Supply Chain Security

OT-1213E | Date: 12/05/2012 (As Prepared for Delivery)

Remarks by U.S. Department of Homeland Security Deputy Assistant Secretary Mark Koumans at 2012 International Conference on Homeland Security

Taipei, Taiwan

 

Introduction

Good afternoon, ladies and gentlemen.  It’s a pleasure to address you again today regarding the U.S. approach to supply chain security. 

Over the next few minutes, I will be providing you with an overview of the U.S. national strategy for supply chain security, focusing on our efforts to identify and characterize risks to the supply chain.

Taiwan – U.S. Waiver Program

First, however, I would like to highlight Taiwan’s entrance into the U.S. Visa Waiver Program this fall, which represented the culmination of several years’ of intense dialogue and cooperation.  In just one month, we have seen nearly 6,000 travelers use the VWP, a number we expect will rise significantly as the holiday season approaches.

The VWP began in the 1980s and has evolved into an essential tool for increasing security standards and information sharing.  It allows eligible passport holders of 37 partners to travel to the United States for a maximum of 90 days as tourists or on business. 

In exchange, U.S. law requires VWP countries to abide by enhanced security standards – showcasing how increased security can help facilitate travel, rather than impede it. 

The same principles apply on the trade facilitation front.  

U.S.-Taiwan Trade Relations

Let us review at the outset how important Taiwan is to the U.S. economy.

As the 10th largest trading partner of the United States, and the world’s 20th largest economy in terms of GDP purchasing power parity, Taiwan is an important source of U.S. imports – ranging from machinery to steel products to plastics – and a growing destination for U.S.-made electrical machinery and optical instruments.  The United States is also the largest foreign investor in Taiwan, with cumulative stock of direct investments of over $21 billion.

The rapid increase in bilateral trade over the past 30 years tracks with Taiwan’s tremendous success in growing its economy through foreign trade, fueling a 10-fold increase in GDP over the same period [from $42 billion in 1980 to $466 billion in 2012].

And the importance Taiwan places on the subject of supply chain security is clear, given the attention it is receiving over the course of this conference.

Setting the Context – “What and Why”

Before diving into the details of the U.S. approach to supply chain security, let me first set our work in context.

The United States and other nations worldwide rely upon the efficient and secure movement of goods across, and within, our borders to provide food, medicine, energy, and a number of other products that bolster our domestic critical infrastructure sectors, drive our economies, and support our way of life. 

The global supply chain system transcends national borders or regional boundaries.  It is a complex, interlocked network where hundreds or thousands of individual cargo or commodity movements take place to manufacture products – and ultimately deliver them.

For example, ore may be mined in Australia, processed in the Americas, and the resultant metals shipped to Taiwan to be manufactured into an electronic component that is then joined by parts created in a dozen or more other countries, including those in Europe, Africa, and South America. 

Recognizing the inherently interconnected, international nature of the system, in January 2012, President Obama approved the U.S. National Strategy for Global Supply Chain Security. 

The Strategy is the result of more than two years of effort that involved the Department of Homeland Security and a number of other U.S. Departments and Agencies with supply chain responsibilities.  It required an extensive analytic process, and consultation with hundreds of domestic and international public and private sector partners.

And it marked the beginning of a still more intensive effort:  Approval of the Strategy was only the beginning of a process that will ultimately result in the creation of Federal implementation plans, which will inform operational, budget and resource decisions for years to come.

A National Vision

The Strategy establishes two goals.  First, to promote the timely, efficient flow of legitimate commerce while protecting and securing the supply chain from exploitation, and reducing its vulnerability to disruption. Second, to foster a more resilient global supply chain that is prepared for, and can withstand, evolving threats and hazards and rapidly recover from disruptions. 

The scope of the Strategy includes the worldwide network of transportation, postal, and shipping pathways, assets, and infrastructures (including communications and information infrastructures) by which goods are moved between and among various points of manufacture, assembly, and warehousing until they reach the end user.

At its core, the Strategy advocates a layered, risk-based approach in which necessary security measures are integrated into supply chains.

Threat and Risk Assessments

Because of that layered, risk-based approach, fostering efficient, secure, and resilient supply chains will  require – among other things – an understanding of the overall risk landscape in which the global system operates.

It will require an understanding of the threats or hazards, such as intentional attacks, accidents, and natural disasters that cause disruption or allow exploitation.

It will also require an understanding of supply chain vulnerabilities, such as those involved in the modes of transport and how the cargo is moved.

And it will require an understanding of consequences, such as economic impacts associated with loss of infrastructure or business continuity. 

To develop this overall understanding, we have been working extensively at home and abroad to harmonize our data acquisition and analysis systems, and ensure that we are all working from the same – or similar – definitions.

This work has included continued development and deployment of the Air Cargo Advance Screening program; supporting the World Customs Organization (or WCO) in a global targeting system project; and working with the International Civil Aviation Organization, known as ICAO, to better define “high risk” cargo.

 

Collaborating with Multinational Organizations

 

Indeed, our recognition of the inherently intermodal, international nature of the global supply chain system was led us to working with the International Maritime Organization (IMO) and the Universal Postal Union (UPU), in addition to the WCO and ICAO.

