Are higher costs and supply chain disruptions an inevitable result?

The gap between bipartisan teams in Congress and the Bush administration over port security widened in late October, coinciding with the first-ever homeland security appropriations bill signed by the president earlier in the month.

Sen. Susan Collins, R-Maine, chairman of the Governmental Affairs Committee, and Sen. Joseph Lieberman, D-Conn., the committee’s ranking member, expressed concern about perceived weaknesses in the Department of Homeland Security’s port security measures, particularly those that target high-risk cargo containers before they reach U.S. waters.

A five-page October 28 letter to Asa Hutchinson, undersecretary for border and transportation security, poses several questions and requests a response by November 28. In March Hutchinson testified before the committee about container security issues.

“Just one small lapse in security at our ports or at other points of entry can have disastrous consequences for our nation,” Collins said in announcing the letter. “While we have taken steps to protect our ports, it is clear that they are still ‘ripe for exploitation,’ as one security expert put it.”

The move by the two senators follows similar action by two colleagues in May. At that time, Sen. Fritz Hollings, D-S.C., and Sen. John McCain, R-Ariz., requested that the General Accounting Office investigate what they believe is the administration’s failure to address port security mandates set forth by the Maritime Transportation Security Act. That investigation is ongoing, according to Hollings’ office.

The Bureau of Customs and Border Protection (CBP) maintains that it has a multi-layered process to target high-risk shipments while providing a “fast lane” for legitimate cargo. The bureau stresses that it screens manifests and other data for all 5.7 million cargo containers arriving in the United States each year.

But congressional critics of the current system want more stringent measures that, if implemented, would far outpace funding granted by the fiscal year 2004 budget for Homeland Security. The monetary and legal disputes over a long-term approach to security will almost certainly carry over to future budget battles on Capitol Hill.

Meanwhile, industry officials continue to fear that tighter restrictions and increased red tape—without corresponding increases in government inspectors and high-tech tools—could lead to greater shipping delays. What’s more, government indecision on the exact nature of port security prevents long-term planning and investment by companies affected by the corresponding regulations, say trade experts.

Importers and shippers may, at best, have to make educated guesses to stay competitive, then be agile enough to adapt once comprehensive and cohesive port security measures are in place. When that could happen is debatable, given the political environment, making involvement in the ongoing legislative process vitally important.

What Container Data is Reliable?

Collins and Lieberman identify three specific weaknesses in port security that could undermine the effectiveness of the Container Security Initiative and Operation Safe Commerce. “It is critical that these and other programs be fortified, improved, and adequately funded to address the areas of vulnerability in our ports,” the letter to Hutchinson said.

The CBP’s Automated Targeting System (ATS) still relies solely on information from cargo manifests, provided according to the 24-Hour Rule, to weed out high-risk shipments for inspection. The senators call such manifests “historically highly unreliable documents” and cite expert opinion that the 14 data points required by the 24-Hour Rule are insufficient for identifying shipment anomalies.

Collins and Lieberman refer to expert testimony that recommends the additional use of purchase order data collected at the very beginning of a transaction, long before goods are loaded overseas. CBP already collects purchase order data for selected shipment audits. “If the information is already available to CBP when necessary, why should that data not be included earlier in the process to ensure a more accurate profile by ATS?” the letter asks.

The FY 2004 budget provides $62 million for the Container Security Initiative, which deploys inspector teams to 20 major foreign ports and several other strategic ports. In their letter to Hutchinson, Collins and Lieberman do not ask for, or provide, estimated government costs arising from the additional use of purchase order data.

For companies involved, however, the trend toward more detailed data requirements and increased flow of information to government entities looks like the way of the future—and a new cost of doing business.

Dealing with Multiple Shipping Points

The two senators also allege that CBP lacks a comprehensive program to track containers through multiple shipment points prior to the point of loading. Manifest data may not provide accurate information for such containers, they say, leading some experts to contend that terrorists could effectively import a container carrying hazardous cargo by moving it through numerous ports and modes of transportation.

The letter to Hutchinson highlights the European program Contraffic, which it says tracks all ports of call for both containers and ships, and suggests the expansion of programs like Operation Safe Commerce (OSC), which helps the nation’s three largest load centers track containers throughout the entire global shipping system.

The FY 2004 budget allocates $17 million to OSC, an initiative championed by Sen. Patty Murray, D-Wash., a member of the Senate’s Homeland Security Appropriations Subcommittee. Murray had pushed for $30 million, an amount that passed in the Senate version of the appropriations bill in July. The president and the House bill had set the figure much lower at $2.5 million.

The ports of Seattle and Tacoma in Murray’s state received nearly half of the initial $58 million in OSC funding, while the 2004 budget leaves limited room for OSC expansion to additional ports, as Collins and Lieberman suggest.

Industry Trust Creating a Danger?

Finally, the two senators charge that CBP does not have a credible process in place, such as random inspections, to ensure that “low risk” containers destined for the United States are actually low risk. Such a process would provide a valuable benchmark for assessing the effectiveness of the ATS system, they say.

In fact, trust shown toward long-time importers and members of the voluntary Customs-Trade Partnership Against Terrorism (C-TPAT) could create security lapses that potential terrorists could exploit, the senators imply. They say C-TPAT may only be as good as its ability to audit the more than 4,000 volunteer companies once they have been validated by Customs, to be sure companies continue to make the kinds of investments needed to sustain high security.

The recent budget includes $14 million for C-TPAT, down from the $18 million requested by the president. The administration says the funds will allow it to double the number of partnerships with industry, as well as add more than 150 supply chain security experts to provide training and technical assistance to partners.

There is no word on either side about the estimated cost of ongoing audits of C-TPAT members, or the cost to companies who must pay to maintain compliance in the wake of future program changes. Indeed, trade observers point out that programs like C-TPAT could become a convenient way of shifting more port security costs away from the federal government and into private industry.

Money for the Front Lines

While the total Homeland Security FY 2004 budget of $37.4 billion represents an increase of more than 10 percent over FY 2003, there remains little consensus over what is most important to port security.

For example, the budget provides $64 million toward technology for non-intrusive inspection of cargo—a significant reduction from the $119 million requested by the president. New inspection technologies are often cited as the chief method of reducing border wait times amid tightening security standards. If the number of direct inspections outpaces technology’s ability to streamline the flow of goods, delays at port could follow.

The budget also allocates $125 million for port security grants, although the original Senate bill had requested $150 million, compared to $100 million in the House bill and no such money requested by the president, according to Sen. Patty Murray. Ports use such grants to fund security planning and improve dockside and perimeter security.

The Coast Guard has estimated that private port facilities would require more than $1 billion in 2003 to meet the baseline measures in new federal port security laws, and more than $7 billion over the next 10 years, according to Sen. Fritz Hollings. Congress has appropriated less than $500 million in grants to date, he said.

The implication from some members of government is that private industry should bear the lion’s share of those costs for facility upgrades. That would translate to even higher shipping costs and consumer costs in the not-too-distant future.

“The small amount of port security-specific funding distributed thus far is still no substitute for the substantial, long-term [federal] funding commitment that will be required to secure our ports nationwide,” Hollings said in a September statement.

The ports of Seattle and Tacoma in Murray’s state recently received $4.1 million in grants allocated in the supplemental FY 2003 budget, and the port of Charleston in Hollings’ state received $864, 807.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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