CRICOS No. 000213Ja university for the worldrealR

Assurance of Security in Maritime Supply Chains:Conceptual Issues of Vulnerability and Crisis Management

Dr Paul Barnes & Mr Richard OloruntobaSchool of International Business

Queensland University of Technology,Brisbane, Australia

CRICOS No. 000213Ja university for the worldrealR

Overview of Presentation

• Aspects of Maritime Security - Old & New

• Supply Chain Threats - Economic Impacts

• A Conceptual Framework Systemic & Organisational

Vulnerability

• Options for Crisis Management & Vulnerability reduction

• Issues for further Research and Inquiry

CRICOS No. 000213Ja university for the worldrealR

• In October 2001, authorities in the southern Italian port of Gioia Tauro discovered an unusually well-equipped and neatly dressed stowaway locked inside a shipping container.

• Italian police named the stowaway as Rizik Amid Farid, 43, and said he was born in Egypt but carried a Canadian passport.

He was found to be carrying: – two mobile phones,– a satellite phone,– a laptop computer,– several cameras, batteries, – airport security passes and, – an airline mechanic’s certificate valid for four major American

airports.

CRICOS No. 000213Ja university for the worldrealR

What are the Challenges?

• Approx. 90% of world trade moves in shipping containers - Any reduction of throughput is likely to have a significant impact on regional and national economies.

• Global business enterprise, and trading systems in particular, are vulnerable to terrorist incidents - Perturbation of maritime supply chains will impact on movements of material across large sections of the network.

• The asymmetry of approach in modern terrorism can make use of systems of commerce - Maritime trade as a vector for terrorism.

Security in Maritime Trading Systems

CRICOS No. 000213Ja university for the worldrealR

The Management of Crises (including prevention) is critical

• Crises have become Normal: often suddenly emergent• With major consequences across many sectors

o Exxon Valdezo Barings Banko Enron o 9/11o Bali bombingo Madrid bombing

Further issues of Importance

CRICOS No. 000213Ja university for the worldrealR

Why does do these issues matter?

• Could the incidents have been prevented or deflected?

• Could their consequences have been better mitigated?

• Could they have been anticipated?

CRICOS No. 000213Ja university for the worldrealR

• Attacking the ship to provoke human casualties.• Using the cover of seafarer identities to insert terrorist operatives.

People

• Using cargo to smuggle people and/or weapons.• Using cargo to transport conventional, nuclear, chemical or biological weapons.

Cargo• Using the vessel as a weapon • Using the vessel to launch an attack.• Sinking the vessel to disrupt infrastructure

Vessels

• Using revenue from shipping to fund

terrorist activities.• Using ships to launder illicit funds for terrorist organisations.

Money

• Loss of life and damage to property.• Disruption to trade flows.• Additional cost of transport due to additional security measures

ExternalImpacts

Maritime Security - Issues of Complexity

CRICOS No. 000213Ja university for the worldrealR

Estimated ISPS Code Costings

Maritime Security

Maritime carrier companies• Initial Cost (million USD) $1170.6 • Yearly Costs (million USD) $725.6 Ships (requirements) • Initial Cost (million USD) $757.4 • Yearly Costs (million USD) $4.3

Ports• Initial Cost (million USD) $55.8 • Yearly Costs (million USD) $1.6

CRICOS No. 000213Ja university for the worldrealR

Participants are expected to:• Establish security criteria to identify high-risk containers. • Pre-screen those containers prior to arrival at US ports

- Involving the deployment of American Customs staff in foreign ports. • Develop and use of ICT enabled and secure containers

Maritime Security

Container Security Initiative

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Participants are expected to:• Conduct a comprehensive self-assessment of supply chain

security using the C-TPAT security guidelines jointly developed by U.S. Customs and the trade community.

• The guidelines encompass: – Procedural Security, Physical Security, – Personnel Security, Education and Training, – Access Controls, Manifest Procedures, and – Conveyance Security

Maritime Security

Customs-Trade Partnership Against Terrorism

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BuyerTrans

Security Initiatives across Supply Chains

Maritime TransProducer

Composition Decomposition

Customs(Port)

Customs(Port)

ISPSCSI

C-TPAT

CRICOS No. 000213Ja university for the worldrealR

• An industrial dispute (late 2002) impacting 29 US West Coast ports involved > 200 ships.

