Regulatory/Security Track Scope

1. Included: Understand existing supply chain security programs; track proposed changes Track emerging supply chain security programs (AEO, other) Monitor legislation/ policies related to supply chain security Monitor other regulatory initiatives (beyond supply chain security) Track supply chain security best practices Monitor open source intelligence reports; identify supply chain security risks Contingency planning/continued operations in post-incident scenarios Monitor latest technological solutions to supply chain security concerns Monitor international regulations and policies impacting supply chain security Excluded: Import/export compliance regulations or policies Security/reliability risks to supply chains from non-human sources Regulatory/Security Track Scope

2. October 2007 Agenda: 9/11 Commission Act: Cargo Security Impacts - Ely Kahn (20 Min) “US Department of Homeland Security Strategy to Enhance International Supply Chain Security”-Ken Konigsmark (5 min)  Update: US Customs and Border Protection Committees - Ken Konigsmark – (15 Min) EC's AEO (Authorized Economic Operator) program - John Novotny/Ken Konigsmark (5 Min) C-TPAT Cost/Benefit Survey results – Ken Konigsmark Track scope:  SCRLC evaluation of future policy options?  Partner with COAC and/or Council on Competitiveness? (5 min) SCRLC Regulatory/Security Track

3. Increased scanning of air/ocean freight required by law: Who will pay? Who will do the scanning? Will it create increased time for shipments? What will “private sector preparedness” require of industry? Why Important to SCRLC Members?

4. Requires “a system to screen 100% of cargo transported on passenger aircraft” within 3 years In five years, permits ocean containers to enter the US either only if the container is: (1) scanned with equipment that can scan for radiation; and (2) secured with a seal using technology to detect and identify container breaches US Department of Homeland Security (DHS) must implement a program to enhance private sector preparedness for acts of terrorism and other emergencies through use of voluntary consensus standards: develop guidance and identify best practices to assist action by the private sector in identifying hazards, assessing risks and impacts 9-11 Commission Act

5. Certified Shipper Program Overview October 2007

6. ~3,900 Indirect Air Carriers (IACs) Millions of Known Shippers ~ 300 Air Carriers (235 Passenger & 65 All-Cargo) ~ 450 Airports Air Cargo Landscape • Current US Air Cargo Supply Chain • TSA utilizes a multi-layered risk-based approach to air cargo security: • Entities and people handling and transporting cargo onto passenger planes are vetted to ensure they meet TSA security standards • Screen cargo using approved screening methods and technologies • Target cargo shipments for risk-based and random secondary screening • Assess regulated entity compliance with security requirements • President Bush approved the “9/11 Bill” (H.R. 1 – Improving America’s Security Act of 2007) on August 3, 2007 which mandates: • 50% of passenger aircraft cargo must be screened not later than 18 months after date of enactment • 100% of passenger aircraft cargo must be screened not later than 3 years after date of enactment • To achieve these mandates, TSA will allow only two categories of cargo on passenger aircraft cargo • Known Shipper Cargo: 100% will be screened by regulated parties or TSA before being transported on a passenger aircraft • Certified Shipper Cargo: 100% will be screened at the point of preparation for carriage by entities who meet stringent TSA security requirements • All passenger aircraft cargo will be subjected to secondary risk-based and random screening by regulated parties or TSA Regulated by TSA

7. Certified Shipper Program • The Certified Shipper Program provides a mechanism by which TSA will allow shippers who meet stringent security requirements to screen cargo at the point of preparation for carriage, and allow recognition of that screening by entities in the supply chain. • The program is a key component of achieving 100% screening by August 2010 while still allowing for the flow of commerce. • Certified Shippers must: • Adhere to increased security standards. • The Certified Shipper Program establishes the integrity of individual shipper facilities and shipments through standards including Known Shipper requirements, physical access controls, personnel security, procedural security, physical cargo security, IT security, and training & security awareness • Share responsibility for supply chain security. • Stringent chain of custody measures must be followed by Shippers, IACs, and ACs. • All Certified Shipper cargo will also be subjected to risk-based and random secondary screening by IACs, ACs, and TSA. • Permit onsite standards validations. • Third party validator organizations or TSA perform on-going onsite, facility-based validations to ensure adherence to security standards.

