Royal treatment
By R.G. Edmonson

Journal of Commerce
March 06, 2006

The next step in supply-chain security and trade facilitation may come straight from the Heartland. Kansas City SmartPort, a nonprofit economic development agency, is testing security on a north-south axis. It has tested electronic technology to track a truck's location and the integrity of the freight from Kansas City, Mo., to destinations in Mexico.

More than that, "We're soon going to be home to the first inland U.S.-Mexico customs facility in the United States," said Chris Gutierrez, SmartPort executive director. He said U.S. and Mexican customs authorities can clear Mexico-bound exports in Kansas City, seal the truck with an electronic or bolt seal, and track and trace it all the way to the border, using technologies that the SmartPort is testing. "We'll know where that truck is, and that the driver got there in the designated amount of time, and it can move into Mexico without any further inspection," Gutierrez said. The joint facility should be in operation by year-end.

SmartPort wants to test a mix of technologies. So far, Electronic Data Systems, which purchased the data-integration unit of the Black & Veatch engineering company, has tracked four truckloads on the Interstate 35 corridor between Kansas City and Laredo, Texas. Two of those were tracked on to their destinations in Guadalajara and Veracruz, Mexico, Gutierrez said. The objective has been to create clarity in the supply chain, and the project has tested a number of technologies, including global positioning satellite, cellular telephone and radio-frequency identification technology.

"We did one shipment where the company averaged 10 to 14 days to get their freight to the customer in Guadalajara. We did it for them in three," Gutierrez said. "The Mexicans are very committed to this. They see it as a great opportunity to relieve congestion at the border. The U.S. and Mexico have both said that this project has to have a technology component to track and trace and secure the freight. They're very excited about what we're doing, because we already have funding to do it."

Kansas City SmartPort has received no funding from the Department of Homeland Security. Instead it has a $6 million grant from the Department of Transportation's Intelligent Highway Systems program. It also has a $500,000 grant from the Department of Commerce to promote exports to Mexico. Gutierrez said security is an objective, but it's a byproduct of greater supply-chain visibility. "What we're looking at is security in the supply chain, and visibility to the customers, whether that's the shipper, the carrier or the government."

It's no coincidence that the SmartPort project sounds like the Secure Freight Initiative that Homeland Security Secretary Michael Chertoff and Deputy Secretary Michael Jackson announced last year. Homeland Security has yet to put form to the Secure Freight concept, but Kansas City is ready whenever the Department of Homeland Security is, Gutierrez said. "Chertoff and Jackson are talking about the Secure Freight Initiative, and we hope that this is the ideal corridor to test this technology."

Other projects are testing tracking and tracing technology, but the SmartPort project is taking that one step farther. Gutierrez said data the project is collecting will feed into a "data fusion" center that will analyze and distribute information to shippers or government security officials. Tracking systems are "great, but where does the data go?" he asked. "How does Homeland Security analyze risk, and shippers want to analyze risk. How do you provide data to the right people, and how do you protect it?"

Some trade groups are resisting the Secure Freight idea, because their members will not hand over proprietary information to anyone outside the government. It's a question SmartPort wants to address: Who would own the data? "Great question," Gutierrez said. "That's something that needs to be explored when we do these pilots." Cost savings from greater efficiency could cover the costs of data collection and storage. Another possibility is the "Visa-MasterCard model" for merchants. Businesses that want to offer credit-card services pay a fee to the issuers, and pay to access the data. Maybe a nonprofit company such as SmartPort could manage the data center for everyone, since it has no vested interest in the information.

Gutierrez said the projects depend on no specific technology or manufacturer. "The system we want to build here in Kansas City is open source. We're not going to dictate technology or equipment, but we're also active in the standardization process. We're not going to have nine different e-seals out there; that will add to costs."

SmartPort and its partners have representatives, for example, at the World Customs Organization's discussions of criteria for security and trade facilitation. It's conceivable that one day, a protected container can be tracked through a secure supply line from Kansas City through a seaport such as Houston, to any foreign country.

Another question: What should be the roles of the government and private sector in supply-chain security? "Homeland Security has stated it very well: The private sector is the group that's moving the freight and owns the data," Gutierrez said. "The government needs to see certain data if it's going to protect the supply chain. We agree with what Homeland Security is saying, (that) the Secure Freight Initiative is where we're going, but the private sector needs to take the lead and develop it." The government's role may be supplying seed money to get private-sector pilots under way, but ultimately it has to be a public-private partnership.

The next stage of the SmartPort project will begin to track containers on railcars, using Kansas City Southern Railway's line that extends to the Mexican Pacific port of Lazaro Cardenas. Hutchison Port Holdings, the port operator, is expanding container capacity from 200,000 containers in 2005 to 2.5 million in the near future, Gutierrez said. Kansas City is at the center of a port-to-port access that also extends north to Hudson's Bay at Churchill, Manitoba. Some planners are considering Churchill as terminus of an Arctic Ocean container route from Murmansk, Russia.

SmartPort is one of a growing network of inland ports that want to use ocean routes to Churchill, or Lazaro Cardenas, or other ports to relieve congestion on the West Coast. For more than a century, Kansas City boosters have pointed out that the overland distance is shorter to a Mexican port than any West Coast port. The north-south routes would not likely supplant Los Angeles or New York-New Jersey, but the inland ports working together can provide some benefits for warehousing and distribution.

"The idea is that there is a network of interested parties that recognize there is some synergy within these inland ports, linking Canada, the U.S. and Mexico together," said Greg Dandewich, director of economic development for Destination Winnipeg, the northernmost partner in the inland network.