Paying for Protection

Air and ocean cargo security may be getting most of the attention lately, but truckers, railroads, and warehouses are paying plenty to keep domestic supply chains safe.

By John D. Schulz, Contributing Editor -- Logistics Management, 5/1/2006

Anyone who's been following the recent Dubai Ports World brouhaha might believe that America is most vulnerable to terrorist attacks against its seaports. They would be right to be concerned about that possibility. But the need for security hardly stops at the gates of U.S. ports.

Air and ocean security have been getting most of the attention lately. But few seem to notice that there are millions of potentially dangerous targets moving every day in this country's domestic transportation and distribution infrastructure.

For instance, every day a half-million hazardous materials shipments move by truck, and thousands of rail cars filled with chemicals travel around the country. A terrorist with a little imagination and burglar's tools could target a warehouse where chemicals and other potentially deadly materials are stored.

There doesn't seem to be a national strategy for the security of domestic transportation and distribution. Instead, these market segments are subject to a hodgepodge of regulations. But there is a common denominator: money. Railroads, motor carriers, and warehouses are paying plenty to keep their customers' cargo safe, and they seem intent on passing at least some of those costs on to shippers.

Nobody in the railroad industry is against better cargo security, but carriers do worry about the cost of increased security inspections and delays at border crossings. Nancy Wilson, vice president of security for the Association of American Railroads, says railroads have no choice but to ask shippers to pay more. "Our rates are based on overall operating costs, and security is part of that overall cost."

State and local regulations also weigh heavily on rail executives' minds. Any operator will tell you that there's no bigger time- or money-waster than having to comply with 50 state regulations when one federal law would do. And now even municipalities are ruling in the name of security which cargoes they will or will not accept.

One example is the recent move to ban hazardous rail shipments in Washington, D.C., where rail cars pass within 300 yards of the U.S. Capitol. If the disputed rule should be upheld by the courts, carriers will be faced with a confusing patchwork of regulations. "We do know there are a number of other jurisdictions poised to issue similar bans based on the outcome of that case," Wilson says.

There's also concern about the frequent turnover among Department of Homeland Security officials in charge of freight security. "I see the government making the same mistakes over and over," Wilson says. "I don't want to say they're not responsive. But I will point out that with the perpetual musical chairs going on with DHS and its field offices, we're constantly reeducating government officials."

Truckers also face costly constraints on their operations. Drivers for New England Motor Freight (NEMF), a leading regional LTL carrier, experience daily delays while navigating enhanced security measures in and around New York City, notes Vice Chairman Jon Shevell. Drivers are forced to pull over more often to have their loads inspected, and morale suffers when they must show the same loads to different officers, he says.

Stepped-up security checks also incur costs in terms of manpower. The trucking industry is already facing a shortage of up to 20,000 drivers per year; every measure that tightens driver security makes it more difficult to recruit new personnel, trucking executives say. That leads to higher costs because trucks that would otherwise be in commerce must sit idle.

Truckers, who operate on thin margins at the best of times, are already coping with diesel costs that have doubled in four years, plus higher costs for insurance, wages, and real estate. They simply can't afford to absorb additional costs, they say. "Shippers have to realize it's a new world out there," says Shevell. "The days of the free ride are over."

Truck-terminal security does not come cheap. Still, carriers should implement stringent security measures because it's sound business practice, says John Tabor, director of corporate security at National Retail Systems (NRS), a third-party logistics and trucking firm. NRS' 80-acre facility in North Bergen, N.J., is secured by special fencing, lighting, and closed-circuit cameras, among other measures.

But not all security efforts are pricey. Gene Klein, supply chain manager for food-service giant Sysco Corp., praises the Department of Transportation's Highway Watch program, which enlists the eyes and ears of the nation's truck drivers in the war on terrorism. "It raises awareness and sends the message that we're not soft targets anymore," he says. "There's no cost to that." Although such programs can be very effective, he adds, they don't eliminate the need for other security measures.

Warehouse security experts say their jobs have changed since 9/11. Although it's still about protecting merchandise and personnel, the "how" and "against whom" have expanded.

"Everybody wants to do what's right, and not have their goods held up," says Robert Shaunnessey, executive director of the Warehousing Education and Research Council (WERC). "But there are some complicated issues that raise questions about security. The problem nobody wants to do talk about is if somebody wants to break in and take over a building, they can do it."

Some warehouse operators say security regulations for their industry may be costly, but they also pay dividends in reduced losses from theft, lower insurance claims and premiums, and improved efficiency—provided rules are uniformly set and enforced.

Warehousemen also give high marks to the U.S. government's Customs-Trade Partnership Against Terrorism (C-TPAT) program. They say C-TPAT, which aims to improve the security of international supply chains, helps them because imported merchandise is screened long before it reaches their facilities.

Warehouses that process, pack, or store food, drink, and dietary supplements must comply with the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. That law requires them to track, verify, and document exactly which parties have "touched" such products. That's added a significant administrative and cost burden on the industry.

Sysco's Gene Klein characterizes the private sector's response to the Bioterrorism Act as an effective effort to protect the nation's food supply. "This is not an adversarial relationship with the government, it's a hand-in-hand partnership to find a solution that works for everybody," he says.

The pressure to step up background checks for transportation workers is increasing. A "Transport Workers Identification Card" (TWIC) is now in development. This national ID card would be required for as many as 10 million workers in the trucking, rail, air, maritime, and related industries.

The Transportation Security Administration estimates that over the next three years, 400,000 truck drivers annually will have to undergo up to four separate background checks: for the Commercial Drivers License hazmat endorsement, for port and aviation work, for their own companies, and for a federal fingerprinting requirement. No doubt more than a few will simply choose another profession.

That's what the transportation industry must deal with now. And what would security experts like to see coming out of Washington in the future? "I would like to see inspections based on threats," says the AAR's Wilson. "I'm not sure what we have today is truly risk-based."