At its inception in 1956, containerization of ocean freight was intended to streamline commerce.

            The first containership, a converted tanker, carried truck trailers bolted to the deck from New York harbor to Houston . The idea was to speed loading and unloading, minimize cargo handling and related costs, reduce pilferage and damage, and make shipment tracing easier.

            Nearly 50 years later, a complex global network of ships, dedicated trains and trucks, specially-designed terminals and gates and transloading/consolidation warehouses – supported by information technology and the Internet – has made the promise of supply-chain integration a reality. This potent transportation technology combination has enabled manufacturing businesses to view and manage in real time the flow of raw materials, components, assemblies and finished product across a global enterprise, from factory to retail store shelf or end-user.

            Businesses ranging from auto makers to supermarket chains to fashion apparel houses to chemical and pharmaceutical companies increasingly manufacture and ship on a just-in-time and, in some cases, even a build-to order basis. Production inventory once measured in weeks or months is now often measured in hours or, at most, days. Thus manufacturers are able to slash inventory carrying costs and respond instantly to changing customer demands.

            Cass/ProLogis, in its annual State of Logistics report, estimates total 2001 annual U.S. business logistics costs – including inventory, transportation, warehousing, technology and administrative – at $970 billion, or 9.5 per cent of GDP, down from 10.1 per cent in 2000 and from 16 per cent of GDP in 1980. During the period from 1980-2000, inventory carrying costs fell 37 percent, and transportation costs were cut by 22 percent, largely due to transportation deregulation, integration of materials management and physical distribution systems, increased efficiencies and advances in information technology.

            These dramatic gains in productivity and reductions in cost rely primarily on a system of trust, under which inventory moves unimpeded through the supply chain in sealed containers that are loaded, transported, stored, staged, handed off among parties and delivered to their ultimate destinations intact and on schedule. A set of shipping instructions, usually based on the shipper’s purchase order and container packing list, either accompanies the shipment when it is received at its origin port or follows a short time after. Shipping instructions provide the customer, cargo, country of origin, routing and end-user information that generates final bill of lading and cargo manifest documents.

Ship first, ask questions later

            Logistics providers have little choice but to assume that bill of lading and cargo manifest information is complete and accurate, given the volume of freight in the global pipeline and complexity of the system. Each year more than 800 scheduled vessels of all kinds make 22,000 calls at 361 U.S. river and seaports. Approximately 7.8 million container loads of cargo entered U.S. port gateways in 2001 – an average of more than 21,000 truckloads daily. Another 4.8 million containers carried export cargo from inland and coastal origin points to those ports, and nearly 2.5 million 48-foot and 53-foot containers were deployed in purely domestic service.

            At any given time, millions of empty domestic and international containers also move through the system, being repositioned for pick-up of specific loads or to trade lanes where demand is high.

            Containerization International reports more than 236 million 20-foot equivalent unit (TEU) container moves in 2001 and more than 203 million TEU moves in 2000, based on port and terminal figures collected worldwide. A single international container move can involve up to 25 parties, from the factory or warehouse to the origin port, to and from the ship, at each handoff among transportation providers and at each step of the warehousing and distribution process. It may involve trading companies, banks issuing letters of credit and various transportation intermediaries. It may involve consolidated loads on behalf of multiple shippers, in a single container. A complex end-to-end move can generate 30 to 40 shipping documents.

            Thus, a modern 5,000 TEU containership sailing 80 percent full might carry shipments generating an average 98,000 inbound documents alone in one sailing. And container ships are getting larger, with several of 7,000 TEU carrying capacity or more in service, and even larger ships being planned. Stopping a container in transit, processing the necessary paperwork and inspecting it by hand, takes five customs officers three hours. An inspection station using state-of-the-art mobile scanners requires fewer people and can process up to 11 containers an hour. Not surprisingly, fewer than 2 percent of arriving containers – and a smaller percentage of export loads – are subjected to full inspections, usually where documentation questions arise or the shipment meets a high-risk profile based on the shipper, consignee, cargo, country of origin or routing. Random inspections of empty containers and use of mobile scanners and radiation detection pagers has increased overall screening in recent months.

            Since the Sept. 11, 2001 attack, however, a global container transportation network designed for speed and flexibility must be viewed through the added lens of different security considerations. Given the estimated $737 billion value of total container trade moving through U.S. seaports annually, it is a matter of serious commercial interest for any business that manufactures, buys, sells, ships, insures or manages a supply chain globally.

Pressure points

            The supply chain has numerous points of security vulnerability. In this era of global sourcing and manufacturing, a manufacturing or retailing importer may have little detailed knowledge of the day-to-day operations of contract factories and suppliers halfway around the world. Logistics providers frequently deal with new or unknown shippers and consignees, based on little more than a credit report.

            Container transport is a common carriage system. Shippers and consignees are not necessarily known entities, and they may not even know their own suppliers, subcontractors and customers well.

            Containers bound for the U.S. are routinely handed off among a number of inland transportation intermediaries – freight forwarders, truck drivers, barge operators – on their way to the port of origin, and then transferred between small regional feeder ships and large line haul container vessels at transshipment ports. In some parts of the world, they may wait for days in terminals that may or may not be fully secured by fences, lighting, surveillance and gates, and whose employees may or may not have been subjected to background checks. In many locations, freight arrives on ships un-containerized and is then moved to containers, and while container seals are ideally tamper-proof, standards vary widely.

            Containers have been used in the past to smuggle narcotics, conventional weapons, quarantined plant and animal species, cigarettes and alcohol, counterfeit merchandise and illegal aliens. Since September 11, the list of criminal uses has expanded.

            Of greatest concern to the U.S. Government is the prospect of a nuclear, biological or chemical weapon being smuggled in a container and detonated either in port or upon arrival in a major destination city. Without increased security measures of some kind, the basic unit of the supply chain – the ocean and intermodal container – has the potential to become the next basic unit of terror.

            Beyond a certain point, however, security measures in themselves have the potential to achieve a simpler, far more likely terrorist goal – disruption of global trade and transportation based on the threat of an attack alone.