Memorandum from Hutchison Port Holdings
(TS 20)
SMART AND SECURE TRADELANES—SUPPLY
CHAIN SECURITY
I. SUMMARY
1. Based on experience gained between 2002
and 2004, Hutchison Port Holdings is promoting the Smart and Secure
Tradelanes and Supply Chain concept because it wants to operate
in a safe environment and considers that the pilot project would
prove that the private sector can actively contribute to securing
the supply chain. The pilot project will also contribute to the
acceptance of the currently developed customs security legislation,
and it will show the importance and added value of pre-arrival
information, risk management, combined with the Authorized Economic
Operator concept and the use of technology.
2. The RFID technology and its applications
in the maritime and supply chain industry will require ISO Standards.
These are being discussed at the moment. The Integrated Container
Inspection System (ICIS) promotes non-intrusive inspection by
scanning sealed containers at cargo terminals in the normal flow.
It demonstrates to Customs authorities and the global port community
that it can scan all export containers as part of a terminal's
normal operations without impeding traffic, and that the information
it provides will support customs and other authorities' efforts
to identify high-risk containers. It provides a real-world path
to an incentive-based Green-lane system.
3. The economic analysis made by the Stanford
University Global Supply Chain Management Forum, concluding that
there was a potential benefit of $378-462 per container, has been
confirmed by the results of a recent AT Kearny analysis published
in 2005. This study states that the supply chain executives estimate
the total average benefit per container from an end-to-end RFID
tracking solution to be approx $1,150 per container and this is
without taking into consideration the improved efficiency and
additional benefits gained through the fast-trail green lane qualification.
II. INTRODUCTION
4. Hutchison Port Holdings (HPH) is a wholly-owned
subsidiary of the multinational conglomerate Hutchison Whampoa
Limited (HWL). HPH is the world's leading port investor, developer
and operator with interests in 20 countries throughout Asia, the
Middle East, Africa, Europe and the Americas. Today, HPH operates
in a total of 41 ports together with a number of transportation-related
service companies. In the UK HPH operates The Port of Felixstowe,
Harwich International Port, and Thamesport through its subsidiary,
Hutchison Ports (UK) Ltd.
5. Following the 9/11 terrorist attacks,
protecting the supply chain from a further attacks has become
a priority for most major trading countries. As a result, many
initiatives have been taken:
| International: | IMO/ISPS
|
| World Customs Organisation (WCO) Framework of Standards for securing international supply chains and facilitating legitimate trade
|
| US-led | CSI; 24-hour rule; CTPAT
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| EU-legislation: | Ship and Port Facility Security
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| Port Security Directive |
| Regulation amending EU Customs Code to include security provisions
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| Private initiatives: | Strategic Council on Security Technology
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| Smart and Secure Tradelanes
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6. Transport Security will be an ongoing concern in the
coming years, where both the public and the private sector are
involved as stakeholders. The challenge is, and will be, to reach
the highest possible level of security for the supply chain without
jeopardizing trade, while keeping administrative requirements
to a minimum. Therefore, co-operation between the transport industry
and the authorities in countering the threat of future terrorist
strikes is essential.
III. HUTCHISON PORT
HOLDINGS AND
ITS COMMITMENT
TO SUPPLY
CHAIN SECURITY
7. Almost immediately after the events of 9/11, some
private companies realized that they had to contribute to the
security of the supply chain. HPH was one of the founding members
of the Strategic Council on Security Technology. Other members
included previous officials of the US Army Material Command, US
Department of Defense Transportation Command, Commissioner of
US Customs, US Department of Transportation, technology companies
such as Qualcomm Wireless Business Solutions and Savi Technology,
fellow port operators PSA and P&O Ports; the Stanford University
Global Supply Chain Management Forum, Prof Hau Lee.
8. The purpose was to analyse and pioneer adoption of
new security procedures aimed at efficiently securing the global
supply chain, and to take concrete material actions to secure
these chains. Industry directed and funded, it was focused on
real-world operational and economic results. The trade participants
came from a large number of industries and countries. Shipments
were from Singapore, Hong Kong, Chiwan, Shakou, Yantian (Shenzhen
China), Kao Hsiung (Taiwan) and Laem Chabang (Thailand) to Tacoma,
Seattle, Los Angeles and Long Beach as well as from Rotterdam,
Antwerp and Felixstowe to New York/New Jersey, Houston, Charleston
and Savannah.
