With America’s terrorist alert system recently reaching “orange/high risk,” and staying there for a few weeks before returning to “yellow/elevated risk,” many Americans are thinking more and more about security. And company managers, too, are especially wondering how all the new security measures will impact their supply chain systems.

Overall, the recent passage of both the Homeland Security and the Maritime Transportation Security bills has already created some major changes for importers, exporters and supply chain managers. So, what do these changes mean for you and your business operations?

New Security Department Created

The Homeland Security department, which combines more than 20 homeland security agencies into one Cabinet department, became a reality in December 2002. To date, the new department’s responsibilities include analyzing threats, guarding U.S. borders and airports, protecting America’s critical infrastructure, and coordinating responses to future emergencies.

On February 7, 2003, Homeland Security Secretary Tom Ridge said, “As a result of the increase in the threat level from yellow or elevated risk to orange or high risk, specific protective measures will be taken by all federal agencies, both to reduce vulnerabilities and serve as a deterrent. The nation’s Homeland Security Advisory System provides a national framework to inform and to facilitate actions appropriate to different levels of government and to private citizens, either in their workplaces or in their homes.”

Some examples of the protective measures include the following: increased security personnel at points of entry, limited points of entry and exit, enhanced identification checks, and restrictions to travel around federal facilities and airports.

Homeland Security’s Responsibilities

In general, the Homeland Security Department is charged with analyzing intelligence information on terror threats collected by the CIA, FBI, National Security Agency and other intelligence organizations, as well as combating nuclear, chemical, biological and cyber-terrorism.

The new department also brings together the agencies responsible for border, coastline and transportation security. This means that a greater coordinated effort to safeguard America’s transportation systems and secure its borders will take place. And, this effort may mean longer delays in receiving goods, which may mean businesses can no longer rely on a just-in-time inventory strategy.

The Impact of the Maritime Transportation Security Bill

America’s 361 sea and river ports handle the vast majority of U.S. global trade. The Maritime Transportation Security Act addresses the security of these ports. Prior to September 11, 2001, less than 2 percent of the containers that arrived by sea were inspected by U.S. Customs or other law enforcement officials. And although some security improvements have been made, what changes are taking place within maritime security in order to ensure exporters and importers are protected?

U.S. Customs is currently focusing on three general categories: risk reduction, inspections and container security. Since these categories will definitely impact shippers, intermediaries and carriers, what happens in each category is important to everyone in the supply chain.

Risk and Information Gathering

Information gathering is quickly becoming an important piece of the U.S. Customs’ puzzle. In fact, as of February 2, 2003, after a 60-day phase-in period, U.S. Customs enacted a rule that requires sea carriers to electronically send detailed manifest information at least 24 hours in advance of loading cargo on a ship bound for the U.S.

The rule is designed to allow U.S. Customs officers to analyze container content information and identify potential terrorist threats before the U.S.-bound container is loaded at the foreign seaport, not after it arrives in a U.S. port. Initially, enforcement efforts are focusing on significant violations of the cargo description requirements of the 24-hour rule. For example, the use of such vague cargo descriptions as “freight-all-kinds,” “said-to-contain,” or “general merchandise” are no longer acceptable.

When vague descriptions are used, ports will issue a “do not load message” on the shipments. And once ports have issued this message, cargo should not make its originally intended voyage. Carriers should only load the cargo after Customs has given approval to load; if cargo is loaded without prior approval by Customs, the container will be denied permit to unload at any U.S. port.

Some of the other required manifest information includes the date of scheduled arrival in the U.S., the foreign port of departure, the shipper’s name and address, and the vessel’s name and number.

According to Customs Commissioner Robert Bonner, compliance with the 24-hour rule is a matter of national security and is essential to help secure the global supply chain. Bonner further said that he “applauds the efforts of those sea carriers, non-vessel operating common carriers and other parties who have taken implementation of the rule seriously.” For those who do not comply, U. S. Customs is prepared to impose hefty fines and demonstrate that 100 percent compliance is expected.

