Down but not out

Down but not out

At this point in the development of supply-chain security policy, it is fair to say that a major bugaboo for the importing community - a government mandate for smart boxes - is not likely to happen. The idea of a sensor being required for all containers entering the country to detect terrorism has failed the reality test.

If the government intends not to disrupt trade in the process of securing it, as it has claimed all along, then foisting an expensive mandate with little derivative economic benefit on the importing public is not the way to do it.

The Department of Homeland Security seems to understand that now, and is focusing on a more realistic agenda based on radiation scanning and better preload screening of containers. But the smart-box story is far from over, and the ending might yet be one that satisfies in the only ways that counts - the nation is more secure and companies are making more money.

The lack of a mandate for smart boxes was a reason why Motorola pulled out of the supply-chain security arena last year; its strategy was based in part on the prospect of a requirement to use a system that it would play a role in supplying. Importers pushed back, knowing that if such a mandate were to come, the technology might not work and they would be saddled with huge new costs and liabilities with uncertain offsetting benefits.

That might have ended the story, and some thought it would. One of the reasons the smart box was such an alien concept was that its benefits were perceived as totally about security and nothing about economic value. It's easy to understand why: For the 50-year history of the container up until Sept. 11, no one had sold importers on the value of smart-box or tracking technology. The lack of a marketable value proposition sank post-Sept. 11 attempts to mandate smart boxes.

Mandates may yet be in the offing because of a provision in the Port Security Improvement Act of 2006, which was passed by the Senate last month, requiring the DHS to establish minimum standards for securing containers in transit. That would likely focus more attention on a variation of the smart box, the e-seal as a component of C-TPAT participation.

Nevertheless, the idea that economic value can be derived from greater visibility of cargo en route lives on. The main difference is that those who are marketing systems today are looking more toward the private sector and less to the government for market validation.

The private sector may now be more receptive. Supply-chain costs are rising, and logistics directors are coming under increasing pressure to control those costs. Increased costs are coming from buffer stock that companies have built into their supply chains as a hedge against terrorist incidents, congestion and the occasional mass port disruption. They are also coming from fuel, which, though lower in recent weeks, is still a lot higher than it used to be.

That is why the concept of value through visibility remains active. By the end of the year, Savi Networks will have 15 terminals and more than a dozen shippers online with its network of radio-frequency identification readers that track containers. It says it has the ability to wire up 80 of the roughly 500 container terminals worldwide and will get to them as soon as it can. Savi's play is that for a certain segment of shippers, highly accurate, timely and detailed shipment data will create a level of visibility that will allow them to tighten their supply chains, shaving inventory costs.

IBM's Secure Trade Lane system takes a different approach, installing sensors inside containers that track the box, its contents and integrity in real time via satellite. It's important to note that in the case of Savi and IBM, security is far from forgotten. The government could get access to the information for security purposes.

There are obstacles to the success of smart boxes. Shippers get a lot of status and visibility information free from their carriers and third-party logistics providers. For many shippers, free information, even if imperfect, is better than perfect information you have to pay for. For some shippers, however, this isn't acceptable, which is why decades-old grievances about the poor quality of visibility-related information have never disappeared. A transportation management software system is only as good as the real world information that's being fed into it.

Peter Tirschwell is vice president and editorial director of Commonwealth Business Media's Magazine Division. He can be contacted at (973) 848-7158, or at ptirschwell@joc.com.