8. Certified Shipper Program Components Entity Standards Stringent security requirements for Certified Shippers Transactional Standards Chain of custody processes used to identify unauthorized access to cargo Certified Shipper Program Technology Systems and processes developed to facilitate the identification and management of Certified Shippers Training Communication to help relevant parties understand and implement Certified Shipper Program standards and processes 3rd Party Validator Perform onsite validations of applicants and pass along to TSA for Certified Shipper decision

9. Future Air Cargo Supply Chain Risk Assessment & Screening **Screening Ensure Chain of Custody IAC United States Air Cargo Distribution by Weight* Known Shipper AC 100% Screened **Screening All-Cargo Aircraft Passenger Aircraft Ensure Chain of Custody Certified Shipper 100% Screened AC IAC **Screening **Physical Screening Methods: electronic, manual, and canine • * Sources: • BTS (Air Carrier Statistics Database – Form 41 Traffic) • CRS Report for Congress – Air Cargo Security, 9/11/03 • - DHS Air Cargo Security Requirements – NPRM 2004

10. TSA 100% Screening of Passenger Air Cargo 3-Year Outlook Elevated Risk Cargo – 100% screened by TSA, IACs, and ACs Known Shipper – Screened by IACs and Air Carriers Screening Screening Screening Cargo Volume Certified Shipper – 100% Screening by Shipper Methods of Approved Screening: physical search, electronic, and K9 X% 50% 100% Sept 2007 Jan 2008 Aug 2010 Feb 2009 Timeline to Achieve 100% Screening • Congressional mandate to achieve 100% screening of cargo in 3 years • Achieving 100% Screening • Elevated Risk Cargo: 100% screening by TSA • Known Shipper Cargo: 100% screening by IACs and/or Air Carriers • Certified Shipper Cargo: 100% screening by shippers at point of preparation for carriage • All Cargo: Subject to risk-based and random secondary screening

11. TSA Air Cargo Strategy

12. October 2007 Agenda: 9/11 Commission Act: Cargo Security Impacts - Ely Kahn (20 Min) “US Department of Homeland Security Strategy to Enhance International Supply Chain Security”-Ken Konigsmark (5 min)  Update: CBP COAC Committees - Ken Konigsmark – (15 Min) EC's AEO (Authorized Economic Operator) program - John Novotny/Ken Konigsmark (5 Min) C-TPAT Cost/Benefit Survey results – Ken Konigsmark Track scope:  SCRLC evaluation of future policy options?  Partner with COAC and/or Council on Competitiveness? (5 min) SCRLC Regulatory/Security Track

13. New strategy outlines framework/goals for securing international supply chains Is not just US government but includes industry and other nations as well Risk assessments factored in Post-incident resumption of trade planned for Why Important to SCRLC Members?

14. SAFE Port Act mandated a DHS strategic plan to enhance the security of the international supply chain, including protocols for resumption of trade following a transportation disruption Focuses on sea cargo (95% of cargo tonnage entering U.S.) 130 page document: http://www.dhs.gov/xlibrary/assets/plcy-internationalsupplychainsecuritystrategy.pdf “Department of Homeland Security Strategy to Enhance International Supply Chain Security”

15. “International cargo supply chain security is aglobal issue that cannot be successfully achieved unilaterally. From a US perspective the most effective supply chain security measures are those that involve assessing risks and identifying threats presented by cargo shipments before they reach the United States. For international containerized cargo, this is most effective if it is conducted before a container is loaded onto a vessel destined for the US. Yet this is only half of the necessary calculus. The global supply chain is bidirectional, requiring domestic efforts to ensure the integrity of both inbound and outbound cargo. Such an effective cargo security strategy requires a multi-layered, unified approach that must be international in scope.” Problem Definition

16. Threat Risk = Likelihood x Vulnerability x Consequence The likelihood of an incident (manmade or natural) combined with the strength or weakness of the target and what would happen as a result of the incident represents the risk the threat poses. Each program implemented within this DHS Strategy has an appropriate risk management model used for targeting the activity to the highest risks within its area of impact in order to drive down the associated probability, vulnerability, or consequence. Risk Assessment

17. US Government Accounting Office (GAO) Risk Management Framework

18. GOAL 1: ENHANCE THE SAFETY AND SECURITY OF THE INTERNATIONAL CARGO SUPPLY CHAIN. GOAL 2: FACILITATE GLOBAL COMMERCE WITHIN THE ENHANCED SECURITY FRAMEWORK. GOAL 3: PROVIDE FOR THE RAPID RESUMPTION OF TRADE FOLLOWING AN INCIDENT WHICH DISRUPTS THE SUPPLY CHAIN Approach: Using end-to-end programs and initiatives, work with trading partners from cargo origin through final destination to foster global security. Second, target programs and initiatives toward natural security control points in the supply chain, such as ports of origination, transshipment, or entry in order to provide layers of detection and intervention. Third, target programs and initiatives at conveyance modalities, such as vessels or containers, in order to increase the security of cargo while moving between cargo nodes. Strategic Goals

