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by Michael A. Haughton North American Center for Transborder Studies Arizona State University

RESPONSES TO NORTH AMERICAN TRANS-BORDER SUPPLY CHAIN CHALLENGES: PRIVATE SECTOR INITIATIVES AND KNOWLEDGE BUILDING. by Michael A. Haughton North American Center for Transborder Studies Arizona State University Research Seminar: November 17 th , 2008. THE CONCEPT: A HIGH-LEVEL VIEW.

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by Michael A. Haughton North American Center for Transborder Studies Arizona State University

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  1. RESPONSES TO NORTH AMERICAN TRANS-BORDER SUPPLY CHAIN CHALLENGES: PRIVATE SECTOR INITIATIVES AND KNOWLEDGE BUILDING by Michael A. Haughton North American Center for Transborder Studies Arizona State University Research Seminar: November 17th, 2008

  2. THE CONCEPT: A HIGH-LEVEL VIEW • Obstacles to supply chain efficiency • Regulatory obstacles • Infrastructure obstacles • Service operations obstacles Supply chain performance Supply chain performance System-wide Impacts • Transborder sector’s response • Government program participation • Objective appeals to government • 3. Complementary initiatives

  3. ASSESSMENT FRAMEWORK

  4. Information Product Funds A Supply Chain for Cereal Nodes: Links: D I S T R I B U T O R R E T A I L E R C O N S U M E R Oil company Chemical Processor Polyethylene Bag Mfr. Cereal Producer Flour Mill Farmer Lumber Supplier Corrugated Mfr. Forest

  5. 2 1 3 4 5 What SCM Professionals Do Plan, organize, and control the production, transportation, and storage operations to ensure that the right products arrive at the right place, at the right time in the right condition, at the right price.

  6. OECD Report on security in Maritime Transport (2005): Security vulnerability points Administrative and Procedural and delays INTERNATIONAL SUPPLY CHAIN CHALLENGE (Source: http://www.chainlinkresearch.com/parallaxview/articles/tec_IntlTrade_ITLadopt.htm)

  7. EVOLUTIONARY SKETCH OF TRADEGOVERNANCE PHILOSOPHY The Pre-World Trade Organization (WTO) Era(General Agreement on Tariffs and Trade: GATT Era) Fiscal emphasis (collection of duties) The WTO Ascension – the Free Trade Era Facilitate legitimate trade through efficient border operations (ACROSS, CADEX, PARS) The Post-9/11 Security hypersensitivity Era Emphasis on national and supply chain security (ACI, AMS, CSI, C-TPAT, FAST)

  8. Source: National policy framework for strategic gateways and corridors (Accessed February 12th, 2008 at Transport Canada website: www.tc.gc.ca)

  9. THE ECONOMIC IMPORTANCE OF CANADA-USA RELATIONSHIP • National income and mutual trade dependence • Ontario-USA trade ($324B) exceeds Japan-USA trade ($236B) • Typically, 70% of Canada’s trade is with the USA • Each country is the other’s largest trading partner • Canada is the leading export market for 36 of the 50 states and ranked in the top 3 for 10 other states • At least 40% of trade estimated to be intra-firm • Investment: • the stock of U.S. foreign direct investment in Canada was $289B at the end of 2007 (59% of total FDI in Canada) • Canada is the fifth largest* foreign investor in the U.S. At the end of 2006, the U.S. Commerce Department estimates that Canadian investment in the US was $159B at historical cost basis. • Employment • Canada-USA trade supported over 7.1 million US jobs in 2006 (up from 5.1 million in 2001) and 3 million jobs in Canada • Other: 80% of Canadians live within 200 miles of the border; 300,000 cross the border daily

  10. THE ECONOMIC IMPORTANCE OF SURFACE TRADE Source: US Bureau of Transportation Statistics (data for 2001)

  11. MAJOR TRUCK CROSSINGS ON THE CANADA-US BORDER FACTOID: Of the estimated 140 truck crossings on the 4,000 mile border, the six major ones typically handle nearly 90% of trade value and over 70% of tonnage and trips

