Many companies claim C-TPAT security program generates ROI

Many companies claim C-TPAT security program generates ROI Security-certified U.S. importers who voluntarily participate in the Customs'Trade Partnership Against Terrorism on average spend $54,000 per year on supply chain security measures to meet C-TPAT criteria, compared to about $25,000 in the last full year before joining the program, according to preliminary results of a C-TPAT member survey.
   The payoff for a large majority of shippers is that they have seen government inspection levels of their ocean containers decrease or stay the same.
   The survey, conducted by the University of Virginia on behalf of U.S. Customs and Border Protection, showed that 39 percent of companies have experienced a decrease in inspections while 53 percent report no change in the number of inspections their cargo receives. CBP officials are encouraged by the results because they have quadrupled inspection levels since the Sept. 11, 2001 terrorist attacks, and believe that program has helped trusted shippers avoid more exams during a period of heightened enforcement without undue expense.
   Under C-TPAT, CBP provides expedited customs clearance and other benefits to shippers that meet baseline criteria for strong shipment controls and hold their overseas suppliers to the same standard. The goal is make it harder for terrorists to smuggle people or weapons into a shipment to attack the United States or its trade lanes.
   CBP commissioned the survey in an effort to quantify the program's return on investment and attract more companies to join. Importers and transportation intermediaries have been clamoring for the department to provide tangible evidence that the extra costs, delays and inconvenience of adhering to the voluntary security program are paying off in enhanced security from a terrorist attack and can provide secondary business benefits. Otherwise, they say, it will be hard to build further industry support for C-TPAT, which involves companies committing resources to make sure their facilities, and those of their suppliers and transport providers, are secure.
   Despite the cost and extra work involved to initiate and sustain membership in the government-industry partnership, 95 percent of respondents indicated they are likely to remain in C-TPAT, according to lead researcher David Hartman, who released the findings at the annual C-TPAT conference in New Orleans earlier this month. Overall, 31 percent of companies said the benefits outweighed the costs, 25 percent said benefits and costs equaled out and 27 percent said it was too soon to tell. Nearly three-quarters of respondents indicated C-TPAT greatly or somewhat helped them improve supply chain continuity and contingency planning.
      Jim Rice, director of the Integrated Supply chain Management Program at the Massachusetts Institute of Technology, said progressive companies look to leverage their security investments to gain competitive advantage by using the resulting data to achieve efficiency and better understanding of their processes.
   Early results make clear that different types of businesses view C-TPAT differently. Importers cited reduced supply chain disruptions, inspections and lead times as their top motivations for joining the program. Ocean carriers, customs brokers, manufacturers, truckers and other service providers said their participation was all about marketing. Importers are the only group that receives direct benefit from CBP. But as they push their requirements down the line suppliers have realized they need to align their practices with C-TPAT in order to retain or attract customers.
   The study attempts to show the types of costs importers and transportation intermediaries have incurred to implement and maintain a C-TPAT program. Average outlays for importers (and the percentage of respondents) were:
   * $10,900 for educating suppliers about security (50 percent).
   * $8,100 for updating the supplier evaluation process (45 percent).
   * $12,100 to develop a new supplier evaluation process (51 percent).
   * $15,300 to get suppliers to complete the evaluation (44 percent).
   * $15,500 to test the integrity of the supply chain security plan (40 percent).
   For all types of businesses, implementation costs included:
   * $41,100 for additional personnel (42 percent).
   * $16,300 for improving personnel security procedures (42 percent).
   * $8,400 for improving personnel screening procedures (33 percent).
   * $12,800 for improving identification systems (40 percent).
   * $8,200 for improving in-house awareness (52 percent).
   * $42,800 for improving physical security (54 percent).
   * $17,600 for improving cargo security (44 percent).
   * $48,300 for improving use of security for personnel (19 percent).
   * $19,900 for improving IT systems (33 percent),
   Companies also spend money to maintain security systems and stay in the good graces of C-TPAT program managers at CBP. Annual maintenance costs for all types of members include:
   * $13,700 for C-TPAT personnel expenses (34 percent).
   * $4,700 for maintaining personnel security procedures (32 percent).
   * $4,300 for maintaining cargo security (42 percent).
   * $23,200 for maintaining use of security personnel (23 percent).
   The average importer expenditure for the year prior to joining C-TPAT was $25,413 and the median $2,092. The estimated average expenditure among C-TPAT companies hovers between $53,000 and $56,380 since 2005, with the median expenditure $10,000.
   The median figure means that half the companies spent more and half spent less. The figures indicate that many companies made small expenditures, but that the averages were driven up by a few large investments by bigger companies.
   However, 'small companies that haven't been conscious about security issues may incur some large implementation costs' compared to a large company that has followed ISO standards and invested in security on an ongoing basis, Hartman told Shippers' NewsWire.
   Non-importers faced higher average costs to maintain C-TPAT standards, but had a lower mean, according to the survey. In the last full year before they implemented C-TPAT plans, these companies averaged $60,197 on supply chain security spending, with a mean of $2,000. Estimated expenditures were:
   * 2005 — $74,660 average, with a mean of $6,321.
   * 2006 — $67,896 average, with a mean of $8,000.
   * 2007 — 67,811 average, with a mean of $7,500.
   Among non-importers, more than 20 percent said they benefited from increased customers and revenues, while 42 percent of motor carriers said they decreased wait times at the border.
   One of CBP's priorities for 2007 is to get more small- and medium-sized businesses involved in C-TPAT, which is dominated by large importers.
   Many smaller companies are reluctant to join because of concern about the cost to implement CBP-approved security plans. CBP hopes the benchmarks from the survey will demonstrate C-TPAT does not necessarily require a major investment.
   'The average financial commitment may not be as significant as people think,' said Todd Owen, CBP executive director for cargo and conveyance security.
   More than 1,240 companies, 56 percent of them importers, had responded to the online survey as of April 6, Hartman said. As of Tuesday he has received another 110 responses since them. CBP officials say the sample size will allow more quantitative results showing whether security practices can also help companies deliver on their business goals. But Hartman pleaded for more C-TPAT members to take the survey so that the final study will be more robust and credible. The non-response bias suggests people are either satisfied or angry about the program. Hartman said the current sample size will produce an error rate of plus or minus 5 percent, and he would like to reduce that to plus or minus 2 percent.
   The Virginia team, which has also created a Spanish-language version of the questionnaire for Mexican manufacturers and highway carriers, will continue to accept surveys through April 27.
   All C-TPAT member companies in February received written and e-mailed invitations to take the Web-based survey. Company representatives who wish to complete the survey may do so by visiting www.virginia.edu/surveys/CTPAT or e-mailing questions to dhartman@virginia.edu.