite expensive) to prevent theft of cargo and intellectual property. Other companies are signatories to cargo security agreements sponsored by Customs. Clearly, already existing and successful programs should be built upon and improved rather than ordered replaced by government edict.

The Office of Homeland Security has tasked the Dept. of Transportation to come up with proposals regarding cargo security. Little public attention has been drawn to the efforts of the Container Working Group (staffed jointly by Customs and the Federal Maritime Commission). There are also groups dealing with technology, business practices and cross-border (land transport) issues. The efforts of the Coast Guard have received more public attention because that agency made the effort to reach out to the vessel and port sectors of the maritime industry to come to a common understanding.

In addition, the Maritime Administration, the Federal Motor Carrier Safety Administration, the Federal Highway Administration and Transportation's Intermodal Office, to name a few, are also looking at cargo security. One of the newest players at the table is the Food and Drug Administration. It has already released a document on its Web site, "Food Security Preventive Measures Guidance." While not regulatory requirements, the guidelines nonetheless contain suggestions for those providing food to the retail level with ways to protect food from tampering, as well as criminal or terrorist activity.

Big Questions for Small Companies

The real question is whether those voices speaking in hushed tones behind closed doors who advocate mandatory provisions will win out. Whether or not they do is critical to international traders. For larger companies, the question is whether those mandatory provisions will result in programs which look anything like the measures they already have in place? It could also mean contradictory regulations from different agencies. For smaller companies, the question is how much will they have to spend to comply?

There has already been some discussion about whether ocean transportation intermediaries (forwarders and consolidators) should be subject to background checks when their licenses are granted by the Federal Maritime Commission. Similar questions are being raised about air freight forwarders/consolidators who are currently generally unregulated. Also under discussion is whether ocean and air carriers should be required to transmit manifest information earlier in time. One proposal would require air carriers to transmit manifest details at time of departure from the last foreign airport. Should a similar requirement be placed on ocean carriers?

Understandably, for risk assessment purposes, the more that is known about a shipment prior to arrival, the easier it is for Customs to decide whether or not to examine it. Therefore, the ideal elements are the exact name and address of the shipper and consignee, a complete and accurate description of all the goods in the shipment, along with the number of packages, weight and value. For financing reasons, companies use letters of credit which often require that the bill of lading be consigned "Order of Shipper" or the air waybill be consigned to a bank. In either case, the resulting manifest would not indicate the name and address of the actual consignee. Similarly, so long as ocean carriers are required to charge in accord with their tariffs, they will employ a catchall freight description called "FAK," for Freight All Kinds. Again, because shipment specifics (product descriptions) are missing, Customs could view such shipments as presenting a higher risk. Since neither order transactions nor FAK shipments are likely to be eliminated in the near future, traders are left with the possibility of having their shipments examined by Customs simply because they use standard trading terms.

Similarly, if the carrier or transport company is not a signatory to a carrier initiative, Customs may elect to examine the shipment. The air and vessel operators are generally signatories to Super Carrier Initiatives which are, in their simplest terms, contracts entered into with U.S. Customs which obligate the carrier to undertake basic security measures to avoid the presence of drugs in their conveyances. The concern here is with consolidators because they do not have such agreements and most probably could not enter into them anyway for practical reasons. Attention to security is focused on the use of commercial shipments for ill-intentioned purposes. While there has yet to be a commercial shipment hijacked, recently we have obviously seen several successful airplane hijackings. As such, the concern must be addressed.

Since often consolidators do not own the foreign office with which they do business, how could consolidators protect themselves and their customers' goods? They often do not have the buying clout to force specific business practices on their overseas agents. Therefore, what is to stop such an overseas consolidator from illegal actions or from being duped into shipping compromised goods? There is likely very little which can be done unless and until there are international agreements reached addressing cargo security issues. Until that happens, there remains the immediate need to protect U.S. shores. However, in the long run, inspection of cargo must be moved to the port of exportation for the simple reason that if the primary place of inspection continues to be the port of unloading, the compromised goods have already reached American soil. Obviously, few other countries want compromised goods on their soil either. Therefore, it is in everyone's interest to have inspections occur at time of loading.

International Agreement Needed

Against this backdrop then, we need international agreement as to standards for the technology to be used to inspect cargo plus standards for inspections by human beings. We also need international agreement as to the characteristics, training and qualifications of the people who will operate the technology and conduct the inspections regardless of where they take place.

No one is suggesting the Customs service of a given country will no longer conduct inspections in country, those continue to be needed for commercial compliance reasons. However, given what transpired on Sept. 11, it seems clear that how we trade goods throughout the world is in for some major changes. It is, therefore, vital for all traders to follow this issue. How you buy and sell your goods may be seriously impacted.

International traders should be looking at ways right now in which to make sure their goods are as secure as possible whether they are small or large companies. Here is a short list of suggestions:

1) If and when you visit a supplier, check the condition of the factory. Do not simply be satisfied that the price is acceptable. Does the factory appear able to produce the goods you are ordering? Is it properly staffed with personnel of appropriate age? Do the employees appear to be healthy and properly nourished?

2) Do the commercial documents you receive accurately and completely match the order you placed? Does this happen on a regular basis?

3) Are the goods you receive properly made and packaged? Do they comply with applicable marking, safety and other requirements?

4) Is your transportation company automated? How does it seal cargo? What is its claims record? How does your trucker keep track of your shipment and its trucks?

In the end, the key is to know your seller (or buyer for export goods). Anyone have any other simple and inexpensive suggestions?