9. The project was initiated in July 2002 and the last
tests ended mid 2004. Eight hundred and eighteen intermodal containers
were fixed with electronic container security devices that included
intrusion/tamper detection sensors (to detect the status of high
security bolt seals), and active RFID (Radio Frequency Identification)
tags (communication of location and container status). Each sealing
event was captured in both the electronic container security device
on the container, and the Transport Security System (TSS) software.
10. The electronic devices automatically reported their
identification and security status to stationery or handheld RFID
readers at each critical node, (terminal gates, cranes) which
led to a virtual chain of information.
11. Dr Hau Lee and his colleagues of the Stanford University
Global Supply Chain Management Forum applied proven inventory
models and analytic techniques to the data. The model assumed
that the average value of containers routed through the top ten
tradelanes is $70,000. The potential benefit to a typical shipper
was calculated to be in the range of $378-462, with, as main items—reduction
in safety stock 25 to 30%; reduction in pipeline inventory: 13
to 16% and reduction in pilferage, inspections: 4 to 5%. The operational
benefits to be higher for shipments with a higher value.
12. Encouraged by these results, HPH continued its efforts
with the following objectives:
— to reduce the risks, answering the questions of
what is in the container and whether the cargo contents had been
touched while travelling;
— to reduce the impact of a potential risk = make
the re-start as efficient as possible; and
— to further improve the processes in the maritime
industry as a whole.
13. Considering the latest developments in: the WCO with
the implementation (June 2005) of the Framework of Standards;
discussions within ISO on RFID permanent container tags, supply
chain tags, and e-seal shipping line tags; the EU and WCO Authorized
Economic Operator concepts; the related Red Shipper concept in
China as well as the green custom seal concept in Hong Kong; Hutchison
Port Holdings developed the idea of a pilot project on green lanes
between ports in Europe and Asia, more specifically between Rotterdam,
Felixstowe and Hong Kong/Yantian (Shenzhen). There also are on-going
contacts between HPH and the US authorities.
14. In order to ensure compliance with Community legislation,
the European Commission's, DG Taxud has been involved in the development
of the project. DG TREN and DG INFSOC (RFID co-ordination) have
been kept fully informed about the project. HPH believed the pilot
project would prove that the private sector can actively contribute
to securing supply chains.
15. The overall objective of the pilot project was to
bring together partners and participants for:
— testing, refining and agreeing the principles
for securing and facilitating the supply chains between Asia and
Europe;
— demonstrating the operational workings of the
Authorized Economic Operator concept, Certificate for Security
and Safety or Customs/Security and Safety ie; economic operators
wishing to benefit from facilitations of customs controls relating
to security and safety at the entry of the goods into the Customs
territory of the Community or where goods leave the customs territory
of the Community and wishing to also benefit from simplifications
provided for under the Customs rules;
— demonstrating the usage of technology for container
security monitoring and tracking for all parties involved;
— demonstrating information availability;
— demonstrating information exchange; and
— demonstrating the usage of technology for non-intrusive
inspection for every container.
16. This technology consists of quick scanning of the
sealed containers at cargo terminals in their normal flow. At
the Hong Kong International Terminal we are using an Integrated
Container Inspection System (ICIS) developed by Science Applications
International Corporation of San Diego USA (SAIC), to scan containers,
full and empty, arriving by truck at the entry gate. There are
also solutions for the arrivals by barge. A similar system is
operated by our competitors in Hong Kong.
17. The integrated system consists of:
— OCR—the Optical Character Reader, reading
the container number on the side, the back and the roof of the
containers;
— Radiation Scanning—the radiation profile
provides a graphic profile of radiation levels inside the container;
and
— Gamma-ray scanning—the Vacis gamma ray scanner
provides radiographic images of container contents. It is equipped
with a fast-shutter for drive-through operations and is able to
scan vehicles moving at speeds up to 16 kms per hour thus capable
of scanning more than 300 vehicles per hour.