  12. The managerial decision cycle Based on Herbert Simon’s conceptual model of decision making

  13. RESEARCH METHOD: Archival Analysis • PRACTITIONER VOICES • 203 articles from practitioner journals, newsmagazines, and newspapers meant to capture the perspectives of private stakeholders in Canada-US trade (importers/exporters, carriers, brokers/forwarders, etc.) • SECTORIAL INTEREST GROUPS: • 6 reports by organizations including the Conference Board of Canada, the Ontario, Canadian, and US Chambers of Commerce • COMMISSIONED AND INDEPENDENT “THINK TANK” REPORTS • 16 reports (by universities such as ASU, SUNY, UVA, WWU, and non-university centres such as the Hudson Institute) • ARTICLES IN PURELY SCHOLARLY OUTLETS : • 11 in academic journals such as Transportation Journal, Supply Chain Management, and Canadian Foreign Policy • MISCELLANEOUS WEB-BASED ARTICLES: • at least 20 articles (many drawn from the CTRF’s monthly TIU)

  14. CAUSE FOR CONCERN • REGULATORY COMPLEXITY • At least 44 different Canadian and US agency have jurisdiction over border operations • 4,500 new/revised regulations introduced by federal and provincial governments each year • PROCESSING/ADMINISTRATIVE INEFFICIENCY: • Low risk and certified/trusted companies facing unduly long and frequent inspections • Duplicated container inspection (at Canadian port then at Canada-US border) • CBP border officials collecting Animal and Plant Health Inspection Service (APHIS) fee {Eastern Border Transp. Coalition}. • BORDER STAFFING: • Insufficient number of booths and open hours • FUNDING ISSUES • $100B (CDN) transportation infrastructure deficit in Ontario • Tardiness in use of allocated funds; e.g., of the $72.7M Border Infrastructure Fund allocated in 04-05, $34M remain unused

  15. THICKENING BORDER • Smart border accord 2001= greater security + enhanced trade + risk management • Security trumps trade • Efficiency benefits of programs like FAST, ACE have not been fully realized • Layer upon layer: • Never-ending spate of US measures • More inspections, technology glitches • Cash grabs – APHIS fees; TWIC cards • Canada – Reinventing the wheel? • Searching TL of auto parts for fresh-cut flowers • Guilty until proven innocent • Carriers/drivers exiting market • Reduced truck traffic, but summer 2007 longest delays since 2001 (port-a-potties at Sarnia) • Infrastructure – Windsor/Detroit Source: presentation by OTA/CTA CEO (David Bradley) on 4/18/08 in Cleveland, OH

  16. RECENCY OF THE CONCERNS "Overlapping Security Hurting Truckers At U.S. Border, Canadian Officials Say": Transport Topics, 3/3/08. , Iss. 3782; p. 6 "Border Bottlenecks, Regulations Top Concerns for Ontario Shippers, Carriers": Transport Topics. 11/05/07. Iss. 3766, p. 1,10 (2 pp.) "We need harmony in U.S. border security": The Ottawa Citizen. May 23, 2007. p. A15 "Panel: U.S.-Canada Trade Profitable, but Difficult ": Transport Topics. 04/16/07. Iss. 3737, p. 43, 1 pg. "Smart border vision blurred.": Truck News. 03/07. Vol. 27, Iss. 3; pg. 44, 2 pgs "FAST needs to become more transparent.": Truck News. 02/07. Vol. 27, Iss. 2; pg. 70, 2 pgs "Border security is border absurdity.": Truck News, 10/06. Vol. 26, Iss. 10, p. 36. "Border boondoggle": Truck News, 11/06. Vol. 26, Iss. 11; pg. A20 "Labour Problems at International Bridges Must Be Resolved Now: Truckers, Long Delays Caused by Walk-Outs of Canadian Border Staff.": CCN: Matthews Newswire. Toronto: 11/10/05. p. 1. "A Hit at the Border": Traffic World. 4/9/07. pg. 1.

  17. REPORTED BENEFITS BY FIRMS • Faster supply chain flow • Reduction in (a) number of inspections, lead time, (c) border wait times, (d) inspection time, (e) cargo release time • More predictable (consistent) lead times • Greater supply chain visibility (more able to track orders) • Fewer supply chain disruptions • More opportunities for cost avoidance • Reduced cargo theft/pilferage • Greater asset utilization • Greater security of workforce • Lower customs penalties and insurance rates • Increased market share and revenues Primary source: University of Virginia Center for Survey Research report on C-TPAT cost benefit survey

  18. OVERALL EXPERIENCE WITH C-TPAT FACTOID: 91.5% of the surveyed companies (comprising importers/exporters, carriers, and trade support service providers such as customs brokers) reported that they never considered leaving the C-TPAT program. Source: University of Virginia Center for Survey Research report on C-TPAT cost benefit survey

  19. LIKELIHOOD OF STAYING IN THE C-TPAT PROGRAM Source: University of Virginia Center for Survey Research report on C-TPAT cost benefit survey

