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Saturday, April 19, 2014

Everything You Need to Know About C-TPAT and Total Landed Cost

[Editor's Note: This is the second article in an article series covering topics related to total landed cost by contributing writer Marilyn Gettinger. See her first article, Total Landed Cost: Just How Much Is That?]

cargo1According to the U.S. Coast Guard, the United States is served by some 360 commercial ports that provide approximately 3,200 cargo- and passenger-handling facilities. U.S. seaports handle more than 2 billion tons of domestic, import, and export cargo each year. U.S. Census Bureau statistics estimates the value of international goods shipped through U.S. seaports in 2011 was $1.73 trillion, representing more than 11 percent of the total U.S. GDP. The World Bank estimates approximately 42 million TEU (twenty-foot equivalent unit) containers were moved though U.S. ports in 2011.

U.S. Customs has had the responsibility of ensuring goods arriving into the country meet regulations such as documentation, registrations with U.S. agencies, labeling and marking, certifications, fumigation, intellectual property, correct tariff selection, and payment of duties.

After 9/11, the U.S. government created the Department of Homeland Security as a Cabinet department focused on establishing new policies, guidelines, and regulations to enhance security in international trade, prevent possible attacks by terrorists, and ensure the safe and non-tampered passage of materials into U.S. seaports.

The Customs department was transferred from the Treasury department to Homeland Security and became Customs Border and Protection. The CBP took on more responsibility in meeting the objectives of Homeland Security in keeping U.S. ports safe, implementing several initiatives since 9/11 to improve security. They are focused more on seaports at origin to prevent dangerous substances from being loaded onto ships destined for the United States, as well as on safe movement across borders with Mexico and Canada.

One of the challenges faced by the agency is the inability to actually open and inspect every container arriving into U.S. ports and crossing borders. This is due to manpower limitations and the significant volume of freight coming into the country. The CBP estimates it opens and views approximately 5 to 6 percent of all containers and closely reviews paperwork on the balance. However, this leaves the bulk of containers open to potential threats.

Customs-Trade Partnership Against Terrorism Is Borne

One of the biggest initiatives has been a program called Customs-Trade Partnership Against Terrorism, or C-TPAT. Since the CBP is only able to inspect a small percentage of incoming containers, the agency introduced C-TPAT as one of the efforts to ensure the security of as many of the 94 to 95 percent of uninspected containers as possible.

C-TPAT was designed to build cooperative relationships that strengthen international supply chains and U.S. border security. It seeks to safeguard the world’s trade industry from terrorists while maintaining the economic health of the United States and its neighbors.

This program is a voluntary government-private sector partnership that encourages importers of record to secure their importing processes from overseas suppliers at their locations, so that containers arrive without potential problems. Once an importer feels its importing processes meet CBP’s standards, it schedules a review for C-TPAT eligibility. A representative from the CBP will meet with the importer to review the processes from all locations, identify needed improvements, and ultimately move toward registration of the importer.

C-TPAT Benefits the Supply Chain

The benefits of C-TPAT for CBP is ensuring security of uninspected containers through best-practice processes implemented and managed by importers of record. The benefits to the importer are reduced possibility of inspection, greater security of goods, reduction of supply chain disruptions, faster movement of its freight through ports and Mexican and Canadian borders, special port entry for type of product, possible lower insurance premiums, possible mitigation on Importer Security Filing liquidated damage claims, increase in public image, and a dedicated CBP liaison.

As of July 2013, there were more than 10,000 certified C-TPAT partners, including U.S. importers, U.S./Canada and U.S./Mexico highway carriers, and licensed U.S. customs brokers. These companies account for more than half of the products imported into the United States.