18. Supply chain security and this pilot project have
been discussed at the first session of the China—EU Joint
Customs Cooperation Committee on 14 November 2005 in Beijing China,
at the highest possible level between Minister Mu and EU Commissioner
Kovacs, and at the sixth meeting of the EC—Hong Kong Joint
Customs Cooperation Committee in Hong Kong on 18 November 2005,
between EU Commissioner Kovacs and Commissioner Tong. One aim
of these meetings was to reinforce efforts to improve supply chain
security and in particular to achieve mutual recognition of security
measures and business partnership programs between the EC and
China/Hong Kong.
19. The pilot project will now be taken forward by a
project working group comprising the customs administrations of
the United Kingdom—Frontier Security Team, the Netherlands,
China and Hong Kong with the assistance of the European Commission,
DG Taxud supported by DG INFSOC, HPH, a number of selected importers,
exporters, brokers and carriers in China/Hong Kong/the Netherlands
and the United Kingdom.
20. Liaison officers will be appointed to act as point
of contact between the parties concerned. At all levels experts
from China, Hong Kong, the UK, the Netherlands, the Commission
and HPH/Hutchison Europe will be included.
IV. CONCLUSIONS
21. The aim of HPH was and is to bring together partners
and participants for joint developing and testing of all the elements
needed to achieve a smart and secure supply chain. These partners
include government authorities, traders, service providers, ports,
ocean carriers, other carriers and technology providers.
22. The characteristics of the "authorized supply
chain" as we see it are:
— the deployment of secured loading premises where
the container is loaded and locked for transport;
— the use of electronic monitoring to guard and
report the security status of the container during its transport;
— the provision of gamma-ray scan data of the shipment;
— radiation scan reporting;
— gathering of information at modal change points
during the trip (readers) accessible for relevant parties only;
— provision of this information to the Authorities
(China Customs, Hong Kong Customs, TradeLink Hong Kong, UK Customs,
Dutch Customs, PortInfolink Rotterdam etc); and
— the deployment of a secured delivery destination
where the consignment is received and unlocked, satisfying the
requirements for the electronic monitoring of the goods.
23. The result of our initiatives and the analysis made
by independent parties (Stanford University and AT Kearny) substantiate
that security and logistics efficiency are closely associated.
It demonstrated that traders can comply with emerging security
requirements while reducing logistic costs and/or increasing profits
by optimizing the inventory-customer service trade-off.
24. The benefits of a strengthened co-operation on security
between trade and authorities, starting with the pilot project
on smart and secure trade lanes between China—Hong Kong
and the EU, can be summarized as follows:
— Secure supply chains protect international trade
from the twin threats of terrorism and organised crime. This facilitates
the movement of international trade.
— In the event of a terrorist attack on the international
supply chain, secure supply chains will be the first to recommence,
giving economic advantages to those traders and countries within
a secure supply chain.
— Customs will be able to focus on traffic outside
the secure supply chain with an increase in detecting prohibited,
restricted or miss-described consignments.
— Reliable economic operators will be faced with
less customs controls at import into the pilot countries, saving
participating economic operators time and money.
— Once security standards and controls and authorised
economic operators will be mutually recognized among reliable
trading partners, the customs administrations concerned will be
able to recognise the control results of the customs administrations
of their partner administration and will therefore need to focus
mainly on export controls and on high risk importation.
— Authorised traders will be recognised by customs
and will therefore have the advantage of benefiting at both ends
from less controls and priority treatment.
— Authorised economic operators will benefit from
the recognition as a low-risk trader and will therefore have an
advantage in comparison to their competitors that are not authorised.
Through mutual recognition, economic operators would have this
important advantage also in third countries.
— Authorised economic operators will also benefit
from a minimized number of Customs interventions in the shipment
process.
— Authorised economic operators will also receive
favourable consideration in customs enforcement proceedings.
Both, customs and trade, will be able to benefit from:
— better use of resources;
— more streamlined internal processes;
— more accurate and timely information;
— consistency of processing; and
— better relations between trade and customs.
Traders will benefit from:
— the more uniform application of laws as security
is a global concept;
— reduced border waiting times;
— increased self-policing with possibly less customs
involvement;
— reduced risk of terror incidents interrupting
international supply chains;
— sound anti-depth devices, leading to improved
facilitation and efficiency; and
— enhanced overall security of goods, with less
theft and accordingly lower insurance premiums, and a safer work
environment.
December 2005
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