Air cargo’s Y2K

Air cargoÆs Y2K
Industry averts major disruption as 100% inspection rule kicks in.

By Eric Kulisch
      Fears that the air cargo sector would not be ready to expeditiously move shipments following the Aug. 1 deadline to inspect 100 percent of the pieces tendered for transport on passenger aircraft largely proved unfounded as airlines at major U.S. airports experienced only minor backlogs.
      The hand-wringing about the air cargo system grinding to a halt never materialized, much the way preparations for
the Year 2000 date change prevented a predicted crash of the world's global information systems and economic chaos.
      Carriers reported only sporadic pockets of backlogs at the 18 international gateways that handle the majority of widebody aircraft capable of transporting large bulk configurations of packages. Delays occurred on some flights or certain days, but were not widespread or long-lasting.
      David Brooks, president of cargo at American Airlines, confidently predicted such a result a week before the important day.
      'There's not going to be a supply chain meltdown. The earth's not going to stop its rotation,' he said in a phone interview.
      In the weeks leading up to the deadline, carriers reported to TSA that they were receiving a significant portion of cargo that had already been pre-screened.
      The impact was minimized because the air cargo industry had almost three years to prepare for the rule and meet phased-in screening thresholds beginning with all cargo on narrow-body planes in October 2008, followed by 50 percent of cargo on all plane types in February 2009.
      Although shippers have been slow to take advantage of a Transportation Security Administration program that allows them to self-inspect cargo so that it doesn't have to be reopened and checked by a third-party logistics provider or an airline, freight forwarders appear to have taken up the slack. The rule's challenge is that screening is required at the individual carton level.
      TSA designed the Certified Cargo Screening Program (CCSP) as a pressure-relief valve for businesses because it knew airlines didn't have large enough facilities and technology to disassemble and inspect the entire universe of cargo moving through their networks. The idea is for shippers to get certified to pack shipments in a secure manner, or have their freight forwarder deconsolidate palletized freight, check it by physical or non-intrusive technical means (primarily X-ray or explosive trace detection), repackage the loose pieces, and maintain a secure chain of custody during transport to the airport so that airlines aren't overwhelmed with inspection work. Some companies are opting to bring their cargo to new independent facilities to be screened for a fee rather than do it themselves.
      No technology exists that can scan air containers or large shrink-wrapped pallets, which are the primary methods used for moving three-fourths of the domestic air cargo transported on passenger planes.
      TSA's goal was to have shippers, forwarders and airlines each screen about one-third of the volume. In 2008, about 7.3 billion pounds of cargo was transported on domestic and inbound international passenger flights ' about 20 million pounds per day.
      By the end of March, only 2 percent of cargo was screened by shippers and independent screening facilities a recent Government Accountability Office report said. To achieve the desired mix of screening, those entities would need to increase the volume of cargo screened 16-fold.
      'Moreover, the total percentage of reported screened cargo rose on average by less than a percentage point per month (from 59 percent to 68 percent) from February 2009 to March 2010. At these rates it is questionable whether TSA's screening system will achieve the 100 percent screening of domestic cargo by August 2010 without impeding the flow of commerce,' the GAO said.
      TSA officials expressed confidence a month before the deadline that no unscreened cargo would be transported on passenger airlines, begging the question of how many non-compliant shipments would sit. Many shippers also expressed concern in the run-up to full enforcement that there weren't an adequate number of screening facilities to prevent delays.
      TSA relies on self-reporting by airlines and CCSP participants to determine inspection levels. Officials said the interim figures rang true, despite GAO skepticism, leading up to Aug. 1 because they were in line with spot checks of airline records conducted by agency inspectors. Nonetheless, it agreed to set up a quality assurance program to verify the reliability of data submitted by airlines.
      Under the worst-case scenario, a limited amount of cargo might be delayed a day at a particular location, Brooks asserted. A situation might arise, for example, in which a customer prescreened cargo but couldn't prove that the chain of custody to the airport was maintained. The airline executive said that if there is a lot of volume that day and the cargo is going to a destination with only one daily flight, the shipment could be bumped to the next day to allow for rescreening.