19. SO-1: Provide for end-to-end supply chain security by building trusted relationships and assisting trading partners and the trade community with enhancing their security systems. SO-2: Provide incentives and benefits for supply chain partners who enhance their supply chain security, while recognizing that some benefits (e.g., increased security resulting in reduced cargo loss and/or reduced costs of doing business) are trade-driven issues. SO-3: Advance security by promoting the development and implementation of international standards. SO-4: Increase the availability and use of appropriate data in order to maintain complete awareness of the supply chain activities and target Department resources to the highest risk movements. SO-5: Utilize provide WMD detection systems at ports of origin and entry, in order to provide for a defense in depth, layered system.5 SO-6: Expedite movement of low-risk shipments through the supply chain, while maintaining a level of detection such that even low-risk shipments are screened for high-consequence threats (e.g., WMD detection via RPMs).5 SO-7: Provide clear communications with the trade community and our international trading partners in order to facilitate recovery efforts. SO-8: Ensure that data gathered during normal operations is also sufficient to allow for the management of resumption activities following a supply chain disruption. SO-9: Promote technological development of detection systems which increase the probability of detection, decrease “false positive” detections, and expedite processing times in order to promote rapid trade movement. 5 SO-10: Leverage key nodes in the supply chain to provide for specific scanning, screening, and inspections activities in order to detect and deter illicit use of the supply chain. 5 SO-11: Develop systems which automate and expedite the use of Department resources. 5 SO-12: Provide, or support development of, a robust cargo security system that will withstand a supply chain disruption, and rapidly resume pre-incident or near pre-incident status. SO-13: Provide for a flexible, standardized response mechanism which includes processes to facilitate trade resumption in short and long term recovery operations. SO-14: Promote development of modal-specific technologies and systems to ensure security of cargo while in transit. SO-15: Leverage agreements with foreign partners to facilitate investigative activities related to the detection of illicit material in the supply chain. 15 Strategic Objectives (for later review)

20. “The United States’ response to a terrorist incident will not be an automatic shutdown of the nation’s ports. Instead, a prudent and measured response will be taken based on an assessment of the specific incident. The response to an incident must not unreasonably hinder the free flow of goods, while simultaneously reducing risk to an acceptable level”. Post-Incident Trade Resumption

21. October 2007 Agenda: 9/11 Commission Act: Cargo Security Impacts - Ely Kahn (20 Min) "DHS Strategy to Enhance International Supply Chain Security”-Ken Konigsmark (5 min)  CBP COAC Committees - Ken Konigsmark – (15 Min) EC's AEO (Authorized Economic Operator) program - John Novotny/Ken Konigsmark (5 Min) C-TPAT Cost/Benefit Survey results – Ken Konigsmark Track scope:  SCRLC evaluation of future policy options?  Partner with COAC and/or Council on Competitiveness? (5 min) SCRLC Regulatory/Security Track

22. Helps us understand the future direction of US Customs and Border Protection Helps industry understand how we may be impacted Shows how various initiatives tie together into a comprehensive program Why Important to SCRLC Members?

23. Commercial Operations Advisory Committee* *Special Interdepartmental Committee on the Commercial Operations of US Customs & Border Protection Public Meeting Aug. 16, 2007

24. Earl Agron – APL Anthony Barone - Pfizer William Cook – Chrysler Chris Koch – World Shipping Council Barry O’Brien - Hasbro Alison Reichstein – Hewlett-Packard Peggy Rutledge – GreenLine Systems Leigh Schmid – Limited Brands Brad Shorser – Sears Curtis Spencer – IMS Worldwide Frederico Zuniga – F. Zuniga Inc. Sam Banks – Sandler & Travis Adrienne Braumiller – Braumiller & Schultz Jevon Jamieson – ABF Freight System Bruce Leeds – Boeing Geoff Powell – CH Powell Bethann Rooney – Ports of NY/NJ Lisa Schimmelpfenning – Wal-Mart Carol Sheldon – DHL Global Fwdg Mike Zachary – Tompkins Associates COAC Members

25. Highlights • Customs Trade Partnership Against Terrorism • Developing 3PL criteria • Revisiting Tier 3 benefits issue • Exporters as CTPAT eligible parties? • Advance Trade Data Elements recommendations • CBP/Trade supply chain assessment subcommittee • Department of Homeland Security issues • Incident recovery plan still needs work • GTX (Global Trade Exchange) DHS may be developing RFQ and getting funding

