Your latest attested quarterly financial report included revenue forecast for a product launch later in the year. Fast-forward two quarters. That new product-manufactured in Indonesia-is stuck in a port in Seattle, but is low in the queue of inspections by U.S. Customs & Border Protection. Your supply chain managers on the ground in Seattle tell you that competitors’ freight arrived at the port after yours and sailed through Customs with no problems. The delays cause you to miss the product launch, and the revenue forecast associated with it.

What’s going on here? Is it just typical bureaucratic inefficiency and is the government liable? Today, the liability may, in fact, rest with an inefficient bureaucracy, but tomorrow it could be a different story. Particularly if a program called Customs-Trade Partnership Against Terrorism, or C-TPAT, moves from a voluntary program to a mandatory one. C-TPAT requires companies to take responsibility for the security of their supply chains. Through this initiative, U.S. Customs and Border Protection (CBP) can provide the highest level of security through close cooperation with the ultimate owners of the supply chain: importers, carriers, brokers, warehouse operators, and manufacturers.

While C-TPAT is now voluntary, based upon media reports, there is strong speculation that it is only a matter of time before CBP makes participation mandatory. This means you need to understand the benefits of the program and begin preparing now, or risk a costly scramble similar to your Sarbanes-Oxley hardships. In terms of preparing for and managing compliance, this is another area ripe for outsourcing.

A major challenge of global trade is navigating customs requirements, and the complexities and processes that accompany shipping around the world among a company’s locations and with outsourcing partners. New security and compliance initiatives, trade agreements, customs regulations, duty rates, and import and export processes can make it more difficult than ever to conduct international trade. And non-compliance with government regulations can bring potential fines, penalties, and even legal action.  

Essentially, C-TPAT, announced by CBP in July 2002, makes importers responsible for everything that takes place within the supply chain around the world. For example, the importer is expected to be responsible and knowledgeable about the container from loading to delivery, whether it’s on a train in China or an ocean freighter carrying a Venezuelan flag. The government’s concern: post-9/11, the less it knows about where a container has been, what’s in it and who may have opened it, the greater the risk to national security.

It’s not only the government that should be concerned. There are several sections of the Sarbanes-Oxley Act that directly relate to how you manage your supply chains. The controls mandated by Section 404 to protect against events that can impact your company’s value extend to those controls that can prevent an adverse event within a supply chain. Section 401 requires you to account for risk in your off-balance-sheet transactions, such as those that occur within a global supply chain. Finally, Section 409 requires you to report “on a rapid and current basis” events that could have a material impact, which creates even more of a need for you to be knowledgeable about what is in containers and who handles them from loading to delivery-such as a dirty bomb placed in a container in Indonesia prior to purchase by your company.

By shifting the responsibility of supply chain security more heavily onto importers, C-TPAT is meant to reduce the need for inspections by CBP. According to CBP data, companies that have voluntarily joined C-TPAT are 4.1 times less likely to have their cargo examined for compliance reasons, and six times less likely for security reasons. The first cargo to clear will be for C-TPAT participants. If CBP shuts down the ports, the cargo inspected first is that of C-TPAT participants. If a C-TPAT compliant company is scheduled for an examination, it will get first-in-line benefits.

 

Where to start?

A significant aspect of the government’s strategy is to collect as much information as possible about what occurs in a company’s supply chain in order to reduce inspections. This is a major part of the burden for importers.  

According to a 2005 Aberdeen research report, nearly two-thirds of companies still rely heavily on spreadsheets or paper-based systems to manage global trade. Companies can no longer afford to treat global logistics, trade compliance, and trade finance activities as separate functions. They need to outsource solutions that will tie these functions together across their companies and synchronize the process with regulatory agencies, logistics service providers, and trading partners.  

The challenge is first knowing how your global supply chain measures up against the requirements set forth by C-TPAT, then measuring timeline achievement and establishing follow-up reminders with your supply chain partners to ensure your company meets the requirements. This sharpens the need for outsourced providers who are experts in global trade compliance, coupled with new technology-based controls and record-keeping tools to reduce the added complexity resulting from C-TPAT.

The provider’s solution should begin as a consulting engagement to baseline your company’s existing global security program. Expect your outsourced provider to provide specialized global trade management technology that easily integrates into your existing IT infrastructure so that, during all phases of the C-TPAT certification process, there is an automated mechanism for measuring timeline achievement and establishing follow-up reminders with your supply chain partners.  

Once you are C-TPAT certified, the specialized software assists in maintaining compliance by enabling you to manage suppliers and related parties. The software screens each party related to a given shipment at various phases throughout the supply chain, alerting you via e-mail or automated report when “denied” parties are identified.

Based upon best practices among companies participating in C-TPAT, electronic transmission of data needs to occur at least 24 hours in advance of lading a shipment in an ocean port. It’s even less time for air shipments. In addition, what’s important is the ability to transmit more information than what is contained in the manifest-to include the invoice and, potentially, purchase order information. Data is a major part of the actual security assessment done by CBP.  

The specialized global trade management software should collect all detailed data from a transaction, including when it is placed, and the electronic invoice information. In addition, the outsourced provider should validate information on the security of factories and countries to which you plan to source. This lowers the cost to your company versus having to build and maintain such information internally.

 

The return

For CFOs, ROI is king. Companies need to realize that C-TPAT and all its related initiatives are not going away. The availability of outsourcers that specialize in global trade management can reduce the cost of compliance. In terms of measuring success, CFOs should use traditional business metrics like improvements in safety, insurance liability and efficiency. Beyond this, however, the reduction in inspections promised by C-TPAT compliance can add up to the hard cost savings needed (not to mention launching products on time and meeting revenue forecasts) to justify the investment. wt

Sidebar: Top 10 Things to Know About C-TPAT

1.         C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall international supply chains and U.S. border security.  

2.         C-TPAT is available for a number of supply chain business types including importers, rail carriers, sea carriers, air carriers and licensed U.S. Customs brokers.  

3.         To participate in C-TPAT, participants must conduct a comprehensive self-assessment of their supply chain security procedures using the C-TPAT security criteria for their specific enrollment category.  

4.         The C-TPAT security criteria generally encompasses areas such as Business Partner Requirements, Procedural Security, Physical Security, Personnel Security, Education and Training, Access Controls, Manifest Procedures, Information Security and Conveyance Security.  

5.             Benefits of participation in C-TPAT include reduced number of inspections and exams, priority processing of inspections, and eligibility to attend government sponsored training seminars.  In addition to the C-TPAT benefits, many participants have found that C-TPAT participation also reduces transactional costs with the broker, reduces transportation costs, increases the ability to manage the import process and the “reasonable care” standard which ultimately reduces the potential for future fines and penalties, increases compliance with special trade programs, improves cycle-time for imports and inventory optimization.  

6.         C-TPAT allows participants to work with the government toward the common goal of creating a more secure and efficient supply chain through partnership.  

7.         The C-TPAT program allows all companies to participate and to take an active role in promoting supply chain and border security regardless of the company’s size.  

8.         All C-TPAT applications must be submitted using the C-TPAT Security Link Portal.  The Portal is a secure, full-service, Internet web portal.  

9.         The C-TPAT program contains three tiers-Certification, Validation and Best Practices.  

10.       C-TPAT certification is a requirement to qualify for certain government programs such as FAST or ISA.