      The GAO said TSA did not have concrete evidence to support its assertion that only short-term delays would result in August at major cargo airports because industry had sufficient capacity to ramp up for more checks. Independent screening facilities, mostly clustered around big international gateways, can screen an additional 25 million to 30 million pounds of cargo per month at the top 18 airports, providing an outlet for forwarders to get screen cargo on a transactional basis, said Douglas Brittin, TSA's general manager of air cargo, at the Cargo Network Services conference in Miami in May.
      New independent facilities will add 10 percent excess screening capacity over current air freight volumes, according to TSA.
      In May, the agency required as an interim step that 75 percent of cargo be screened. But unknown is how much of the remainder consists of shrink-wrapped pallets and air containers that must first be broken down to the piece level.
      'In the prior milestones, the screeners had the option of picking and choosing which airway bills and commodities they chose to screen. So, naturally, they weren't picking the most difficult and cumbersome ones. But come Aug. 3, that won't be an option,' said Joe De La Luz, general manager of trade compliance at NEC Corp. of America.
      As of July 23, TSA said it had certified 866 facilities, including 476 forwarder stations, 316 shipper locations and 74 independent cargo screening facilities. Those numbers compare to 410 freight forwarder and 40 drop-off screening facilities, and 120 shipper locations at the end of 2009.
      TSA originally estimated that 1 percent, or 15,000, of the 1.5 million known shippers eligible to tender cargo to passenger airlines would participate in CCSP, but freight forwarders joined the program in larger than expected numbers.
      The Airforwarders Association said 85 percent of members surveyed say their customers were aware of the CCSP, but expected their freight agents to take care of the arrangements.
      Forwarders 'understand that this is a metric that they will be judged by in the future,' said Brandon Fried, executive director of the Airforwarders Association.
      The forwarding industry has spent about $50 million to participate in the screening program. 'And that spending was being accomplished during the worst possible economic climate and in the face of an unfunded mandate,' he said.
      Many small forwarders have opted for less expensive explosive trace detection machines or to farm out screening to independent facilities or airlines.
      Airlines have promised they'll provide CCSP participants faster handling, which should cut down on the wait times for forwarders not in the program, Fried said.
      The rules also allow entities to physically search deconsolidated shipments if they cannot afford the capital cost of screening technology. Freight agents have to balance the cost of not participating in CCSP with the expense of paying airlines or independent facilities to screen their shipments, and the potential risk of losing customers that expect service providers to have full capabilities in-house.
      Independent screening facilities had trouble attracting business because of the difficult economy prior to Aug. 1, but could see demand rise after the deadline if screening delays become noticeable, TSA and industry officials said.
      Most cargo owners in CCSP belong to industries with sensitive cargo, such as art work, high-tech and pharmaceuticals, which could be damaged if they are removed from packaging for inspection. TSA is pitching CCSP as a way for manufacturers to ensure the integrity of their shipments.
      Printed circuit boards, for example, can be subject to electrostatic discharge if not handled properly. One touch can weaken the device or destroy some of the sensitive components, according to De La Luz. There may be a substantial number of forwarders that are certified to screen cargo, but high-value shippers are still at risk if the logistics provider has to do physical examinations, he said.
      NEC is using two forwarders and an independent cargo screening facility with non-intrusive detection machines to screen shipments without having to open the boxes.
      TSA and industry officials say a lack of economic or regulatory incentives contributed to the low participation rate for general cargo shippers, according to the Airforwarders Association report. Carriers largely opted to screen loose cargo instead of consolidated shipments to meet the interim targets and, therefore, didn't assess security screening fees early on, which decreased the financial pressure on shippers and freight forwarders to join CCSP and invest the necessary resources.
      In recent months, airlines have begun requiring for unscreened cargo to be dropped off two to four hours ahead of the normal cutoff time, added screening fees and asked customers not to put unscreened cargo in containers. That presents a three-fold economic hit to shippers and forwarders:
      ' Reduced efficiency (longer transit times, extra handling).
      ' Fees.
      ' Loss of bulk rates for containerized shipments.
      Alaska Airlines, for example, requires seafood shipments to be tendered four hours prior to departure to allow time for screening, and increased its security surcharge to 4 cents per pound. Cutoff times for CCSP shipments will remain at two hours prior to departure.
      'Don't bring it to the airport and think your airline will solve all your problems one hour before departure,' Jack Boisen, a former vice president of cargo at Continental Airlines and now chairman of the security subcommittee at The International Air Cargo Association, said at CNS.