• A total of 300,000 containers remained unloaded and rail and other inter-modal shipments were delayed across large sections of the transport network.

• Resulting in filled warehouses, freezers and grain elevators on both sides of the Pacific Ocean, costly mid-ocean diversions of maritime traffic to other ports and businesses, laid-off workers and/or reduced production.

• Estimated loss from this disruption on Hong Kong, Malaysia and Singapore alone was estimated to be as high as 1.1 % of nominal GDP.

Supply Chain Impacts – Reduced Continuity

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• Up to 152,508 jobs are in some way related to the Seaway;

• 192 million tonnes of cargo moving on the US side of the great lakes seaway system in the previous calendar year (2000);

• USD$1.3 billion of purchases were made by firms providing transportation services and cargo handling services in the great lakes region (supporting approx. 26,757 indirect jobs)

SCI – Regional Economies

A 2001 EIS covering the St. Lawrence Seaway and related waterways, ports and their inter-modal connections, vessels, vehicles and system users demonstrated the importance of an efficient maritime trading system on regional competitiveness.

CRICOS No. 000213Ja university for the worldrealR

• USD$3.4 billion of business revenues generated for firms providing transportation and cargo handling services - on the U.S. side of the great lakes seaway system (excluding the value of the commodities moved);

• The generation of USD$1.3 billion in federal, state and local tax revenue (2000);

• USD$1.3 billion spent on purchases for a range of service-related deliverables (i.e. diesel fuel, utilities, maintenance and repair services) by firms providing the cargo handling and transportation services.

SCT - Economic Impacts - St. Lawrence Seaway

CRICOS No. 000213Ja university for the worldrealR

A systems approach to understanding incident causation examines relationships between all aspects of events and provides a means to look more deeply at why the events occurred by focusing on the interactions among system components.

Such an approach takes a broader view of what went wrong with the system’s operation or organisation thus contributing to an incident.

The emphasis differs to that of industrial/occupational safety models (unsafe acts or conditions) and reliability engineering emphasising failure events and the direct relationships among these events.

A Framework Systemic & Organisational Vulnerability

CRICOS No. 000213Ja university for the worldrealR

Crisis Prone organisations• Cultural beliefs about invulnerability• Non-existent or ineffective internal control mechanisms• Senior managers not trained in decision making under crisis situations• Contingency planning inadequate or non-existent

Accidents in highly complex systems • ‘Cook’ slowly• Occur suddenly• Often Warning signs existed

Empirical Findings

Systemic & Organisational Vulnerability

CRICOS No. 000213Ja university for the worldrealR

Smart C. & Vertinsky, I. (1977)

• Rigidity in thinking- Restricted expectation about contingencies and their consequences - Inflexibility in considering alternative options & choices for mitigation

• Lack of Decision ReadinessKey decision makers not practiced in emergency decision making

• Information DistortionAttenuation and filtering of information to key decision makers

Systemic & Organisational Vulnerability

Application of the Concept

Organisational Complexity

CRICOS No. 000213Ja university for the worldrealR

Network Complexity

The Globalised Economy

• Transport Systems Road, Rail, Air, Maritime• System of Systems Supply Chains

Systemic & Organisational Vulnerability

CRICOS No. 000213Ja university for the worldrealR

Decision making in Crises (Assumptions)

They will be impacted by the presence of:

- Uncertainty / Ignorance

- High Decision Stakes

- Extreme Systems Complexity

Systemic & Organisational Vulnerability

CRICOS No. 000213Ja university for the worldrealR

• Loss of interoperability & interconnectivity (data, networks)

• Interdependency of Infrastructure

• Power supply (Generation & transmission)

• Telecommunications (Soft & hard)

• Transport systems (Road, rail, air, water)

Critical Infrastructure Protection

Systemic & Organisational Vulnerability

CRICOS No. 000213Ja university for the worldrealR

Type 1

The operational complexity within a port: encompassing the transport node infrastructure and onsite operators

Type 2

An attribute of the maritime movements themselves (with ports as nodes of the system) and global logistics management practices that underpin supply chains.

Vulnerability

A susceptibility to change or loss as a result of existing functional or organisational or practices or conditions.