Although this protective measure makes excellent sense and should deter terrorists hoping to hide nuclear weapons and radiological or biological materials in U.S. bound containers, the new rule is creating some unrest. In short, many carriers fear that Customs will be unable to process the manifests in a timely manner, which in turn will mean costly delays.

C-TPAT Program Shows Promise

One new program that appears to be working is the Customs-Trade Partnership Against Terrorism (C-TPAT), a voluntary program designed to increase supply chain security. Businesses who participate agree to self-assess their supply chain security under C-TPAT guidelines, submit a supply chain security profile, create and implement a supply chain security program, and communicate C-TPAT guidelines to other businesses with which they work. For doing so, participants may have fewer Customs inspections when their cargo arrives in the U.S.

Technology Grows for Cargo Inspection

Traditionally, physical inspection was the U.S. Customs’ primary means of identifying what was entering the country. But, since only 2 percent of cargo is routinely inspected, leaving 98 percent to chance, what’s now being done to improve the inspection process? Today, technological inspections are increasing, and this technology, such as x-ray and gamma ray machines, is not only making inspections quicker, it is also making it easier to detect dangerous substances and/or suspicious materials. However, technology is not without fault.

For example, last summer a random x-ray examination took place in Miami of a container from Israel. The x-ray indicated the container was filled with explosives, but it was later determined by the bomb squad that its contents included two metal flower pots made from an artillery shell and a piece of an exploded test missile. During the lengthy inspection, the port was shut down, which caused delays and added costs.

Inspections at Home and Abroad

A new program called the Sea Cargo Targeting Initiative is designed to identify suspicious cargo entering the U.S. This initiative adds new criteria to Customs automated systems, ensures that all manifests are processed through the Automated Targeting System and standardizes Customs procedures and practices.

For instance, soon all high-risk containers will be examined by non-intrusive technology; container seals also will be inspected. The goal is to quickly separate cargo into general and high-risk categories, so general cargo doesn’t experience delays. Furthermore, two programs are now in place for containers scheduled for shipment to the U.S. from foreign countries. They are the Container Security Initiative (CSI) and the U.S.-Canada Smart Border Plan. Under CSI, U.S. Customs personnel are scheduled to be stationed at key ports, such as Antwerp, Hamburg, Rotterdam, Le Havre, and Singapore.

These personnel, in coordination with the host country, will identify and pre-screen U.S. bound containers before they are even loaded. Although anticipated to send a strong message to potential terrorists, this approach is causing concern. For example, some smaller foreign ports believe they will suffer if they do not have a U.S. Customs employee on site. Furthermore, will U.S. importers not using those ports be penalized by having to endure longer inspection times and increased delays?

Because so much cargo intended for Canada enters via a U.S. port and vice versa, the U.S. and Canada have agreed to assign Customs personnel to various ports, where they inspect the cargo bound for each others’ countries. The ports currently involved in the Smart Border Program are Newark and Seattle in the U.S. and Halifax, Montreal and Vancouver in Canada.

Improving Container Security

The U.S. government isn’t the only group working at improving U.S. security. Private businesses also are developing both new containers and tamper-proof seals for containers. Plus, global positioning system transponders are being developed for containers in order to track them in real-time to see if they alter their original track or are delayed for an excessive amount of time.

Lead the Pack

Security requirements and needs are changing at warp speed. Businesses must plan for and implement their changes just as quickly. This means exporters and importers must be proactive and make changes that make good business sense. For instance, experts recommend making changes to your security plans, even if it means a great deal of up-front costs. To remain competitive, you have to lead the pack.

Companies linked to the global marketplace through exports, inward foreign direct investment (FDI), outward FDI, or imports grow faster and fail less often than companies not linked. Plus, their workers and communities are better off.

These are the findings by Howard Lewis III and J. David Richardson in their new report, Why Global Commitment Really Matters!, published by the Washington, DC-based Institute for International Economics. And, the two authors’ analysis holds up when comparing companies of the same size in the same industries, both in the United States and around the world.

