Incentives for private industry, risk-based inspection for cargo containers
There is no consensus on the number of cargo containers entering U.S. ports each year — the figures quoted range from 11.6 to 15 million; there is a consensus, however, that implementing the Congressionally mandated 100 percent inspection of these containers is a Herculean task; some suggest instead a risk-based inspection combined with more incentives to the private sector to make containers secure
An incentive system for shippers could help push some of the costs and responsibilities of port security from the federal government to private industry, according to an article — “Securing the Containerized Supply Chain: Analysis of Government Incentives for Private Investment,” by Nitin Bakshi of the London Business School and Noah Gans of the Wharton School — in the current issue of Management Science, the journal of the Institute for Operations Research and the Management Sciences (INFORMS).
The article is part of Management Insights, a regular feature of the journal, which is a digest of important research in business, management, operations research, and management science. It appears in every issue of the monthly journal.
There is no consensus on the exact number of cargo containers arriving in U.S. seaports each year. In a study for the conservative Heritage Foundation, which also support shifting the cost of container security to the private sector, Jena Baker McNeill and Jessica Zuckerman write that there are 11.6 million containers arriving in U.S. ports every year (32,000 each day).
R&D Magazine, reporting on the Bakshi-Gans study, quote the researchers to say that more than 15 million containers enter the United States through its ports each year carrying more than $400 billion in products. The researchers investigated how the U.S. Bureau of Customs and Border Protection (CBP) should structure its inspection programs to improve safety against terrorist threats while maintaining fluidity at borders.
Because inspection-driven congestion is costly, CBP provides incentives for firms to improve security upstream in the supply chain to reduce the inspection burden at U.S. ports. Bakshi and Gans evaluated the CBP Customs-Trade Partnership Against Terrorism (C-TPAT) incentive program to understand its effect on the CBP, firms, and terrorists. They find that, with proper incentives, C-TPAT can shift some of CBP’s — that is, the U.SD. government’s — security burden to private industry while simultaneously reducing total terror prevention costs.
Bakshi and Gans write that from the perspective of the companies, the benefits of joining C-TPAT must offset the additional investment required to comply with the security guidelines. The authors focus attention on the benefit related to reducing the frequency of inspections.
An additional level of benefits would be realized from a proposed tiered membership of C-TPAT, with the highest performing members of C-TPAT being eligible for access to an inspection-free shipping process — referred to as the “green lane” concept.
Note that the authors emphasize that implementing this proposal is contingent on research advances and the successful rollout of “smart” containers.
—read more in Nitin Bakshi, Noah Gans, “Securing the Containerized Supply Chain: Analysis of Government Incentives for Private Investment,” Management Science 56, no. 2 (February 2010): 219-33 (DOI: 10.1287/mnsc.1090.1105)
