What do the acronyms C-TPAT, CSI, FAST and DHS stand for? How did the Trade Act of 2002 affect export documentation? Which two pieces of legislation both require the development of cargo tracking, identification and screening systems for ocean containers?

A recent flurry of legislation and customs rulings is changing the way the international trade community conducts its day-to-day business. As a result, anyone who's involved in international trade needs to be conversant with the terms shown above and have a pretty good idea of how to answer the other two questions. (You can find the answers in the sidebar titled "The Rundown on Cargo Security Initiatives" on the opposite page.)

So far, most of those measures apply only to ocean shipping. But don't get complacent if you ship by other modes. Security rules are beginning to move into trucking, and eventually they will apply to air and rail shipments, too.

Like any development that affects international trade, the introduction of security initiatives calls for a large measure of diplomacy. If not handled correctly, the cargo security crackdown could create tension between the United States and its major trading partners. The Container Security Initiative (CSI) targets ports that collectively handle more than 50 percent of containerized shipments bound for the import-dependent United States.

The effects will not be immediate. "The real test is going to come later on, after a couple of years and the results of some of these programs work their way down to the commercial level. If [other nations'] trade is being adversely affected, they won't hesitate to say so," says international trade attorney Matthew T. McGrath, a partner in the law firm Barnes, Richardson & Colburn and a contributor to Logistics Management. McGrath predicts that less-developed countries that don't have the means to implement a technologically sophisticated security program will be disproportionately affected.

Globalization of cargo security will take a big step forward when the World Customs Organization eventually adopts its Universal Data Model. That program, initially designed to harmonize the exchange of shipment data for customs purposes, was under way before Sept. 11, McGrath notes, but now is being adapted to security needs. He also expects harmonization of cargo security programs to be on the agenda at the World Trade Organization's ministerial meeting in Cancún, Mexico, next year.

Because cargo security initiatives have so far focused on ocean shipments, U.S. ports are among those most deeply affected by the new rules. The biggest change, says Susan Turner, director of government relations for the American Association of Port Authorities, is that they will be required to assess their own vulnerability to attack and develop plans for prevention and response. "What will be in those plans depends on what they negotiate with the Coast Guard," she says. (Under the U.S. Maritime Transportation Security Act of 2002, the Coast Guard has been designated the lead agency for port security.)

There's no question that ports will have to invest in new technology, equipment and personnel to meet new security standards—and they're more than willing to do so, Turner continues. The Customs-Trade Partnership Against Terrorism (C-TPAT) will soon be open to port authorities, and she expects that all U.S. ports will want to participate. There could be some problems, though, with funding and implementation. The Maritime Security Act includes grant money for upgrading port security, but it's not nearly enough to cover expected costs. And although the legislation does not specify when changes must be in place, it may be difficult for ports to comply with regulations if they include deadlines for implementing new technologies.

Ocean carriers, of course, will bear much of the brunt of new security requirements. They support the federal security initiatives but are worried that the potential cost of compliance could push them over the financial edge, says Christopher L. Koch, president and chief executive officer of the World Shipping Council, which represents ocean carriers. "Carriers already are awash in red ink ... We're talking about tens of millions of dollars in additional costs," he said in a presentation at the Council of Logistics Management's annual conference.

Koch cited the example of one container ship that was detained for two weeks while investigators checked out low-level radiation that turned out to be a natural byproduct of clay tiles. Discharging, inspecting and restowing seven containers on another vessel cost about $30,000, he said, while a third carrier's five-day detention cost it nearly half a million dollars.

"We're not criticizing the government's desire to investigate," Koch said. "But government should limit our costs to what's absolutely necessary. Establishing clear rules would help." For example, if Customs decides that all cargo from a certain country will be examined at the first U.S. port of call, it would allow carriers to modify their routing and container stowage to minimize costs and delays, he suggested. The flip side, he said, is that such decisions could encourage carriers to stop serving certain trade lanes.

The "New Normalcy"

Although most shippers in principle support the Bush administration's security agenda, it will be tough for them to comply with the new laws and regulations while maintaining the normal flow of business. To help them make the mental adjustment, suggests Chuck Winwood, senior vice president, border security for Sandler & Travis Trade Advisory Services and a former top U.S. Customs official, "we may need to look for a way to define the 'new normalcy.'" For example, he says, "We no longer can say that a border is a connection to a contiguous country. The new border is a virtual border that should be pushed back as far as it can go, hopefully to the point of origin."