Exporting Plants Perform Better

Compared to non-exporting firms, U.S. exporting firms experience 2 to 4 percentage points faster annual growth in employment, offer better opportunities for advancement, expand their annual total sales about 0.6 to 1.3 percent faster, and are nearly 8.5 percent less likely to go out of business. These gains are not dependent on any specific time period or export volume, according to the report.

Additionally, workers employed in export firms have better-paying jobs. For example, wages of blue-collar workers in export firms average 13 percent higher than in non-exporting plants. Deeper analysis reveals that blue-collar earnings are 23 percent higher when comparing large plants, and 9 percent higher when comparing small plants; white-collar employees receive 18 percent more than their non-exporting counterparts. Plus, the benefits for all workers at exporting plants are 37 percent higher, including improved medical insurance and paid leave.

Plants Utilizing Inward FDI Benefit More

American plants that are recipients of FDI employ workers with 19 percent higher productivity, provide them with more machinery and equipment, and use more cutting-edge technology than their nonglobally-engaged counterparts, according to Why Global Commitment Really Matters! These benefits accrue at plants with an equity stake as low as 10 percent. Additionally, the report says blue-collar and white-collar jobs at plants with foreign investment pay 7 and 2.5 percent more, respectively, when comparing plant size, industry and location.

Firms Linked through Outward FDI Excel

Surprising to many, U.S. labor productivity in large and small U.S.-based plants with investments abroad is 11 percent and 33 percent higher, respectively, than in their U.S. counterparts that solely operate domestically. Furthermore, these U.S. multinationals utilize more advanced manufacturing technology as compared to U.S. firms with no overseas investments.

Plus, employee annual average earnings at large and small American multinationals are 18 and 25 percent higher than at their U.S. counterparts. Further analysis indicates difficulty in disentangling white-collar job gains at American-owned multinationals; however, blue-collar job gains are significant.

Importers also Provide More Benefits

Approximately 70 percent of U.S. imports consist of raw materials, components and capital goods that typically do not compete with American jobs. In fact, these imports, which offer unique capabilities and competitive prices, enhance U.S. worker productivity. And higher productivity leads to a host of benefits.

According to the report, investment-engaged firms import more than non-investment-engaged firms. For example, U.S. foreign-backed manufacturing plants imported 16 percent of their intermediate goods in 1992, while U.S. manufacturing plants invested abroad imported 11 percent. By comparison, non-investment-engaged U.S. manufacturers imported approximately 7.5 percent of their intermediate inputs in 1992. The research suggests that one benefit derived from investment-engaged firms is their ability to grow efficiently through savvy importing that is reflected in the use of better tools and methods.

Communities Fare Better

The new report also indicates that U.S. communities which host foreign multinationals incur a positive spillover effect that involves wages, technology and skills. Data is not yet available on U.S. communities that host American multinationals.

But logic holds that communities which host globally-integrated companies benefit through a more stable workforce and a stronger tax base. Furthermore, the revenue generated from global integration flows to local communities through restaurants, retail stores, movie theaters, etc., and spreads risk should the domestic market enter a period of slow or negative economic growth.

Similar Findings Abroad

Microdata research in a variety of countries finds strikingly similar patterns, according to the report. In fact, Lewis and Richardson say, “Foreign firms, workers and communities that commit to all sorts of global linkages prosper relative to comparable counterparts that do not.” This means that companies in the U.S. and abroad not linked to the global marketplace should consider being linked, and companies that are linked should consider deepening their international ties.

A company’s financial information and resources are perhaps its greatest assets. That’s why it would be devastating if they were tampered with or stolen. Unfortunately, today, check fraud poses a significant threat to organizations.

In fact, corporate check fraud now is reaching epidemic proportions and costing banks and companies billions of dollars a year worldwide. If you haven’t experienced the problem already, you may be lucky. Chances are you’ll be faced with check fraud sometime in the near future unless you take steps today to combat it.