26. Highlights (cont.) • Customs and Border Protection Office of International Trade: • Working to increase “paperless” clearances and on conditional release as an Importer Self Assessment benefit • President’s Import Safety Working Group • COAC to participate in working group • Forming new subcommittee on intellectual property rights (IPR) enforcement

27. Advance Trade Data Project Status & Roadmap Overview

28. Supply Chain Road MapToday, CBP receives trade data via Manifest and Entry Filings – while essential for basic risk management and trade facilitation, a significant amount of additional information can be gathered at other phases of supply chain operations. Advanced Shipment Notice & Purchase Order Booking Confirmation & Routing Drayage Detail & Terminal Receipt Vessel Load Plan Truck Status Proof of Delivery Conveyance and Container Location & Intermodal Interchange Status Feeder US Bound 24-Hour Manifest Entry Documentation New sources of data can be used to enhance and strengthen the effectiveness of CBP selectivity and targeting efforts

29. Supply Chain Risk Management Controls Are Tailored To Different Supply Chain Layers

30. The Interest Factors drive the scoring of data associated with layers identified in the risk management framework and mapped in the supply chain models. • Country Risk • Location Transparency • Shipper Location • Intermediate Storage • Port of Load • Transshipment Location • Trusted Shipper • Shipper Transparency • Shipper Location • DNB Identity Match • DNB In-business Match • DNB Financial Stress • Trusted Consignee • Importer Transparency Score • DNB Identity Match • DNB In-business Match • DNB Financial Stress • Origin Determination • Masked Transshipment • En-route Compromise • Document Chain • True Commodity Description • Document Consistency

31. Example of Enhanced Visibility and Control Through Earlier Transmission of ATD Used for Cargo Verification - 45 days -40 -30 -20 -15 -7 -1 0 +15 +20 +25 days 322–Term Ops 856 - ASN 15+ Days Carrier NVOCC Loc X New Data Elements Equip Dtl Serial Nr Events X New Data Elements 30+ Days 40+ Days 45+ Days 850 - PO Carrier Routing + X New Data Elements Seller Seller Loc + X New Data Elements Purchase Order/ Advanced Shipment Notice Booking Confirmation & Routing Terminal Receipt & Drayage Detail Vessel Load Plan Conveyance and Container Location & Intermodal Interchange Status Truck Status Proof of Delivery Feeder Feeder U.S. Bound Entry Documentation BAPLIE – Stow Pln 24 Hour Manifest 315–Cntr Status 301–Bkng 3-7+ Days 20+ Days Gate-Out Gate-In Events X New Data Elements Vessel Cntr # Seal # Loc Trade Act 2006 Can Accelerate Provision of Entry data Inclusion in Trade Act 2006 May Delay Receipt of ATD for Functions Performed Upstream of 24 Hour Manifest 8

32. Advance Data Elements • Required by SAFE Port Act • COAC given consultative role • Basic concept: Importers responsible for submitting an additional 10 data elements minimum of 24 hours prior to loading • Applies to ocean freight only • Carriers will transmit an additional 2 elements

33. Proposed New Advance Data Elements For maritime cargo destined to remain in the U.S. data elements below will must be transmitted 24 hours prior to loading Ten (10) data elements were selected because of their probative value and their ready availability in current logistics processes: • Manufacturer name and address • Seller name and address • Container stuffing location • Consolidator name and address • Buyer name and address • Ship to name and address • Importer of record number • Consignee number • Country of origin of the goods • Commodity Harmonized Tariff Schedule number (6 digit) CBP will require ocean carriers to provide two additional data sets: • Vessel Stow Plan • Container Status Messages

34. COAC Subcommittee Project CBP Supply Chain Assessment

35. Background • “CBP (US Customs and Border Protection) is not expert in fully understanding all the intricacies and mechanics of how the international supply chain operates.” • “CBP will solicit a small team of supply chain experts from the international business community, partner that team with a CBP executive who will be augmented with appropriate staff and have access broadly within CBP, and charter the team to examine and analyze how CBP might enhance its critical role in the supply chain. The goal would be to benefit both CBP and industry – CBP may learn new approaches to operating, monitoring, and controlling their supply chain issues, and the business community may better define to CBP how to deliver tangible benefits in return for industries’ investments in enhanced security protocols while preserving their needs for cost, speed, and reliability.”