      Most of the early problems involved small and medium-sized shippers that were not as well prepared as larger companies for the security changes. The fact there were more applications in the pipeline than actual certified facilities at the deadline presaged that shipping would not go smoothly for everyone, said Stephen Heifetz, a partner in the Washington office of law firm Steptoe & Johnson. Four months ago, Heifetz was assistant secretary for policy development at the Department of Homeland Security.
      As the deadline approached, TSA saw a spike in applications from shippers that want to take more control of their own destiny. In recent weeks shipper applications outnumbered those of forwarders by three to one, Brittin told American Shipper.
      Shipper interest in CCSP will continue to grow, he predicted, as forwarders raise their rates or consignees get upset with shipments that have been disturbed during transit.
      'Our clients pay a premium for air freight and we do not want their cargo delayed while it is waiting to be screened,' said New York-based Laufer Group International, in a statement explaining its decision to certify its freight stations.
      The Airforwarders Association recommended during a June 30 House hearing that Congress increase TSA's budget for promoting the CCSP program because it is a more efficient alternative to screening at the airport chokepoint.
      The GAO faulted TSA for not having a contingency plan in place in case CCSP participation levels are too low to hit the target. Alternatives could include mandating CCSP participation for certain industry sectors instead of relying on their voluntary participation, and requiring the screening of some or all cargo before it is loaded onto unit load devices.
      It also said the agency had not completed a staffing study to assess how many additional inspectors would be required to oversee all the additional regulated entities participating in the screening partnership program. The agency has 533 dedicated cargo inspectors or cargo canine handlers and is authorized to hire 50 more inspectors in fiscal year 2010 to inspect shipper and freight forwarder facilities. Officials told the congressional auditors they believed they had a sufficient number of personnel to ensure compliance with the CCSP.
      Facilities are required to undergo at least two inspections per year, but the GAO said TSA doesn't have a handle on how many inspectors are required because it doesn't know how many facilities plan to join the CCSP or how many are needed to meet the 100 percent screening mandate. The congressional auditors calculated that TSA would eventually conduct 11,200 inspections per year based on a figure in the interim final rule last year that 5,600 entities would join the program.
      TSA plans to have a staffing model completed by the fall. It also is setting up a program to certify and train private-sector firms to validate whether facilities meet CCSP standards. Brittin said third-party inspectors could be in the field by late fall.
      Heifetz is cautioning clients to take CCSP compliance very seriously because TSA will likely adopt a stricter enforcement posture than it did when only dealing with core airline and forwarder stakeholders.
      Within the next year there will be more than 2,000 certified screening facilities that the U.S. government has never regulated before. TSA historically has taken a collaborative approach to enforcement, pushing education and working closely with the industry to meet new rules, but will be under pressure to ratchet up fines and penalties once the initial grace period has elapsed.
   'My guess is that in the long run the enforcement regime will look less collaborative in part because of this infusion of newly regulated entities, and as time marches on the likelihood of some incident of non-compliance by the regulated industry becomes higher. All it takes is one high-profile incident' to lead to tougher enforcement techniques, Heifetz said.
      In April, TSA approved 13 large aperture X-ray units that can screen an entire standard wooden pallet (48 inches square, loaded 65 inches high), a milestone that Brittin said should also ease the burden on airlines and forwarders who can afford the $300,000 machines.
      The machines can penetrate to the piece level and screen a bundled lot that contains multiple commodities on one skid, with some exceptions, according to Brooks. TSA has not yet approved devices that can handle large unit loading devices or containers with multiple products commonly used on widebody aircraft because they compromise the ability to clearly see anomalies that might pose a risk.
      International mail consolidator Pitney Bowes, for example, uses X-ray machines and explosives trace detection at three facilities (soon to be four) to screen individual parcels because the mail and other material it handles are too dense for pallet-sized machines to obtain images from the middle of a stack, said Rob DiVencenzo, president of international services. Concerns that the equipment would gum up operations proved unfounded, he said.
      TSA also expects to qualify a large-form metal detector by early fall that would enable companies to screen pallets of perishable items such as flowers, seafood and fruit, Brittin said.
      Several small and medium-size metal detectors that can be employed in the production and assembly environment are already on TSA's approved equipment list. Water-laden products such as asparagus and seafood are too dense to produce quality X-ray images.