Limit Your Exposure to Check Fraud

Even with the ease and abundance of electronic payment systems, checks continue to be the most popular method of making payments in the U.S. They also are just as popular with counterfeiters, forgers and thieves. Why? Because check fraud is a relatively low risk crime with potentially high payoffs and a good chance of success.

Your company could stand to lose hundreds, thousands, or even hundreds of thousands of dollars due to check fraud. That’s why treasurers need to establish strong internal safeguards to protect your company from check fraud. Here are some precautions to take:

Convert as many of your payments as possible to ACH and other electronic payment systems.

Without a check, counterfeiters, forgers and thieves have nothing to steal, alter or copy. Plus, you can save on the check printing and postage costs of payroll, pension payments, vendor payments and shareholder dividends.

Use a positive pay service for your disbursement accounts.

These services provide reports that identify potentially fraudulent checks by comparing the serial numbers and dollar amounts of posted checks with your issued checks. An exception report lets you identify checks that have already been paid, checks with serial numbers that were never issued and checks with incorrect dollar amounts.

Reconcile your accounts promptly, on a daily basis if possible.

The quicker you reconcile, the sooner you can detect a fraudulent check after it has been presented for payment, and the faster you can contact your bank to return the item. Train your staff to look for suspicious items and how to use stop payments and voids.

Request large-dollar payment reports from your bank.

These reports show all large-dollar payments that have posted to your account. As another safeguard, you can specify the minimum dollar amount for reported transactions. Available early in the day, these reports can help you quickly identify fraudulent checks.

Use check stock, fonts and inks that prevent or detect fraud.

Order checks designed specifically for your company, not generic checks. Find number fonts that prevent the dollar amount from being removed or altered without detection. Use inks that smudge or discolor to show alterations and erasures. And, get stock with microprinting, watermarks, pantographs, holograms, borders and patterns that would be impossible to duplicate.

Safeguard your blank checks and signatures

Lock up checks and signature plates and keep them in separate locations. Make frequent, unannounced audits of your check stock. Limit the number of official check signers and immediately notify your bank when authorized signers change. Consider using multiple signers for checks over a certain dollar amount. Centralize your company’s check-writing function as much as possible.

Separate your check-writing and account reconcilement functions

By doing so, you increase the chances of catching dishonest employees and stopping internal check fraud before it can occur.

Employee Theft also Is a Major Concern

Many corporations are learning the hard way that the usual deterrents to theft, such as locks, alarms, security personnel and guard dogs, do not provide all necessary protection. That’s because employee theft is just as prevalent as check fraud. Employees often know a company’s security measures and how to get around them. Some unscrupulous insiders may even devise ways to pay themselves for services not rendered or products not shipped. And it’s difficult to catch employees in any wrongdoing.

Then there is corporate espionage, where security breaches may involve trash searches, utility disruptions and other acts of vandalism. Plus, competitors can use sophisticated techniques to hack into systems, such as impersonating an employee to enter a secure area, wiretapping and eavesdropping. So what measures can be taken to tighten controls and security?

Employees Are Your Greatest Asset, But Some Are a Risk

In addition to protecting your company from check fraud, you also may have to protect it from competitors, as well as your employees. Corporate espionage is a growing problem, but one that can be alleviated or mitigated by taking some simple precautions. Hiring trustworthy employees is the first and best defense. One way to ensure that reliable people are hired is to perform thorough background checks on everyone, including clerical workers, who will have access to your information and accounting systems.

According to Brendan Hewson, senior vice president of Bank of America’s Corporate Security International Services, “Failure to check references can later cause embarrassments, theft, fraud and even reputational damage.” His advice is to “check what is not there.” If there is a gap in employment or something is missing from a potential employee’s background, research it. Hewson feels “you should not assume anything. All circumstances should be treated as unique.”

