Tuesday, February 11, 2014

Thoughts On Supply Chain Security - Lessons From Pakistan Customs

Working as a Customs enforcement agent in Pakistan, supply chain security and the facilitation of legitimate trade flows is one of the primary areas of concern for me in my day to day work. This is also a theme covered in this week’s readings, with an entire Price Waterhouse Cooper paper devoted to it. In this blog, I talk about some practices Pakistan Customs has put into place to keep the supply chain secure. But before we can get to them, it is important to understand the magnitude of the problem that confronts us when we speak of, ‘securing the supply chain’.

International trade, the flow of goods and services across border, seas, and continents, and the supply chains underpinning and facilitating this trade, represent nothing short of a ballet. At any given point in time, private enterprise, governments, customs administrations, transport and logistics companies, port operators, and shipping lines come together to choreograph the transit of millions of containers through the high seas, at ports, or across highways to their final destination. According to World Bank data, China alone handled a staggering 139.7 million twenty-foot containers in 2011 (USA: 42.9 million)[1]. Annually, the world’s ports combined handle billions of containers.

Given these huge volumes, it is simply not practical or cost-effective for governments around the world to safeguard their security or revenue interests by opening up each every container and examining the contents therein. Therefore, customs administrations around the world have moved towards a security paradigm based on risk management, under which only about 5-10% of containerized traffic is actually subjected to some form of intrusive physical examination. This translates into a huge challenge to ensure that the 90% of global container traffic is legitimate and contains what it is supposed to. Additionally, there are many other diverse and varied challenges that the global supply chain faces, which further complicate the issue:

In the not so distant past, we have seen terrorism, natural disasters (hurricanes, a tsunami, and a volcanic eruption), geopolitical or diplomatic uncertainty (Pakistan stopping NATO supply routes into Afghanistan), and even the collective social conscience of a people (the Dabbawallas strike in support of anti-corruption activist Anna Hazare in India[2]), disrupt supply chains and affect global trade or military supplies. (Well, in the case of the Dabawallas, only a few hundred thousand office workers missed their midday lunch.) And then there’s piracy. We’ve all heard about the Somali pirates. Trouble is, they’re not the only ones, as the Piracy & Armed Robbery Map 2013 published by the International Chamber of Commerce Commercial Crime Services shows[3]

All such events, whether they involve theft, vandalism, or hostage-taking, cost money. Organized crime is perhaps the biggest threat to the legitimate flow of goods across borders. Whether its narcotics, counterfeit goods, arms, exotic animals, or any other form of contraband, smuggling is a major concern. The global interdiction rate of narcotics is less than 5%. Counterfeit goods represent an annual loss of millions of dollars to legitimate right holders.

As if coping with the caprice of supply and demand forecasts wasn’t enough, managers must also contend with these, often unpredictable factors that can disrupt supply chains. There are a number of activities, falling under the umbrella of supply chain security, to mitigate the problems discussed above. Solutions include programs that certify the credentials of all the various actors in a supply chain, such as the Authorized Economic Operator program falling under the World Customs Organization’s Framework of Standards to Secure and Facilitate Global Trade. Scenario planning, and a mix of preventive and reactive measures are also employed to minimize disruptions and recover from supply chain upheavals.

One particularly innovative solution that I wanted to share was the Integrated Cargo Container Control (IC3) Program – a strategic partnership between the United States and Pakistan customs administrations. This program involves joint screening and scanning of US-bound containerized cargo from Pakistan. Containers are scanned for contraband, prohibited items, and radioactive materials. They arrive at a special, state of the art facility, constructed near the port, where they are passed through various scanners (while still on the trucks). Images of those scans are shared by Pakistani customs officers in real time with their US counterparts. Experts on both sides, examine the images and in case of any anomaly, the container is subjected to intrusive examination protocols. Such collaboration, sharing of information and expertise ensures that only legitimate cargo passes through customs’ border controls, without delay, and that the supply chain is kept secure. The benefit of this facility comes from not only enhanced cooperation between the customs administrations of the two countries, but it is also beneficial to businesses, as goods flow quicker and faster, with less overhead associated with the costs of delays and intrusive examination.

Another innovation is Pakistan Customs’ implementation of the joint United Nations Office on Drugs and Crime – World Customs Organization’s Container Control Program. Under this program, which has been rolled out to select ports around the world, Port Control Units (PCUs) have been established at various customs stations around the country. They not only collaborate with each other, but also communicate with others around the world. Using traditional human intelligence, data analysis and risk management practices, these units profile cargo flowing in and out of the country for suspicious consignments. The strategic advantage of these units is the speed and flexibility with which they are able to respond to threats. Since all these units are linked electronically with one another, they are able to bypass time consuming bureaucratic layers of communication. In a stellar example, an interdiction operation conducted by one of the units at Karachi resulted in the seizure of synthetic drugs with a street value of $68 million. These units have also collaborated with counterparts around the world to seize drug shipments in the UK, China, Spain and Sri Lanka. The Pakistan arm of this program has been so successful that Pakistan Customs has become a regional center of excellence and is currently spearheading a roll out of the program to neighboring countries by imparting training.

These are just some examples of how one of the actors in global supply chains, namely governments, play their part in securing global trade flows. There are many other initiatives, both on the ground and underway. The question is whether, this is enough to keep supply chains secure?

[1] http://data.worldbank.org/indicator/IS.SHP.GOOD.TU
[2] http://articles.timesofindia.indiatimes.com/2011-08-19/mumbai/29905031_1_dabbawalas-anna-hazare-mumbai-s-azad-maidan
[3] http://www.icc-ccs.org/piracy-reporting-centre/live-piracy-map/piracy-map-2013

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