  20. Additional benefits businesses wouldlike to see added to the C-TPAT program Source: University of Virginia Center for Survey Research report on C-TPAT cost benefit survey

  21. NECESSITY FOR COMPLEMENTARY TACTICS Conference Board of Canada (2007), "Is Just-In-Case Replacing Just-In-Time? How Cross-Border Trading Behaviour Has Changed Since 9/11" Conference Board of Canada (2008), "Ontario-US Border Policies 2008-2009"

  22. TRADE RELATIONSHIP RESILIENCE? Steven Globerman and Paul Storer (2006), "The Impacts of 9/11 on Canada-U.S. Trade"; Western Washington University Border Policy Research Institute Conference Board of Canada (2007), "Tighter Border Security and its Effect on Canadian Exports"

  23. HISTORY LESSON:The road congestion obstacle Victoria Transport Policy Institute. Online Transportation Demand Management Encyclopedia (http://www.vtpi.org/tdm/tdm16.htm) Accessed November 4, 2008

  24. MINIMIZING DELETERIOUS IMPACTS ON SUPPLY CHAIN PERFORMANCE Cost effective participation in (compliance with) trade security and shipment expediting programs Strategic, tactical, and operational program-independent adjustments to border realities

  25. COMPLEMETARY RESPONSES • INVENTORY MANAGEMENT • Stockpile safety stocks in USA as a contingency against excessive delays • Inventory sharing (speculated in the academic literature based on Indian firms) • SHIPMENT SCHEDULING AND ROUTING: • e.g., switch from Windsor to Sarnia (more FAST lines); switch to different times; delay deliveries to accumulate truckload quantities • RECONFIGURE SUPPLY CHAIN NETWORK: • realign production facilities to minimize trans-border flows of WIP (speculated); • INFORMATION SYSTEMS: Outsourcing pre-clearance IT a là the pay per use model • DOMESTICATION: Sourcing (speculated as early as 2001); Carrier operations • TRANS-BORDER MERGERS • Trucking mergers: maximize load factors on joint front/back-haul trips • Non-trucking mergers: Transcore (USA) acquisition of Canada’s Link logistics to create the continent’s largest Internet freight exchange • DRIVER STAFFING ADJUSTMENTS • Dedicated FAST pool; Use driver team to avoid HOS violations • MODAL SHIFT: Utilize rail (speculated as early as 2001)

  26. Original (Preferred): Chatham-DTW/AB-Pontiac = 1:54 (82 miles) Alternative: Chatham-PH/BWB-Pontiac = 2:33 (111 miles)

  27. WHAT IF THE MICHIGAN DESTINATION IS ROMULUS? Original (Preferred): via Windsor’s Ambassador Bridge Estimated Time = 1 hour and 51 minutes (1:51) Estimated Distance = 76 miles Alternative via Sarnia’s Port Huron/Bluewater Bridge Estimated Time = 2 hours and 40 minutes (2:40) Estimated Distance = 131 miles

  28. BORDER DELAY STATISTICS (2007) IF THE TRIP IS DOVER CITY TO PONTIAC THEN: Original (Preferred): via DTW/AB Time = 1:56 and Distance =92 Alternative via Sarnia’s PH/BwB Time = 2:05 and Distance = 100 Source: US Bureau of Transportation Statistics

  29. Spreadsheet Application of Queueing Theory Model

  30. What if a random arrival pattern is stabilized? Gamma distributed inter-arrival times with (a, b) = (0.125, 2.56) so average = 0.32 minutes (19 seconds) between truck arrivals or 3.13 trucks per minute

  31. Extra average waiting time in the queue if arrivals are random versus stable Key Notes Based on estimated DTW volume (2815 loaded southbound trucks per day) Random arrivals based on a coefficient of variation (CV) = 2.8 for inter-arrival time, stable arrivals based on CV = 0. Number of primary booths determined as Min{13, ROUNDUP (l/m,0)} Empty cells depict booth requirements > 13 Key Conclusion Time savings are attainable if truckers can stabilize their arrival.

  32. 95th percentiles of queue time distribution Key Conclusion Downstream planning is significantly more reliable if truckers can stabilize their arrival.

  33. Pattern of waiting time for the first 1000 trucks for random arrivals if average service time is 1 minute and arrivals occur over a 24-hour period (mean wait = 18.3 minutes). Pattern of waiting time for the first 1000 trucks for stable arrivals if average service time is 1 minute and arrivals occur over a 24-hour period (mean wait = 6.6 minutes).

