Csi SCM
Csi SCM
, JANUARY–MARCH 2005
VOL. 32, NO. 1, 3–13
RUTH BANOMYONG*
2, Pra Chan Road, Thammasat Business School, Thammasat University,
Bangkok 10200, Thailand
1. Introduction
The key role of an integrated logistics system is to assist in the production,
consumption and distribution, or the ‘supply chain’, of goods and services. This
means that goods must be produced and delivered to the market (or customer) in
the right quantity, required quality—without defect—and at a competitive price.
Integrated and seamless logistics can play an important role in facilitating global
supply-chain processes.
It is therefore important that the movement of goods can be made by combining
several modes of transport from one point or port of origin via one or more interface
points to a final point or port where one carrier or many carriers jointly organize the
whole transport process. Integrated transport is an efficient transport system that
provides the physical operation to be carried out within the environment of simple
streamlined documentation, efficient management with effective control, a single
liability system and provides a service which is totally reliable, predictable, and
fully meeting the needs of the customer.
However, the efficient operation of transport modes and nodal points are depen-
dent on reduced barriers, institutions and simplified legal regime in order to effec-
tively implement integrated logistics operations. It is viewed that trade is not possible
without transport; therefore support for integrated transport will facilitate national
and international trade by ensuring an uninterrupted and smooth flow of cargo and
giving better control over the supply chain.
* e-mail: [email protected]
Maritime Policy & Management ISSN 0308–8839 print/ISSN 1464–5254 online # 2005 Taylor & Francis Group Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0308883042000326102
4 R. Banomyong
The events of September 11, 2001 have created paranoia on possible terrorists’
related incidents, especially against the US. The institutional response on the threats
let to the implementation by the US Customs department of a strategic programme
known as the Containers Security Initiative (CSI). The purpose of the CSI is to
secure what is believed to be the most vulnerable but indispensable link in the global
supply chain: the ocean going container.
The purpose of this paper is therefore to discuss the impact of CSI on supply-
chain management processes. The first section will concentrate on the issue of
security and global supply chain while the second section will focus on CSI and
its impact on the financing aspects of implementing security initiative.
of South East Asian Nations (ASEAN), the Asia Pacific Economic Co-operation
(APEC) and the growth of intra-Asian trade. These trade-policy initiatives have a
common objective: to open up new trading opportunities by facilitating international
trade.
Global economic integration relies upon efficient global supply chains but
integration can only succeed if security is guarantee as there is a relative degree of
mistrust among trading nations. Certain trade routes are served by relatively fewer
transport operators; with less favourable operational conditions and where risks
are higher, etc. For these countries, this situation results in failure to develop
their international trade potential, higher price for imports, lower foreign exchange
earnings from exports, restricted investment and employment, and, thus, in limited
economic growth.
The competitiveness of internationally traded products is greatly influenced
by various factors, which build up the overall logistics cost within global supply
chains.
The main ones are:
1. Cost
The cost associated with the physical transfer of the goods is an essential
piece of information in the negotiation of an international trade transaction
[10]. To maintain a product’s competitiveness, the seller must make sure that
his or her cost is as low as possible. However, on any particular trade route,
this cost is made up of a number of costs elements corresponding to the
services provided along each specific link. These elements cannot always be
clearly quantified beforehand:
. Some cost elements (direct costs) are directly related to the logistics service
provided. In general, they are based on published tariffs, which reflect
the local market conditions, the quality of the service, and the manage-
ment capacity of the service provider. These considerations depend on the
state of the local infrastructure and equipment, and on the local infra-
structure/equipment maintenance policy to provide reasonable transport
services.
. Other cost elements (indirect costs) are a consequence of the service pro-
vided. They build up as financial costs resulting from poor operations (low
speed, unexpected delays, etc.) as additional costs (e.g. increased insurance
premiums), or as ‘consequential costs’ (e.g. sales opportunities lost because
goods are not readily available). They reflect the efficiency of the services,
The impact of port and trade security initiatives 7
the level of risk involved, and the capacity of the service providers to cope
with administrative and operational problems.
2. Time
Transit time is an important element as goods in transit cost money [11].
Any reduction in transit time would therefore reduce the overall cost of the
delivered goods. Transit times can be improved by increasing transport speed
while cargo is moving on any particular transport mode, and/or by reducing
idle time while cargo is waiting at some interface point for its next
movement. The lack of proper co-ordination of transport operations or the
excessive burden of administrative and documentary requirement might
neutralize any effort or investment in increasing commercial speed.
To reduce the financial cost of their inventories, producers favour
arrangements that supply the required input goods ‘just in time’ (JIT), that
is, within a short time span just before the anticipated use in production
or sale [12]. Under these conditions, time reliability is very important.
