In November, my company received a phone call from a law firm asking about my availability as an expert witness. The case involved cargo security—a loss of both trailer and contents.

The issue was quite simple: If container security systems were available at the time of the loss, and none were used, was there a liability issue? In other words, does the concept of “a reasonable standard of care” mean that negligence could be proven if container systems were reasonably available but not employed, especially for high-valued shipments? In the private sector, a negligence judgment could send shivers up the spines of carriers and shippers alike and could certainly imperil the promise of greater supply chain efficiencies.

Most supply chain executives understand that smart containers can detect something, but little more is known or appreciated. In fact, not all smart containers have the same levels of intelligence. Basically, a smart box senses and reports. The smartest type tells who supervised its stuffing, what’s in it, where it’s leaving from and where it’s going, who’s carrying it, where it is at any given time, where it is but shouldn’t be, and whether an authorized person opens it at destination. It will also signal any unauthorized access en-route and say where that access took place. The dumbest container usually can tell you if its doors were opened en route.

A recent study on smart container usage from Stanford University points to quantifiable benefits such as a 50 percent increase in access to supply chain data, a 38 percent drop in theft and similar losses, a 14 percent cut in excess inventory, and 29 percent reductions in overall transit times. Consulting firm BearingPoint has calculated benefits of up to $700 per container per move while the U.S. Congressional Budget Office has noted savings of 0.8 percent of the value of a smart container’s contents.

The challenge for supply chain managers, however, is to divide the two objectives—supply chain efficiency and national security—and to set expectations accordingly. In this article, I want to add to the understanding of what a smart container is by explaining what it detects, how it detects, what it does with what it detects, and how it “knows” when to begin and end working.

But even more importantly, I’ll share some of the challenges that must be met before smart containers become an integral part of the world’s supply chain security solution. But first, let’s start with some of the basics.

The easy answer is “it depends.” If you are Coca-Cola and you’re shipping syrup from Puerto Rico to the U.S. mainland, you probably aren’t worried about theft since thieves are unlikely to be able to move stolen syrup and because it’s probably not worth stealing in the first place. A more practical worry is contamination of the syrup—deliberate or otherwise. If you work for a pharmaceutical company like Pfizer, you’ll also fear contamination, but you’ll also worry about theft of high-value medications.

Although the specifics of what to detect vary by the type of shipper, there is some general agreement as to what should be detected.

Knowing the container’s location is also important. One location-detection option is called geo-fencing. In essence, the container detects a variance between where it should be and where it is and reports it. What we should be able to detect, however, may not be what we can detect, given the current levels of technological sophistication.

Sensors that can detect and report a breach or change in container status in real time—or near real time—virtually extend the U.S. borders to foreign locations. In most cases, this basic detection is available and inexpensive.

We can detect breaches into containers using magnetic switches, light, vibration, and temperature. Companies such as General Electric and GlobalTrak offer systems that use a combination of sensors, RFID, cellular, and satellite technologies to detect unauthorized breaches. Detecting a container’s position is also quite simple and low-cost. Just as General Motors’ OnStar system uses satellite positioning to pinpoint location, carriers and shippers can use services provided by satellite service providers such as Iridium, Orbcomm, and Inmarsat.

However, we still lack the sensing technologies needed to adequately detect

A smart container must be capable of reporting what it detects. And so far, there are currently three generally accepted methods of transmitting such data:

Additionally, RFID has no global protocols or standards. For instance, RFID on which the data ride in the U.S. will not work anywhere else. A transceiver in Shanghai or Cape Town cannot trigger data transmission on the tag on a container shipped from Boston or Jacksonville. In short, RFID for container security is applicable only to those areas of the world that have agreed on the same frequency.

So far there has been no noticeable progress toward universal acceptance of these cellular technologies as an answer to container communications, especially in light of competing applications and levels of development and sophistication worldwide. And cellular introduces fundamental security issues such as interoperability, authentication, tampering, eavesdropping, or access to information that is transmitted in the clear as opposed to being encrypted.

In practice, a truly effective security solution requires a complete system of end-to-end coverage—from origin to destination.

The importance of beginning control at loading cannot be overemphasized. It is required by the World Customs Organization, the U.S. Customs Trade Partnership against Terrorism (C-TPAT), and Europe’s new Authorized Economic Operator (AEO) program. Also, the U.S. SAFE Port Act of 2006 defines global supply chain as beginning at a container’s origin and ending at its destination. Its process adds the human element—a vital component that is often eclipsed by preoccupations about technology.

At origin, container systems must include the identification of a party responsible for final inspection of the cargo prior to its dispatch and subsequent international movement. Someone must take responsibility for confirming the cargo on the bill of lading or booking sheet, for activating the smart container system, and for locking the doors. This responsible person must be vetted for his or her integrity and competence.

Equally, there must be a counterpart at destination, and both parties must be electronically associated with the smart container by a unique identifier in order to complete the system. The activation also allows a smart container to notify appropriate parties of an unauthorized breach or to report the condition of the container. Depending on the sensors used, it could also report the condition of the cargo and even provide off-course alerts on its own hijacking all the way from origin to destination.

In effect, the process becomes the equivalent of a chain of custody. It treats the container as if it were a certified and registered letter. The smart container provides the ability to serve as a third-party record of the transaction recorded automatically by a worldwide call center. It offers an electronic receipt of delivery, accomplished by the opening of the container by an approved and authorized person at the destination. A smart container system, then, is much more than just a locked door. It is a complete system that must:

• Electronically identify authorized personnel stuffing and securing the container and accept/report information such as container/trailer number and booking data.
• Detect a breach in any container part.
• Report the breach in real time (or close to real time).
• Track the container end-to-end.
• Identify authorized personnel unsealing container.
• Be software-friendly to accommodate disparate logistics programs in communicating critical data.

The short answer is that we all pay for the costs of secure container shipments one way or the other, and shippers and carriers have very few options to defray the expense.

The use of in-container security devices is not mandatory anywhere in the world at this time, although it is moving in that direction. For example, C-TPAT’s Tier-3 category, open to importers that have achieved Tier 2, relates directly to smart containers. Tier 3 importers must employ smart container technology that uses systems or sensors to detect entry into the container anywhere along its international supply chain, from origin to destination, and it must be able to report that entry.

A recent U.S. Customs and Border Protection (CBP) report says that C-TPAT participants using smart container technology will see average reductions of more than 34 percent in examinations; nearly 30 percent better supply chain visibility; a 22 percent gain in their ability to track orders; and close to 30 percent fewer supply chain disruptions. However, genuine expedited service will rest with the implementation of Green Lanes, which will depend on the use of smart boxes.

However, there’s a catch: Green Lanes do not yet exist at U.S. seaports, and in reality, the benefits of that level of C-TPAT membership are few. So far, private companies have failed to see any incentive to sign up for C-TPAT when the benefits are not guarantee—but the up-front costs are.

Until Congress offers something more than a voluntary program with unreliable benefits, paying for and using a smart container will be an industry decision for industry-recognized benefits. At a minimum, the federal government should offer tax relief in the form of a tax credit for investments in container security programs and for involvement with programs such as C-TPAT.

If the U.S. Congress can give a tax credit for railroad track maintenance, it can do the same for support of national security rather than expecting the bulk of the practical effort and investment to fall on private industry’s shoulders.

The increased use of container security systems will ultimately depend on industry’s recognition of the bottom-line benefits and on the existence of real government incentives. The sooner those incentives can materialize, the sooner businesses are likely to see benefits from smart containers.