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November 03, 2010

Terrorism and the Supply Chain

The latest terrorist scare that involved packages found onboard cargo aircraft is a good reminder that evil people are still trying to disrupt our lives and the world's economy. Fortunately, no one was killed and no damage was done during these attempts. Things could have been different, however. "The two package bombs discovered on cargo flights last week contained far more explosive material than the device that the alleged would-be underwear bomber planned to use last Christmas to down a Detroit-bound jetliner, according to German security officials." ["Cargo planes carried bombs far deadlier than Christmas Day attempt, Germany says," by Peter Finn and Greg Miller, Washington Post, 2 November 2010]. Finn and Miller continue:

"The officials said the bombs were so expertly built that the wiring was difficult to detect even when seen in an X-ray image. The German officials, who briefed reporters in Berlin, said the bomb found on a UPS plane in England, which also passed through the Cologne-Bonn airport, contained 15.11 ounces, or 400 grams, of the explosive PETN. The second device, found at a FedEx facility in Dubai, contained 10.58 ounces of the material, a powerful plastic explosive. ... U.S. officials disclosed Monday that authorities had tracked earlier suspicious packages from al-Qaeda's Yemen-based affiliate in September, attempts now seen as potential test runs for the foiled bombing attempt a month later. A U.S. official said that three September shipments were also sent to an address or addresses in Chicago and contained books and religious literature, but no explosives. The official, who was not authorized to speak publicly on the subject, said that the packages were intercepted because of intelligence indicating that they had been sent by a person affiliated with AQAP [al-Qaeda in the Arabian Peninsula]. One or more of the packages was allowed to continue to Chicago, but the U.S. official said that the concerns raised by that episode - first reported by ABC News - help to explain why the U.S. reaction was so swift to the Saudi intelligence tip last week. The shipments of earlier packages might have enabled AQAP to monitor their delivery using tracking services commonly available on shippers' Web sites, information that might have been used in connections with timers or other devices to maximize the damage caused by bombs. Both of the bombs discovered last week were encased in ink cartridges. One German official described the design as "highly professional," saying that some of the wires were so well disguised they looked like cables for a printer. Other wires were so thin they couldn't be seen on an X-ray, the official said, echoing other analyses in recent days that the bombs could beat X-ray machines and bomb-sniffing dogs."

As Barry Meier and Eric Lipton remind us, the multibillion-dollar air cargo industry "is an essential lubricant of the global economy, ... which every day carries millions of express packages of every shape and size around the world, parcels that can include things as diverse as an electronic component and a human body part." ["In Air Cargo Business, It’s Speed vs. Screening, Creating a Weak Link in Security," New York Times, 2 November 2010]. For companies that rely on air cargo as a critical part of their supply chain, the latest events could have an impact in the future. Meier and Lipton explain:

"The Obama administration is expected to announce measures soon to tighten the screening of air cargo, an area long viewed by experts as a weak link in post-9/11 security procedures. But several transportation experts say that placing a 100 percent screening requirement on cargo carriers — like the one that now exists for cargo placed on passenger airlines — would cause the system of express air delivery to grind to a halt."

According to Meier and Lipton, experts believe that a compromise screening process could be in place for "one of" shipments that would be less disruptive for corporate users that rely on air cargo. The reason they believe such a system could be adopted is because "most shipments carried by air — about 80 percent — come from frequent customers who have longstanding relationships and security programs in place." They continue:

"'You cannot stop the flow of time-sensitive air freight,' said Yossi Sheffi, the director of the Center for Transportation and Logistics at the Massachusetts Institute of Technology. 'It is simply not realistic.' ... Experts say air cargo poses unique dilemmas because of the vast volume of packages and the patchwork system of regulations governing inspections. In addition, air cargo moves both on airlines that carry only freight and on passenger planes. And the freight industry is by no means uniform. There are giant players like FedEx and U.P.S. and hundreds of small companies. For now, freight carried on all-cargo planes does not have as stringent screening requirements as freight on passenger planes. Also, foreign carriers that bring cargo into the United States operate by their own sets of rules, which vary significantly from country to country."

Stephen R. Heifetz, a lawyer and former deputy assistant secretary for policy development at the Department of Homeland Security, believes that air cargo should be given risk ratings like those used in the maritime shipping industry ["How to Keep Terrorism Grounded," New York Times, 2 November 2010]. He explains:

"For oceangoing cargo, importers and shippers are required to provide substantial data on every container: the country of origin, the location where the container was packed, the seller, the buyer, where on the ship the container is stored and so forth. The Department of Homeland Security, through its Customs and Border Protection agency, uses this data to generate a risk rating, and any package with a high rating gets substantial additional scrutiny. Sometimes this includes a physical search by foreign security personnel under the guidance of American officials, and in all cases it occurs before the ship even leaves the foreign port. Any package from trouble-ridden Yemen would be seen as a risk and likely would be a target for additional scrutiny."

Heifetz knows that his recommendation begs the question, "So why is there no similar system in place for air cargo?" He explains why:

"There are two parts to the answer: one has to do with Congress and the other with the Department of Homeland Security. In 2007, Congress passed a law requiring, within three years, physical screening — X-rays, dogs and the like — for all cargo on passenger planes. But the law did nothing to increase security on all-cargo flights like those operated by U.P.S. And while it didn’t explicitly ban the use of risk rating, Congress clearly didn’t want any shortcuts — it wanted every package checked physically. In effect, lawmakers made the perfect the enemy of the good. Homeland Security officials had a tough challenge in meeting the Congressional mandate, but in large part they succeeded: by August of this year, 100 percent of cargo on passenger flights within and from the United States was being physically screened. However, only about 65 percent of cargo on passenger planes arriving in the United States from abroad is now subjected to some physical screening, and the percentage is far lower on all-cargo flights."