Security concerns also are redefining international trade relationships. Carriers, forwarders, customs brokers and others are using their participation in C-TPAT as a marketing tool, and participation in C-TPAT could become a condition of doing international business, observes Robert J. Pisani, a former U.S. Customs lawyer who is now director of the Global Trade Advisory Group at the law firm KMZ Rosenman. "What about brokers and forwarders who are not C-TPAT members?" he asks. "Will they still be viable businesses?"

Some shippers whose products are susceptible to theft only do business with carriers and third parties that meet stringent security standards. Coast Guard Cdr. (ret.) Stephen E. Flynn, now a senior fellow in national security studies at the Council on Foreign Relations, expects that more shippers will begin writing security requirements into their contracts with carriers.

There's nothing wrong with that, he said in a speech to the American Association of Exporters and Importers, provided shippers and customs authorities develop uniformly accepted practices. One possible model, he suggested, is the chemical industry's Responsible Care program, which specifies safe handling standards for storage, distribution and transportation of hazardous chemicals.

So far, Customs has been focusing on the processes international traders have in place for ensuring security rather than on the nitty-gritty operational details. That's not to say it will always stay that way, says Pisani. "Suppose a very large company has a procedure that Customs really likes and they make it a requirement for everyone in C-TPAT. The big question is, what's C-TPAT going to look like two years from now? I'm advising my clients that now is the time to get in before the bar to entry is raised."

Another nagging question for shippers is whether Customs' efforts to verify information for participation in security programs could create an opportunity for other types of enforcement actions. Koch noted that some shippers routinely "spin" their cargo descriptions to get the best rates. "The government will take a dim view of lying about commodities from a security standpoint," he said. Customs agents, moreover, are required to bring violations to the attention of the authorities, says Pisani. "There's a law that says, if you're a Customs agent and you find non-compliance of any sort, you are obligated to report it."

Shippers also are concerned about the broader economic implications of security mandates. In a letter to U.S. Customs, Ronald Schoof, chairman of the Joint Industry Group (JIG), an organization of companies and individuals involved in international trade, wrote that the agency's apparent authority to hold up cargo indefinitely while carrying out investigations could unnecessarily postpone the delivery of goods to market. "These delays would most impact peak seasons and quarter-end cycles," he wrote. In addition, Schoof said, delays will lead to increased storage costs; the need to use faster, more expensive transportation alternatives; and stockpiling of inventory—all of which will raise the cost of goods.

Ultimately, JIG and other trade organizations say, their biggest concern is that the federal government not draw the security noose so tightly that it strangles international trade. President Bush, Customs Commissioner Bonner, members of Congress and other officials have repeatedly stated that they would not allow that to happen, notes Winwood.

"[They've said] we can't allow the protections we're building to safeguard us to paralyze the one thing that drives and pays for everything we do, from our tax base to employment to the confidence of the American public." Still, he adds, there will continue to be fears until people see whether or not the new system really works.

Pieces of a Bigger Picture

The lineup of cargo security initiatives coming out of Congress and U.S. Customs may look like a series of unrelated knee-jerk reactions to the events of Sept. 11 and afterward. That frustrates international traders, says Winwood: "The business community expects a holistic approach to fixing a problem and making it work all at once. That's easier said than done, but I think we're beginning to see the government analyze these pieces with the ultimate goal of connecting them."

He cites the Homeland Security Act, which brings federal agencies with security responsibilities together under a single roof in an effort to eliminate conflicting and overlapping responsibilities, as a step in the right direction. C-TPAT, CSI, the Maritime Security Act and other cargo security initiatives, moreover, can be viewed as programs that address separate pieces of a bigger picture, he suggests.

Winwood believes that as the federal government sorts out which agencies will have various responsibilities and builds information systems to link all parties and share data through a single database—a process that will take several years—shippers can expect to see the government move to a more effective model.

Meanwhile, he advises shippers to do three things to make sure they're prepared for what's ahead: stay focused and aware of what's going on in government; bring their legitimate concerns about security policies to the appropriate authorities; and understand what is being requested of them and why.