An industry under tight schedule operations (JIT supply chains) cannot
afford delays on delivery [13].
3. Safety
Safety of goods is equally important. Any loss or damage, because of theft,
mishandling, poor quantity packaging or physical damage caused by acci-
dent, will result in the non-availability of the goods at the expected time and
place, and in the expected conditions. The financial consequences of such
non-availability, in addition to the cost of loss or damage, are similar to the
time reliability consequence mentioned above.
4. Risk
Uncertainties of schedules, breakages, loss, pilferage, rules and regulations,
etc., are some of the issues faced by traders and may disadvantage exporters
and importers.
5. Security
Security measures are necessary to guarantee the protection of global supply
chains against acts of terrorism or any possible unexpected threat. Beyond
the loss of human life and material destructions, a terrorist attack will
disrupt the flow of goods within global supply chain.
The above-mentioned considerations indicate that trading opportunities can
benefit from better-organized and secured supply-chain services. To take advantage
of secure supply chains by increasing their competitiveness, sellers and buyers must
adapt their commercial practices and governments must provide the transport/
logistics service providers with an institutional, regulatory, and operational environ-
ment, which can stimulate and guarantee the level of security needed for the efficient
movement of goods.
A secure supply-chain approach must encompass not only the economic,
commercial and operational aspects of the international movement of goods,
but also all issues related to the facilitation of trade and the responsibility for the
goods while in transit.
To take into account all interests involved in the development of secure supply
chain, the relationships between traders, services providers and governments must
be clearly identified and proper co-ordination in the implementation of security
measures must also be established. The development of secure supply chains will
8 R. Banomyong
also demand the need for properly regulated service providers. This can result in an
increased level of competitiveness for all three key players.
Traders can expect the economic and financial benefits from the use of secure
supply chains in the forms of the following factors:
. Reduced transit-time; increased time reliability; and increased security of cargo,
particularly at interface points.
. Reduced transport costs (resulting from the use of modern transport-related
technologies: ocean going containers, EDI, etc.).
. Closer commercial relationships with services providers.
. Greater awareness and understanding of supply chain and logistics related
issues influencing their trade.
Service providers can expect the following benefits:
. The importance of their profession as international logistics service providers.
This is particularly important in the development of their relationship and their
recognition with governmental agencies.
. Commercial incentives to adopt new technologies such as the Internet and EDI.
. A need to reconsider their marketing strategies, for example logistics service
providers to concentrate their activities in ‘niche’ operations to serve specific
commodities on specific trade routes [14].
Governments will theoretically benefit from secure supply chains since it offers
an opportunity to update trade and transport related administrative procedures
and regulations. A secure national supply chain will facilitate commerce with
other trading partners, in particular with the US.
2. Public sources
Financing can be national where each government is responsible for all
security initiatives within its borders, but this type of financing is biased as
most developed countries would already have the majority of equipment in
place while the developing countries would have to invest a significant
amount in order to achieve acceptable levels of security.
Financing can be also international where the importing countries, such as the
US, provide a grant to the implementation of CSI around the world. However, there
must be a guarantee by the receiving government that the grant will be utilized to
upgrade the security to an acceptable level as defined in the CSI. Soft loans can also
be provided but they are usually considered unfair as they can contribute to the
excessive debt of developing countries.
Public financing runs the risk of not achieving the desired level of security in
global supply chains. Bilateral financing may help in the implementation of security
initiatives but the financial sustainability of the initiatives must be demonstrated.
The collection of funds from whatever source is necessary in order to finance
security initiative but it is an insufficient condition for the guaranteeing of full global
supply-chain security. However, the present trend is for exporters to fund these
security initiatives thus increasing their financial burden.
5. Summary
In order to benefit from efficient and effective global supply chains, the security-
related activities incurred must be completely synchronized with the requirement of
the said global supply-chain management. Security initiatives are now being consid-
ered part of the key logistical activities but it is at the same time one of the most
problematic activities, especially in an international context. If the security activity
fails to perform, this will surely impact on the competitiveness of global supply
chains.
These security initiatives will theoretically facilitate access to major international
markets through the use of secure hub centres and interface points. As markets are
becoming ‘globalized’, trading opportunities can be improved by implementing
security initiative in global supply chains. An efficient and secure maritime supply
chain can help build and sustain the competitiveness of internationally traded prod-
ucts by reducing transit time, reducing transport costs, and increasing reliability and
cargo security. However, this may create a two-tier system where priority of access
will be given to recognized secure maritime supply chains and non-secure hub centres
or interface points will lose out in term of competitiveness.