36. CommitteePurpose • Knowledge transfer of supply chain process between industry experts and CBP • Explore if there are mutual benefits to more robust government-industry automated data exchange

37. Goals • Explore sources and timing of supply chaininformation that Trade provides to CBP for risk assessment.  • What can CBP provide to industry to help industry’s supply chain become more efficient? • Optimizing compliant trader benefits as a result of enhancing automated data exchange

38. Scopeof Committee • In-scope: • Data elements (who sends what where and when and at what point is each data element relevant) • What data elements can CBP & Industry provide • Identify buckets of activity in supply chain. (including custodian of freight at origin) • How can we automate promised benefits to compliant traders? • What other benefits can new automation and data exchange bring to highly compliant traders? 

39. Summary of SAFE Port Act Major Provisions • Pilot International Container Scanning in foreign seaports (Secure Freight Initiative, SFI) • Require Additional Advance Shipment Data prior to export to US • Promote international standards for: • international container security strategy • cargo security devices • non-intrusive imaging and radiation systems • Formally authorizes C-TPAT

40. Secure Freight Initiative (SFI) • CBP has the lead for SFI which will combine: • International Container Security (ICS) pilots • Advance cargo data (called “security filing” or “10+2”) • Advance Trade Data Initiative (ATDI) • “Global Exchange” of data between governments and supply chain industry (GTX)

41. International Container Scanning • CBP to establish an International Container Scanning (ICS) Pilot by October 13, 2007 and must: • Scan 100% of containers destined to US • Electronically transmit images and data to local CSI officers and to CBP in US • Resolve every radiation alarm • Electronically transmit advance trade data to CBP (ATS) • Electronically store data for retrieval and analysis • Conduct container exams upon request

42. CBP’s Plans for International Container Scanning • ICS goal: combine data from cargo scanning systems with automated risk analysis of advance cargo information • Six Locations designated vs. three required: - Pakistan - Honduras - United Kingdom - Korea - Singapore - Oman • Timeline: January – December 2007 • ICS = 100% container scans with advance data, CBP targeting alerts shared with local authorities and US CBP officers, “load” or “do not load” message to carrier

43. ATDI • Advance Trade Data Initiative (ATDI) is the current CBP automation test bed to collect trade information from industry • 70 voluntary participants from variety of companies - importers, ports, freight forwarders, brokers, carriers, and network technology firms • ATDI now is accepting participants for proving the 10+2 data will work

44. CBP’s Intervention in Supply Chain – Advance Cargo Data • Based on screening of advance manifest data from vessel carriers, CBP issues “Do Not Load” messages to carriers for shipments that are deemed high risk and require inspection or additional technology screening by foreign customs • No CBP interface or notice to marine terminal operators that actually control lading and container movements to foreign customs • No CBP notice to shippers/importers who need to know status of shipment movements

45. Customs-Trade Partnership Against Terrorism (C-TPAT)Authorized Economic Operator (AEO) • CBP established C-TPAT program in return for reduced customs exams and “expedited” customs treatment upon arrival in US • This is meant to give CBP “end-to-end” visibility in the security practices of companies in the supply chain • Many businesses are skeptical of the reality of C-TPAT benefits; can’t measure reduced exams nor “expedited” treatment • This “industry security” program is expanding internationally with the WCO SAFE Framework, and with mutual recognition of NZ, Jordan, and possibly Canada and the EU.

46. Resumption of Trade • CBP developing a strategic plan for “resumption of trade” in the event of a security incident in the international supply chain • Canada CBSA and CBP conducting joint practice exercises • International businesses want better coordination and information on potential problems in a trade lane or in the event an incident disrupts a port or trade lane. • CBP’s priorities for “preferential treatment” will be for: • validated CTPAT participation • use of a CSI port • NII and radiation scans • container security devices, e-seals, more advance information)

47. October 2007 Agenda: 9/11 Commission Act: Cargo Security Impacts - Ely Kahn (20 Min) "DHS Strategy to Enhance International Supply Chain Security”-Ken Konigsmark (5 min)  Update: CBP COAC Committees - Ken Konigsmark – (15 Min) EC's AEO (Authorized Economic Operator) program - John Novotny/Ken Konigsmark (5 Min) C-TPAT Cost/Benefit Survey results – Ken Konigsmark Track scope:  SCRLC evaluation of future policy options?  Partner with COAC and/or Council on Competitiveness? (5 min) SCRLC Regulatory/Security Track

48. Explains what the EU AEO program is, how it operates, and how it may impact industry Demonstrates another example of implementation of increased cargo security requirements Why Important to SCRLC Members?

49. Authorized Economic Operator (AEO)Provided by John Novotny

50. AGENDA • What is AEO? • Who does it apply to? • When does it go into effect? • Three types of certification • What does it take to obtain certification? • Benefits of AEO • What if Companies do not apply for AEO status?