Once hired, employees should be monitored for behavioral changes that can signal financial or family difficulties, addictions, psychological illnesses or other problems. Be on the lookout for suspicious spending, excessive absences, changes in physical appearance or a decline in job performance. Implementing more formal monitoring programs that include periodic medical exams, mandatory personal financial statements and computer surveillance also are good ideas.

If you lay off or fire employees, take immediate steps to safeguard your information systems. Security experts suggest escorting former employees from the building, and requesting the return of ID, badges and keys. Also remember to change passwords and cut off access to computer systems.

Restrict Entry to Buildings and Computers

Confidential information is everywhere in companies — on desks, computers, laptops and PDAs. How can access to these areas be controlled? State-of-the-art electronic security, including passwords, keys and badges and/or eye or fingerprint scans, should be required for entering offices and computer systems. Reinforce these safeguards by locking doors and windows, using guards and watchdogs, alarming entries and exits and installing surveillance cameras.

To protect computers, all communications should pass through a firewall barrier. This allows for the review of all computer traffic and the refusal of any communication not meeting predetermined criteria. Wiretapping into cables to display and record any information that’s being exchanged also is suggested.

Have a Back-Up Plan

With computers and laptops spread throughout companies, backing up information has become extremely complicated and is often ignored. However, it must be done. Be sure to have formal back-up procedures in place, and insist your employees follow them. Encrypt copies of confidential information in case laptops are lost or stolen. Any important information not stored on computers should be catalogued, filed on microfilm/microfiche and stored in a safe location with a designated custodian.

Install Detection and Anti-Virus Programs

Protect computer and telecommunications systems with specialized programs that warn of intrusion. Alarms or warning messages can signal viruses, the use of unauthorized passwords, repeated password attempts, unauthorized users trying to enter your systems, unusual log-ons that occur early in the morning, late at night or on weekends, or major changes in computer usage.

Anti-virus programs, already used for catching bugs before they disrupt computer systems, also can be used to detect slowdowns in processing time, attempts to change protected files, a loss of computer memory and other signs of intrusion. As such, be sure your anti-virus programs run automatically and regularly.

Always Be on Your Guard

The most important advice for protecting your financial information and resources is never to let down your guard and have a comprehensive program in place. “Guidelines should be created and continuously developed,” suggests Hewson.

In the war against terrorism, security has taken on a role of extreme importance. With the passage of both the Homeland Security and the Maritime Transportation Security bills, it is certain that the way importers and exporters do business will change. But what kind of changes can you anticipate? And how will the changes impact your business?

Homeland Security Department Created

The Homeland Security department, which combines more than 20 homeland security agencies into one Cabinet department and employs nearly 170,000, became a reality on November 25, 2002. The new department is charged with a number of very serious responsibilities, including analyzing threats, guarding U.S. borders and airports, protecting our country’s critical infrastructure, and coordinating our response for future emergencies. In short, Homeland Security is accountable for ensuring the safety of the American people.

New Responsibilities

In general, the Homeland Security department will analyze intelligence on terror threats collected by the CIA, the FBI, the National Security Agency and other intelligence organizations. It also will combat cyber-terrorism, as well as nuclear, chemical and biological terrorism. Additionally, the new department will bring together the agencies responsible for border, coastline and transportation security. As such, a greater coordinated effort to safeguard America’s transportation systems and secure its borders will take place. Furthermore, the Homeland Security department will work with state and local officials to prepare our country’s response to any future terrorist attacks. And, since the first minutes and hours after an attack are crucial in saving lives, providing first response personnel with appropriate training is imperative. This very necessary effort, however, will mean longer delays in receiving goods.

Maritime Transportation Security Act

The Maritime Transportation Security Act addresses the security of America’s 361 sea and river ports — which handle 95 percent of U.S. international trade and are responsible for the transfer of more than 2 billion tons of freight annually. And although some security improvements have been made, less than 2 percent of the containers that arrive by sea currently are inspected by Customs or other law enforcement officials.

To date, the U.S. Customs is currently focusing on three general categories: inspections, risk reduction and container security. These categories will definitely impact shippers, intermediaries and carriers, so what happens in each of them is important to everyone in the supply chain.