CRICOS No. 000213Ja university for the worldrealR

Type 1 and Type 2 Vulnerability

A conceptual Frame

Type 1

Type 2

CRICOS No. 000213Ja university for the worldrealR

• The National Oil and Hazardous Substances Pollution Contingency Plan

• The Coast Guard’s Captain of the Port Prince William Sound Pollution Action Plan

• The Alaska Regional Oil and Hazardous Substances Pollution Contingency Plan

• The State of Alaska’s Oil and Hazardous Substances Pollution Contingency Plan

• The Alyeska Pipeline Service Company’s Oil Spill Contingency Plan for Prince William Sound

• The National Oil and Hazardous Substances Pollution Contingency Plan

Contingency Planning

Type 1 or Type 2 ? – The Exxon Valdez

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The current Mandated and voluntary Maritime Security initiatives are more suited to preventing marine vectored terrorism rather than resolving the consequences or improving the resilience of supply chains and port infrastructure and thus sustainability of trade.

What is needed?

Assertion:

CRICOS No. 000213Ja university for the worldrealR

A robust Crisis Management capability and capacity includes skills:

• Environmental Scanning (Detection of weak signals)

• Emergency Management Escalation Triggers (Incident or issue recognition) leading to rapid consequence analyses (in the context of high uncertainty)

• Crisis Management Decision-making Capacity (Separate to routine business decision making structures)

Enhanced capacities for Crisis Recognition

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• A capability in applying foresight (via interdisciplinary teams) to issues that can limit achievement of organisational and business goals.

• Robust analytical and conceptual frameworks of security risk management and corporate governance appropriate to the functions and purpose of an organisation.– Prevention - recognition systems for emerging crises; – Preparation - planning for the unknown; – Response - making effective decisions and having them implemented; – Recovery - restoring normality and learning.

• Both preventing and preparing for crisis-situations presumes a deep and effective understanding of the way in which the ‘unknown’ factors and conditions can manifest.

Development of Crisis Management skill-sets

CRICOS No. 000213Ja university for the worldrealR

• Additional corporate strategies would logically include ensuring transparency and trust amongst stakeholders, employees and especially government(s)

• The Secure Trade in the APEC Region (STAR) Initiative for example, seeks to strengthen maritime security against terrorism while boosting trade efficiency (including): – implementation of the ISPS Code and encouraging implementation of

common standards for electronic customs reporting – common standards for the collection and transmission of advanced

passenger information to prevent the fraudulent use of travel documents– partnerships between government and business at the national and

international level to mitigate terrorist or criminal threat throughout the supply and logistics chain.

Other Management Options & Strategies

CRICOS No. 000213Ja university for the worldrealR

Higher Order Issues: • How might the variable implementation of the CSI and C-TPAT

program impact on global sourcing strategies in particular: – time-sensitive supply; – reliance on single-source or geographical location suppliers?

• Would more complete implementation of the CSI and C-TPAT programs separate countries unable to afford the cost of implementation from access to trade opportunities and thus affect the notion of the benign and equitable benefits of globalisation?

Issues for Research & Inquiry.1

CRICOS No. 000213Ja university for the worldrealR

• Analysis of the capacity for interactive complexity within critical infrastructure at hub ports - including interface zones

• Details of the nature and organisation of current security risk management functions and governance systems in place in a sample of hub ports

• Evaluation of the variation across ‘high frequency low consequence’ and ‘low frequency high consequence’ incident scales at major ports (thus facilitating a mapping of the Type 1 and Type 2 vulnerability)

• Appraisal of the potential impact of full integration of port and trade route crisis management capacities on maritime insurance premiums;

• Identification and allocation of costs/benefits of the provision of crisis management capacities across industry/client stakeholders.

Issues for Research & Inquiry.2

CRICOS No. 000213Ja university for the worldrealR

Critical Network Events

Because of the cascading nature of these events, institutions within marine trading would be unlikely to face single incidents but rather systemic failures appearing concurrently. Unexpected convergence of factors impacting on human-systems can generate effect propagation via connectedness and interoperability of these same systems.

Issues for Research & Inquiry.3

• How might interdependencies and linkages - across Type 1 & Type 2 vulnerability – generate tendencies to create or propagate major discontinuities within maritime trading systems?

• What forms of investigation or analyses would provide enhanced understanding that extends beyond the grasp of competent managerial authority?

CRICOS No. 000213Ja university for the worldrealR

Closing thoughts

CRICOS No. 000213Ja university for the worldrealR