Yenra : Transportation : Cargo Transportation : Risk management study finds room for improvement in background checks, physical security, and inspection

Cargo

While most senior executives at U.S. cargo transportation providers reported that their firm had already completed implementation of its homeland security strategy, few rated industry performance as excellent in any key area of security. The study by Deloitte and Touche was conducted by the U.S. Chamber of Commerce Statistics and Research Center.

In fact, in a list of the most important security measures, including background checks, physical security, and cargo inspection, no more than 14 percent of executives rated the industry performance as excellent. For the remaining security measures, only between 2 percent and 9 percent of executives gave the industry an excellent grade. Thus, the study revealed a stark contrast between the progress claimed by executives at their own firms and their less than glowing assessments of the industry's performance on homeland security as it complies with new federal regulatory requirements set by the Department of Homeland Security (DHS).

"Cargo transportation companies across the industry are making progress in complying with federal regulations. However, an effective homeland security strategy requires a comprehensive approach. Homeland security guidelines are impacting every part of their business - every division, every operation, and every location. Thus compliance must be driven by the executive team, not a silo within the organization," said Christina Steinman, national director of Deloitte's Aviation & Transport Services Industry Practice. "Executives, and the industry as a whole, must realize that physical security links directly to financial security. They must understand their liability and risks, and establish solid internal controls to address security concerns and current legislation."

The study surveyed 103 executives representing the air cargo, maritime, rail, logistics providers and trucking (truckload and less-than-truckload) segments of the industry.

More than 80 percent of executives expected their firms to increase spending on physical security at facilities over the next 12 months, while more than half said that spending would increase on internal risk management control and IT. To fund security initiatives, 55 percent of executives said that their firm would leverage current profits or reserves, and 47 percent planned to increase rates.

Background checks of drivers and workers were viewed as the most important security measure. Yet only 14 percent of executives rated the industry's performance on background checks as excellent.

The air cargo and maritime sectors were viewed as the most vulnerable areas of the industry.

In-transit and dock operations were seen as posing the greatest risk in transportation of cargo.

To manage the complex operational challenges, many cargo transporters are planning to outsource several business and operational functions to ensure compliance with security mandates.

Almost 50 percent of the executives said that their firm was planning to seek assistance from outside service providers in the development of homeland security strategy.

Of the executives that said their firm was planning to outsource, nearly 50 percent said that it would be seeking assistance from third- party vendors in physical security and in training programs.

Surveillance/intelligence and security assessment were mentioned by approximately one-third of the executives at firms planning to outsource as areas where they would be using third-party vendors.

"A majority of the survey respondents indicated that federal security mandates pose a tremendous financial as well as operational challenge for their organizations," said Steinman. "Outsourcing to third-party vendors to meet security requirements was cited as one solution for overcoming this challenge. While that may be a short-term strategy to manage risk and mitigate costs, in the long-run, the industry still needs to be focused on initiatives to increase efficiency across the entire supply chain. More solutions are available, and they are slowly being adopted."

In addition to federal regulations, the cargo industry is also being impacted by customer mandates, such as RFID. More than 20 percent of executives rated RFID as an important component of a homeland security strategy. To be considered preferred providers, Deloitte believes that transporters will need to address RFID and other technologies as their customers demand traceable and secure cargo across their entire supply chains.

Deloitte provides audit, tax, financial advisory services, and consulting.