An organization interested in being registered in C-TPAT voluntarily reviews and signs a Memorandum of Understanding (MoU) and then completes a Supply Chain Security Questionnaire. The next step for the importer is a self-assessment using the C-TPAT guidelines. This assessment includes a review of:

  1. Physical security – Listing of facilities, activities and hours of operation, security guards, perimeter security devices, locking devices, lighting, alarms, cameras/sensors, etc, employed at all locations
  2. Physical access control – Access control for employees, visitors, suppliers, and vehicles
  3. Personnel security – Policies for hiring, citizenship verification, employee misconduct, background investigations, and termination procedures
  4. Information security – Policies for use of ID, passwords, e-mail, and Internet, as well as for hardware and software security
  5. Procedural security – Policies for shipping and receiving hazardous materials, overages and shortages, warehouse security, document review, and record-keeping
  6. Security training and awareness – Policies related to C-TPAT, safety and security training, and related procedures
  7. Conveyance security – Policies for control of seals (locks on containers), container and seal inspection, and container storage
  8. Business partner requirements – Policies relating to selection, management, and evaluation of brokers, carriers, suppliers, and warehouses.

C-TPAT Methodology AND CBP’s 5-Step Process

An organization may select a dedicated internal team or hire an outside consulting organization to perform the tasks listed below, keeping in mind the eight areas of the C-TPAT assessment. The team should review current documented and undocumented policies, procedures, and any security programs in place. The organization may hire additional staff for the review and implementation.

  1. Map cargo flows and supply chains
  2. Conduct threat assessments
  3. Identify security vulnerabilities and weaknesses and rate them
  4. Prepare an action plan to address security weaknesses
  5. Document risk assessment, audit, and annual review procedures.

The assessment includes interviews with those responsible for the various areas of security and a walk-though of physical distribution and corporate facilities, including those of outside organizations in the importer’s supply chain.

Once an organization has its “as-is” map and has identified the gaps to reaching C-TPAT status, it can begin implementing needed training and enhancing its processes.

Weighing the ROI of C-TPAT Investment

The three greatest C-TPAT implementation costs incurred by importers were:

  1. Improving or implementing physical security, averaging $15,000
  2. Improving or implementing IT systems/database development, averaging $12,500
  3. Salaries and expenses of personnel hired or contracted specifically to implement and/or manage the C-TPAT program, averaging $12,000

Maintaining C-TPAT included:

  • Salaries and expenses of personnel hired/contracted specifically for implementation of C-TPAT, approximately $7,500
  • Improving or implementing use of security personnel, at $5,100
  • Improving or implementing physical security, at $3,000.

The CBP offers three tiers of certification:

Tier One – Certified C-TPAT member

  • Five to 8 times fewer exams than non C-TPAT importers
  • Lower level of random compliance measurement examinations
  • Access to FAST (Free and Secure Trade Program) lanes on land borders, including expedited cargo processing
  • If container is selected for exam, it will receive priority and be moved to front of the line.

Tier Two – Minimum criteria has been met and validated

  • Same benefits as Tier One
  • Twice the risk score reduction.

Tier Three – Exceeds minimum security standards (validated) and adopted best practices

  • Benefits of Tiers One and Two
  • True “green lane” treatment with no or infrequent security inspections
  • In case container is picked, it receives priority and moves in front of the exam line.

C-TPAT’s Total Landed Cost Impact

According to the CBP, the median value of a shipment of goods imported into the United States is approximately $37,000. A one-day transit-time improvement resulting from quicker CBP release yields a $107.37-per-container return.

There are significant costs incurred by an importer of record in reviewing, upgrading processes, implementing, and maintaining a C-TPAT program. These costs are now part of the organization’s total landed costs. However, the costs of supply chain disruptions, delayed shipment release from the seaport, additional port or bonded warehouse fees due to inspection, additional customs broker fees, delays and penalties to the organization’s own customers, etc, are also part of total landed cost.

The importer of record needs to identify if the reduction in shipping problems due to C-TPAT registration has a greater dollar value than the implementation costs. But organizations now registered in C-TPAT are, in fact, seeing positive results in their total landed costs.

READ MORE: Total Landed Cost: Just How Much Is That? 

 

Marilyn Gettinger is owner and principal of New Directions Consulting Group, which works with organizations on improving their supply chains through process streamlining and reengineering. New Directions Consulting Group offers workshops and consulting to companies from 30 employees to multinational corporations to upgrade purchasing, inventory, and supply chain processes. Gettinger, who earned her MBA from Fairleigh Dickinson University, teaches total quality management, supply chain management, and international trade at several post-secondary schools. She holds a C.P.M. and is a member of the Institute for Supply Management and the American Production and Inventory Control Society. She can be reached at (908) 709-0656.

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