Better strong than smart?
By Robert Spiegel -- Logistics Management, 7/1/2004
Electronic seals can guard, identify, and attest to the tamper-proof integrity of containers as they depart from factories overseas, roll over inland roadways, and then cross the ocean by ship to North America. The seals' diverse functionality makes it possible to attach to a trailer or ocean container a readable device that not only acts as a theft-deterrent lock but also monitors the shipment's location via global positioning satellite (GPS), gauges the temperature of the cargo, and alerts users when a truck or container moves or its doors are opened without authorization.
These sophisticated, "smart" seals have been touted by some as the perfect solution for guarding containers in the age of global terrorism. But unless shippers are moving military goods to soldiers in Afghanistan and Iraq, it will be some time before they reap the full benefits of this developing technology.
So far, the U.S. military is the only large-scale buyer of these pricy devices. The lack of a common global frequency for transmitting data as well as the high cost of electronic seals and supporting infrastructure represent significant barriers to implementation in private industry.
But that situation could change in the not-too-distant future. For one thing, shippers may find that over the long term, these devices will provide enough security and shipment-visibility benefits to overcome cost concerns. More importantly, legislation passed after the terrorist attacks of Sept. 11, 2001, directs the U.S. Department of Homeland Security (DHS) to identify and test technologies that will prevent terrorists from tampering with international shipments—and electronic seals are at the top of that list.
That law also requires DHS to determine whether certain security technologies should become mandatory; thus, shippers could eventually be compelled to adopt electronic seals whether they want to or not.
E-Seals Under Development
Electronic-seal mandates are a long way off, given that the technology is still in the early, defining stages of development. "The new generation of seals has yet to be determined," says Scott Smith, chairman of the security products committee of the National Cargo Security Council, an industry association in Annapolis, Md.
Holding up development is a lack of international technical standards. "There's an assumption that electronic seals are easy to do, but they're difficult," Smith says. "Every country has its own [transmission] frequency, so it's hard to go country to country."
Nevertheless, a number of manufacturers have debuted or are now developing their own versions of "smart" seals. Feasibility testing of commercially available electronic seals already is under way through the Operation Safe Commerce (OSC) program. OSC is a federally-funded pilot to test procedures and technologies that could guarantee the security of container shipments from point of origin to final destination.
As part of the OSC program, Pinkerton Consulting and Investigations Inc. of Parsippany, N.J., is overseeing several projects at the Port of Seattle and the Port of Tacoma, Wash. In one program, Pinkerton will test electronic seals that are designed to indicate tampering. "The primary purpose is to prevent weapons of mass destruction [from entering containers]," says Barry Wilkins, managing director of Pinkerton's supply chain practice. "We're testing a variety of electronic seals, including some that are designed to alert for radiological, biological, light, and temperature [hazards]."
Even if the government does end up putting its stamp of approval on some versions of e-seals, manufacturers will need to bring down the cost of the technology before shippers will be inclined to go electronic. "Electronic seals are $25 a pop—and that's for one-time use—and the transponder is $400," says Dr. James Giermanski, professor of international business studies at Belmont Abbey College in Charlotte, N.C. "That's not really feasible."
Smith agrees that the price differential between implementing e-seals and strengthening traditional mechanical seals is the deciding factor for most shippers and carriers. "Historically, container seals are bolts that cost 33 to 80 cents, and there isn't anyone who wants to pay more than that right now," he says.
That price differential is such an influential factor that few shippers are buying electronic devices so far, say seal manufacturers. "From our perspective, the so-called smart seal is not yet in common use," says Steven Diebold, security applications specialist at American Casting and Manufacturing Corp., a seal producer in Plainview, N.Y. "We developed smart seals and showed them to customers, but we didn't receive any real interest." According to Diebold, that lack of acceptance was behind American Casting's decision not to produce an electronic seal at this time.