Heifetz agrees with experts like Yossi Sheffi that 100 percent screening of all air cargo is impractical at best and probably impossible given the fact that such a screening process would have to be carried out overseas. He continues:

"The only practical way to increase the security of inbound air cargo is to rely on a risk rating system rather than a physical screening system. It simply makes sense to decide which packages and flights are most likely to be dangerous, and focus on them. Besides, the information collection and analysis would not even require building new infrastructure or imposing our rules on foreign soil. Homeland security officials already collect electronically most of the data needed for risk analysis of air cargo."

I suspect that Heifetz' recommendation will find support from a number of industries. The most critical support, however, must come from Congress and Heifetz isn't sure it will go along. Following yesterday's mid-term election, nothing is certain about the direction Washington will be taking. Historically, however, Congress has leaned toward solutions that involve 100 percent physical screening. Supply chain analyst Bob Ferrari has his own views about what will transpire ["Bombs on U.S. Bound Cargo Planes- Be Prepared for Implications," Supply Chain Matters, 31 October 2010]. He writes:

"Supply chain professionals need to prepare for the implications of this incident. International intelligence officials have now concluded that these incidents have the tenets of al-Qaeda related terrorism. ... If as reported, that the previous UPS cargo plane crash in Dubai is linked to a terrorist act, than that is something with long-lasting implications. The good news regarding this incident is that international security measures and coordinated measures worked well. Terrorist threat warnings are escalated and we can certainly expect heightened inspection activity of air-related cargo shipments both originating from suspected countries, and general in nature. With the holiday buying season fast approaching and retailers and manufacturers continuing to maintain lean inventories, flexibility to respond to consumer demand through overnight air may suffer from delays. Also as noted in our previous Supply Chain Matters commentary related to the previous UPS plane crash, authorities were already suspecting that air shipments of lithium-ion batteries were causing aircraft fires, and I believe that these same authorities will leverage this incident to institute revised air shipment policies for such shipments. Do not rule out that security officials may also mandate that major electronic sub-components such ... toner cartridges be mandated to be packaged separately. Bottom-line, these air-cargo incidents will indeed have important and unfolding implications to future air shipments."

Ferrari's point about the potential impact on the supply chain during the coming holiday season is a good one. Manufacturers and retailers are hoping for strong holiday sales to help them recover from the recession. A slowdown in the supply chain could prove disastrous. Another supply chain analyst, Adrian Gonzalez, adds his insight to the situation ["Terrorists Say 'We Love Logistics' Too," Logistics Viewpoints, 1 November 2010]. He writes:

"This incident is a sobering reminder that terrorism remains a supply chain risk. It also shows that terrorists apparently love logistics too, but not for the reasons UPS sings about in its new publicity campaign. Logistics is what powers global commerce; throw sand (or bombs) in its gears and you slow economic activity down. Logistics is also very complex—it involves the synchronization of activities and the exchange of information between many different parties, often located in different countries. Translation: logistics involves a lot of moving parts, each one a potential mode of failure from a security standpoint. The investigation has just begun, so I’m sure more details will emerge in the days ahead. But here are my two quick takeaways from the information available so far:

  • Despite all the investments companies have made in 'visibility' and 'track and trace' technology, many black holes still exist in global logistics.
  • There was a breakdown in the security process, but implementing 100 percent cargo inspection won’t necessarily solve the problem."

Gonzalez notes that tracing the exact path that international packages take from origin to destination is not as straight forward as it might seem. Despite all the scrutiny given to the two packages discovered last week, days into the investigation their "exact" paths were still unknown. He continues:

"There was a good article in [the] Wall Street Journal about the current state of air cargo security ('Focus on Cargo Security Steps'). After the 9/11 terrorist attacks, virtually all of the funding for air security was focused on passenger screening. While steps have been taken to improve cargo screening, many challenges still remain. For example, as the WSJ article highlights, 'there is no approved technology to screen cargo once it is loaded on pallets used to ship cargo in wide-body aircraft. That makes up 75 percent of passenger plane cargo.' No doubt, this incident will renew calls to implement 100 percent screening of all air cargo as quickly as possible. But as I argued last December in '100% Cargo Inspection: A Means to What End?' increasing inspections is not a silver-bullet solution and it is apt to provide a false sense of comfort. The overriding goal should be to develop more transparent and better designed and controlled end-to-end global supply chain processes. For example, the sharing of timely, accurate, and complete information between all relevant parties in the supply chain is absolutely critical. This includes enhanced collaboration between intelligence communities. It was, after all, intelligence officials from Saudi Arabia that alerted US authorities about the packages and provided the tracking numbers."

I agree with Gonzalez that the best solution for most companies is to create what I call a secure or trusted supply chain. I believe most of the technologies needed to create such a chain are available. In the days ahead, we will learn what new steps the U.S. Government is going to take to address the air cargo security challenge. I agree with the experts cited above that 100 percent screening of all packages is probably the wrong answer. The competitive advantage of air carriers is speed. They must be allowed to maintain that advantage if the global economy is going to continue on its road to recovery. Germany is now pushing for an acceptable international solution, which is a good idea. This is an international challenge that requires an international solution. The solution won't be perfect -- there are no systems that can guarantee 100 percent security -- but the more collaborative the solution the better its effectiveness will be. For an emerging market country, the fastest way to derail economic progress is to become known as a haven for terrorism. Following the discovery of dangerous packages that originated in Yemen, cargo flights from Yemen were immediately halted by the United States, Canada, Britain, France, and Germany. You cannot gain the benefits of globalization in isolation. Yemen will learn this sad truth if it doesn't move swiftly to improve security within its borders. Since emerging market nations have the most to lose, they should be the ones pushing hardest to find an acceptable solution.

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