      Many security products were not fully qualified as the program got started in 2008 because TSA was simultaneously conducting tests as private-sector entities were purchasing them to meet the looming mandate. The air cargo industry is concerned that their investments in X-ray and explosives trace detection systems could be rendered obsolete beyond Aug. 1 by subsequent technical evaluations.
      Technologies that are on the approved list are conditionally approved for three years until they pass testing and are moved to the qualified product list. TSA warns parties that they use technologies on the approved list at their own risk. Brittin said the agency stands by any product on the qualified list for at least five years and that no products have been removed so far. But industry officials are still worried that large equipment investments may only be useful for a few years.
      Meanwhile, according to the GAO, there is disagreement within the DHS about the effectiveness of machines that detect explosives residue on the surface of cargo or luggage.
      Key House members expressed dissatisfaction with TSA's progress at the June 30 hearing.
      'TSA's ability to conduct appropriate oversight, inspection and regulation of the screening program raises serious concerns. While it has developed several initiatives to implement the 100 percent cargo screening mandate, its programs rely too heavily on private sector participation and self reporting of data. I applaud TSA for its continued commitment in working towards meeting the deadline and concurring with GAO recommendations; however, in order for TSA to meet this mandate it must implement a robust compliance program to ensure accuracy and accountability,' said Homeland Security Committee Chairman Bennie Thompson, D-Miss.
      'Nothing out of compliance will happen as long as we don't move freight that hasn't been screened,' American's Brooks countered.

Freighters. Although the screening mandate is directed at passenger airlines, all-cargo operators say they will be indirectly impacted too.
      FedEx Express, for example, operates a huge fleet of planes to move express packages and freight around the world. But the integrated logistics provider also uses passenger belly space on airlines like Delta, especially when it adds new international markets that don't justify service by a large freighter in the early going, said Jack Muhs, senior vice president of international planning and engineering, at the U.S. Chamber of Commerce's annual aviation summit in Washington in April.
      Freighter airlines also use passenger carriers as a backup for excess shipments or if a flight is canceled due to mechanical or other reasons.
      John Dietrich, chief operating officer of Atlas Air, said the Purchase, N.Y., company anticipates some spillover from passenger to all-cargo, but how much is hard to quantify before the deadline.
      The extra business will be offset by the difficulty of all-cargo carriers to interline with passenger carriers, he said. All-cargo carriers have begun to express interest in joining CCSP to screen inbound international cargo so shipments don't have to be rescreened before they are transferred to passenger aircraft to the final domestic or overseas destination, Brittin said May 4 at the CNS conference in Miami.
      TSA officials have warned shippers not to assume they can shift to all-cargo aircraft to avoid inspection delays given the capacity cutbacks carriers implemented during the economic downturn. All-cargo rates can also be three to four times more expensive than passenger belly capacity.

Inbound Dilemma. International inbound freight has posed a challenge to TSA because it doesn't have the jurisdiction to impose regulations on foreign freight forwarders or shippers to screen cargo before departure. The agency can regulate airline operations into the United States and set security standards for air imports, but can't force nations to implement and enforce them. Instead, it works with foreign governments and the airline industry to encourage them to follow similar pre-departure inspection protocols. It also recently proposed an addendum to International Civil Aviation Organization standards to include screening at various points in the supply chain beyond the airport.
      Nonetheless, TSA officials say it may take until 2013 to achieve 100 percent inspection of inbound freight because many nations don't have the capability to develop and institute a comprehensive cargo screening program in the near term, and imposing such a standard could raise prices for passenger and cargo traffic.
      TSA got off to a slow start on import security because until two years ago it didn't realize the mandate applied to international inbound.

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      The agency's long-term goal is to align its rules with other governments and then mutually recognize each other's practices as comparable to reduce redundant requirements. Air carriers support such a result so that they don't have to deal with different security programs in countries that operate passenger flights to the United States.
      On May 1, TSA adjusted the security programs that cover U.S. and foreign airlines to require them to screen a certain percentage of shrink-wrapped and banded inbound cargo, and all loose cargo. Most international cargo moves in consolidated form on widebody jets. The exact inspection level is not publicly available because TSA considers it sensitive security information. But TSA Assistant Administrator John Sammon testified the agency expects about 62 percent of international origin cargo will be screened by Aug. 1.