Boosting Cargo Inspection

In the past, U.S. Customs has used physical inspection as its primary means of identifying what was entering the country. And, U.S. Customs often has relied on the good faith of shippers to ensure that all documentation was accurate. But, since only 2 percent of cargo is routinely inspected, leaving 98 percent to chance, changes are being made.

Today, technological inspections are increasing, and this technology, such as x-ray and gamma ray machines, is not only making inspections quicker, it is also making it easier to detect dangerous substances and/or suspicious materials. However, technology is not without fault and can produce some false alarms.

For example, last summer in Miami, a random x-ray examination of a container from Israel indicated that it was filled with explosives. It was later determined by the bomb squad called in to open the container that its contents included two metal flower pots made from an artillery shell and a piece of an exploded test missile. During the lengthy inspection, the port was shut down, which caused delays in terms of time and money.

New Programs in Effect

To address suspicious cargo entering the U.S., a new program called the Sea Cargo Targeting Initiative is beginning to gain momentum. In short, this initiative adds new criteria to Customs’ automated systems, ensures that all manifests are processed through the Automated Targeting System and standardizes Customs’ procedures and practices.

As a result, all high-risk containers are anticipated to be examined by non-intrusive technology; container seals also will be inspected. Overall, the goal is to quickly separate cargo into general and high-risk categories, so general cargo doesn’t experience delays.

Furthermore, two programs are now in place in regard to containers scheduled for shipment to the U.S. from abroad. They are the Container Security Initiative (CSI) and the U.S.-Canada Smart Border Plan. Under CSI, U.S. Customs personnel are scheduled to be stationed at ports in Singapore, Rotterdam, Antwerp, Le Havre, Bremerhaven and Hamburg.

These personnel, in coordination with the host country, will identify and pre-screen U.S.-bound containers before they are even loaded on ships. This is expected to send a strong message to potential terrorists. And although this is a sound approach, some smaller foreign ports feel they will suffer if they do not have a U.S. Customs employee on site. Furthermore, some U.S. importers are asking if they will be penalized in terms of longer inspection times and increased delays for not using those ports.

Since much cargo intended for Canada enters U.S. ports and vice versa, the U.S. and Canada have agreed to a bilateral approach. U.S. and Canadian Customs personnel are now assigned to various ports, where they inspect cargo bound for each others’ countries. The ports currently involved in the Smart Border Program include Newark, Seattle, Vancouver, Halifax and Montreal.

24 Hour Notice Required

Information gathering has quickly become a very important piece of the U.S. Customs’ puzzle. In fact, Customs has enacted a rule that requires carriers to electronically send detailed manifest information at least 24 hours in advance of loading cargo onto U.S.-bound ships. However, this is creating some unrest, since many carriers fear that Customs will be unable to process the manifests in a timely manner, which, in turn, will mean costly delays.

One new program that seems to be working is the Customs-Trade Partnership Against Terrorism (C-TPAT), a voluntary program designed to increase supply chain security. Businesses who participate agree to self-assess their supply chain security under C-TPAT guidelines, submit a supply chain security profile, create and implement a supply chain security program, and communicate C-TPAT guidelines to other businesses with which they work. For doing so, participants may have fewer Customs inspections when their cargo arrives in the U.S.

Look To Shave Delivery Times

New security requirements will undoubtedly be disruptive. Consequently, companies must think ahead. For many, a just-in-time system will be replaced with a larger just-in-case inventory. But in the long-term, businesses will need to improve their delivery systems and anticipate delays beyond their control.

One way to speed merchandise along, for example, is to ship it in containers with tamper-proof seals. Currently under development, these seals would indicate if the containers were opened or tampered with. Plus, global positioning system transponders are being developed, which will enable containers to be continuously tracked, identifying unusual delays or altered destinations.

To stay ahead of the curve, companies will need to make investments in new technology and find ways to improve the management of their supply chain.