Ocean carriers aren't rushing to purchase electronic seals either. But Wilkins thinks shippers eventually will demand that carriers equip containers with smart seals in order to continually monitor sensitive shipments. Carriers will resist unless the price comes down substantially or it becomes a matter of law, he predicts. "It either has to be commercially viable for carriers, or the government will have to legislate it to keep a level playing field," he says.
Giermanski, for one, is betting that shippers and carriers will opt for less-expensive devices that transmit data about a shipment's whereabouts and condition but do not control access to a container's contents. The college educator also serves as CEO of Powers International Inc., a company that produces electronic tracking devices that contain customs data and let users know if a container has been opened. To keep costs down, Powers International sells the devices at cost, then charges users a monthly fee of around $40 to $60 for monitoring each shipment.
Mechanical Seals Get Tougher
Even though shippers aren't ready to employ electronic seals in great numbers, they still must find ways to improve container security and prevent another terrorist attack. And they're under pressure to secure their shipments against cargo theft, estimated to cost between $14 billion and $18 billion annually.
For the time being, shippers are relying on stronger mechanical seals to help solve those problems. They've been having some success: Dallas-based retailer J.C. Penney, for example, reports that it has virtually eliminated cargo theft in some countries since it began using a nearly indestructible metal security bar on its inbound ocean containers. (To learn more, see "Secure from the Start" in the February 2004 issue, or find it online at www.logisticsmgmt.com.)
Although the U.S. Bureau of Customs and Border Protection is involved in testing electronic seals, it also wants shippers to use tougher mechanical seals. The agency will soon release its ISO PAS 17712 standards for those seals as part of its Customs-Trade Partnership Against Terrorism (C-TPAT) initiative.
Seal manufacturers say they'll have no trouble meeting the new standard. "Most of the products we have in the seal category will meet or exceed the requirements under 17712," says Scott Kirk, executive vice president of business development for E.J. Brooks Co., a seal manufacturer in Livingston, N.J. "Most manufacturers have product that conforms to the anticipated standard."
Some manufacturers believe that the market ultimately will require a blend of electronic and mechanical devices. In anticipation of that trend, E.J. Brooks and Savi Technology, a tracking technology company in Sunnyvale, Calif., have teamed up to produce a seal that integrates Savi's electronic seal into a housing and mechanical bolt made by Brooks, explains Lani Fritts, Savi's vice president of business development.
Quantifying the Benefits
There's little doubt that electronic seals can do the job they're designed to do. Although they're still being tested in the commercial environment, the U.S. military has successfully used them to improve supply chain security. According to Smith, the Pentagon has been able to make it work because the military operates in a more controlled environment than do commercial shippers. "They have completely different requirements and live in a closed-loop system," he says. "They don't have products out on the open road in China."
For commercial shippers, meanwhile, two big questions remain: Will the benefits of smart seals ever outweigh the costs, and will the federal government mandate the use of electronic seals for international containers?
The return on investment for smart seals is difficult to quantify at this early stage, but some industry analysts assert that electronic shipment monitoring will pay for itself by reducing cargo theft and supply chain interruptions. Importers, moreover, stand to benefit once Customs begins offering "fast lane" clearance for companies that use approved electronic seals on their inbound containers.
Wilkins believes that the seals' inventory-tracking capabilities will provide shippers with enough benefits to cover the expense of implementing an electronic system. "Companies are finding that having better control of inventory outweighs the costs," he says. "Plus the cost of the technology is coming down. So if the commodities have to be in the right place at the right time, electronic seals have value."
E-seal technology provides the kind of in-transit visibility that was relegated to the realm of science fiction not too long ago. To be able to know if someone has opened a container door on the other side of the world seems a dream come true. But even dreams have a price, and it's clear that until the cost of electronic seals and the IT infrastructure that supports them come way down—or the federal government makes electronic seals a legal requirement—shippers will stick with tried-and-true mechanical seals to meet security mandates.
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