Working through and with these multilateral organizations, the U.S. and its partners around the world have focused on seven broad goals:

1. Identifying and Responding to Evolving Threats/Risks;
2. Expanding Advance Information Requirements Across All Modes;
3. Streamlining “Trusted Trader” Programs;
4. Stemming the Flow of Illicit Shipments of Dangerous Materials;
5. Securing and Facilitating Air Cargo and Global Mail;
6. Building a Resilient System; and
7. Exploring and Deploying New Technologies.

I would like to focus now on the first goal – identifying and responding to evolving threats and risks – as a central element of our national approach to supply chain security.

Risk Characterization

As part of the U.S. National Strategy, characterizing risk to the supply chain involved stepping back and looking across the domains of air, land, and sea transport and the universe of threats that could interact with these vulnerabilities to cause a major disruption. 

The risk characterization marks the first time that there has been a U.S. Government-wide effort to integrate all of the existing studies, assessments and subject matter expertise and industry input into a high-level look at where risk exists across the transportation elements of the global system of systems.

The effort is not intended to be final. It is laying the groundwork for how we can provide a flexible and dynamic framework that can evolve as further information on risk is studied and developed.

Methodology

We developed the risk characterization in five steps or stages:

First – scenario development, in which U.S. government planners identified the broadest possible set of threats and vulnerabilities that might interact to cause disruptions.  An example of a pairing might be the threat of explosives coupled with the vulnerability of an airport as a critical node or hub.

Once we had the scenarios, we created and applied screening criteria, to screen scenarios as “in” or “out.”  This was done to prioritize resources and focus on those risks that could cause major disruptions.

For example, certain scenarios were deemed illogical – such as a drought impacting Global Positioning System navigation.

That effort provided us with an overall set of scenarios to actually analyze, through consultations with subject matter experts, existing data, studies, and assessments, in order to quantitatively characterize risk.

Once we had that risk characterization, more detailed studies were conducted on ‘high profile’ events, as time permitted – an effort that will be ongoing.

Findings

 

So, what did we find?

The risk characterization revealed a range of threat/hazard and vulnerability pairings that could dramatically impact the Global Supply Chain as a system, with cascading economic effects.

But, only 9% of major disruption scenarios we identified were assessed with a likelihood of occurrence in the next 5 years in the 37% - 100% range.  In other words, the vast majority of major disruptions we identified were assessed to be rather unlikely.

More than 75% of the major disruption scenarios are intentional attacks (in other words, terrorism), cyber threats (intentional attacks and accidents or technical failures), and natural disasters.

Accidents and exploitations are relatively unlikely to result in major disruptions.

Interestingly enough, we also find that across all threats and hazards, there is a clustering of potential major disruption scenarios at critical hubs and nodes. And there are a larger number for seaports than there are for either land border crossings or airports.

More than 80% of the major disruption scenarios involve critical hubs and nodes, or critical resources such as people, raw materials, and supporting cyber infrastructure.

In terms of modes, we found that disruption scenarios are relatively evenly distributed over air (14%), land (14%), sea (28%), intermodal (13%), raw materials (11%), and cyber infrastructure (17%).

The risk characterization identified a number of supply chain related data gaps, as well:

First, there is significant awareness of the wide variety of threats, hazards and global vulnerabilities, but little understanding of how they interact to generate direct and indirect consequences that impact global supply chains.  

Second, there is a general appreciation of the potential for shocks that can rapidly escalate from localized events into broader disruptions, but little understanding of secondary or tertiary impacts, what we call “escalation mechanisms.”  For example, during Hurricane Katrina in 2005, a primary impact was a loss of electric power.  That impact resulted in petrochemical pipeline pumping stations shutting down.  This in turn resulted in a loss of oil and gas well beyond the hurricane impact zone.

Third, there is a lack of information on the Cyber Infrastructure supporting global supply chains – particularly IT Systems, and Industrial Controls Systems (ICS) & Supervisory Control And Data Acquisition (SCADA).

Finally, there is a marked gap in Intermodal data – addressing the points where cargo is transferred from one mode of transport to another, where there may be an increased vulnerability for exploitation because the cargo is being handled or sitting in one place. 

To bring this to a close, the U.S. has also identified areas where our risk characterization efforts need to continue:

We need to address identified data gaps.

And we need to make efforts to reach out to stakeholders and integrate their inputs into the risk characterization to help institutionalize the effort. 

Conclusion

International trade and commerce have always driven the development of nations and provided opportunities for economic growth and prosperity.

At the same time, however, evolving threats to trade and travel, whether from terrorists, acts of nature, even unexpected events or accidents, have reminded all of us of the need for security and resilience within the global supply chain. 

This challenge is large and complex – stretching across air, land, and sea environments, as well as spanning a wide range of industries, infrastructure, and transit systems.

It is also inherently international, and it will take an international effort to meet it, in particular from our partners like Taiwan and those of you here today.  The benefits we all reap from an interdependent global economy means we are all stakeholders in the security of the system.  There are no simple or single-point solutions, and we all have a role to play.

The U.S. invites your feedback on the approach we have undertaken to supply chain security, and I look forward to discussing further how we can work together to meet our shared goals of security and prosperity.

Thank you.