      The new order also clarified that cargo arriving from overseas and transferred to another plane for export or domestic carriage must be screened before taking off in the United States unless it was previously screened to TSA standards at origin. Officials roughly estimate about 30 percent of domestic cargo is transferred to domestic flights from international connections. Previously, in-transit shipments did not have to be screened because they were assumed to have flown under an approved passenger aircraft security program.
      Airlines have complained it isn't logistically feasible to screen transshipped cargo between the time it lands and the time it takes off again, Heifetz said. Some carriers have suggest they'll be at a competitive disadvantage if TSA rigorously applies the rule. Under international aviation law, flights originating in a foreign country have to stop in the airline's home country before onward transit to a third country. A foreign carrier that directly flies to its destination, or transships through a location outside the United States, would not be subject to the screening requirements and could provide faster delivery.
      TSA has resisted pressure from airlines to allow foreign freight forwarders to screen abroad cargo that will be transshipped, the former DHS official said. Carriers have suggested forwarders would act as their agents and they would ultimately be responsible for screening to meet the agency's demand that regulated parties do screening, he added.
      TSA doesn't require 100 percent screening of inbound cargo because it would create congestion and shipping delays without having an alternative supply chain security program, as is available in the United States, for screening goods upstream in the supply chain, Brittin explained.
      Many carriers, such as Lufthansa, already have screening procedures in place as part of their overall policy to reduce liability.
      TSA will continue to hold airlines responsible for hitting the screening targets until it has transparency into how other national programs inspect freight and enforce screening requirements, Brittin said.
   The U.S. government has reached harmonization agreements with three countries, which were revealed as the United Kingdom, Australia and Canada, by Rep. Sheila Jackson-Lee, chairwoman of the House Homeland Security subcommittee on transportation security and infrastructure protection, during a hearing.
      Hong Kong and Japan are among a large number of nations that have not been willing to share details of their air cargo security programs, Brittin said at CNS. The European Union has shared its standards with TSA, but each country is implementing them at its own pace and has the right to modify them. TSA wants to see exactly how the standards are carried out in practice before it signs a reciprocity agreement for accepting screening by non-airline entities. He encouraged industry to push governments to adopt self-screening procedures for shippers and forwarders.
      'Our perspective is, trust but verify. Is there a way to inspect for compliance, to go audit in those countries in some form?' he said.
      The effort is similar to what U.S. Customs and Border Protection is doing to harmonize its trusted shipper program, the Customs-Trade Partnership Against Terrorism, with similar supply chain security programs involving maritime transport.
      Airlines in some cases have to screen cargo twice because governments are not talking to each other, Brooks said.
      TSA plans to keep ratcheting up the pressure on other countries by continuing to bump up the required screening levels.
      'We're trying to work with them to give us access to those foreign country programs to see if they're commensurate, and then (companies) would only have to comply with that one program and we'd accept it,' Brittin added in a July 19 interview.
      The GAO said the agency should develop a plan with timelines for meeting the mandate, even though it must first gain the cooperation of foreign governments. It also urged that data on actual compliance levels be compiled rather than using estimates based on screening requirements of certain countries, which TSA doesn't even know in many cases. TSA should require air carriers to report on cargo screening for all inbound cargo, to include that conducted by foreign governments or third parties, and not just the carriers themselves, the GAO said.
      Rep. Edward Markey, D-Mass., chief author of the scan-all rule, accused TSA of not working hard enough to secure bilateral agreements on screening and U.S. verification. The Air Transport Association, representing the airline industry, testified TSA could get close to the magic 100 percent goal sooner by giving major trading partners priority in the review process. The State Department should get involved more to help speed up establishment of bilateral screening agreements, Fried suggested.
      TSA official are also collaborating with CBP to tap into the sister agency's computerized risk targeting system that analyzes shipment information, historical data and intelligence to identify high-risk cargo for additional inspection by government personnel prior to departure. The business community would prefer such a risk management approach to security, but TSA views targeting from data as an extra layer of security above 100 percent screening. Brittin said TSA would need to get data much sooner than CBP collects air manifest data ' four hours prior to arrival or when the plane lifts off for hemispheric countries above the equator.
      TSA has a limited number of inspectors stationed overseas, but they only have limited authority over carriers. Brittin said the agency wants to add inspectors.
      The agency is also developing an undercover program to test security vulnerabilities at shipper, forwarder and air carrier facilities by trying to breach systems as a terrorist would, according to the GAO.