  34. Extra average number of trucks waiting in the queue if arrivals are random versus stable Key Notes Based on estimated DTW volume (2815 loaded southbound trucks per day) Random arrivals based on a coefficient of variation (CV) = 2.8 for inter-arrival time, stable arrivals based on CV = 0. Number of primary booths determined as Min{13, ROUNDUP (l/m,0)} Empty cells depict booth requirements > 13 Key Conclusion Significant congestion reductions are attainable if truckers can stabilize their arrival.

  35. Extra primary customs booths under random arrivals to achieve an average waiting time no greater than the value for stable arrivals Key Notes Based on estimated DTW volume (2815 loaded southbound trucks per day) Random arrivals based on a coefficient of variation (CV) = 2.8 for inter-arrival time, stable arrivals based on CV = 0. Red numbers depict instances where extra booths (in excess of 13 would be required) Empty cells depict booth requirements > 13 Key Conclusion Random arrivals impose a greater burden on customs processing capacity.

  36. Labour hours needed to assure capacity greater than demand for a stable (smoothed) arrival pattern Key Conclusion Longer opening hours of primary customs booths is not always necessary or even efficient.

  37. COST AND SECURITY PRACTICES "CBP recognizes the diverse size and financial abilities of C-TPAT members and this catalog attempts to provide examples of not only advanced security technologies, but of lower cost security practices as well. For example, concerning conveyance tracking …." Supply chain security best practices catalog (pp. 1-2) "Detecting false walls/compartments: A Highway carrier uses several low cost, commercially available laser measuring devices to detect false walls/compartments, and hidden contraband. One device…..A mirror is used to inspect the undercarriage…." Supply chain security best practices catalog (pp. 17-18)

  38. COST AND SECURITY PRACTICES SOURCE Voluntary supply chain security program impacts: an empirical study with BASC member companies Ximena Gutiérrez, Juha Hintsa, Philippe Wieser and Ari-Pekka Hameri

  39. INSIGHTS FROM JC PENNEY • Examination of internal security operation compliance • Formed an implementation team comprising personnel from legal, logistics, quality control, loss-prevention, and supply chain departments • Created a compliance manual specifying different aspects of supply chain collaboration and a questionnaire to be completed by all foreign suppliers • Collected security measures and evaluated suppliers’ security measures • Educated/trained suppliers on optimal security procedures • Rigorous and regular inspections of suppliers’ facilities • 90-day grace period for suppliers to rectify security problems • Bi-annual supplier summits to update suppliers on emerging developments and security issues in the retail industry

  40. SEARCH FOR INNOVATION: Trucking Commercial Carrier Journal: http://www.ccjdigital.com/

  41. VALUE – Why? • IMMEDIATE VALUE • More fruitful process of searching for private sector solutions • More thorough analysis of alternative solutions • More cost-effective choices • Greater clarity about what to seek from government • More rationally prioritized wish list of government actions SUSTAINING VALUE: Knowledge Building The race towards solving North America’s border problems is not a sprint but a relay: run a good leg and make a clean hand-off so the next runner can run an even better leg.

  42. Country A’s Government Officials Country B’s Government Officials Country A’s Business Leaders Country B’s Business Leaders Country A’s SCM Scholars Country B’s SCM Scholars SUSTAINING VALUE: A look to the future

  43. Building Knowledge: Initiatives by Academia and Others • Term projects based on the Search and Choice Process stages of the managerial decision cycle • Utilize the Canadian government’s Accelerate program initiative (http://www.acceleratecanada.ca/) • Respond to the Canadian government’s Supply Chain Sector Council initiative to build human capital in SCM (http://www.supplychaincanada.org/en/) • 2008 Canada-Latin America and the Caribbean Research Exchange Grants (LACREG) http://www.aucc.ca/programs/intprograms/latincarib_e.html

  44. LOOKING AHEAD Extend queuing model to reflect (i) secondary inspection, (ii) trucking industry consolidation/realignment, (iii) modal shifts (to rail) and (iv) 100% C-TPAT participation Assess inventory sharing vs. stockpiling; network redesign Model/quantify operational benefits of mergers Viability of private sector initiatives under "BIF" stimuli Lessons from the TQM movement Stories of innovative and cost-effective security practices Response to EDC loan program to fund C-TPAT certification for small exporters

  45. LOOKING AHEAD • If 65% of the nearly 6000 SME companies served by EDC are loaned the estimated $100K C-TPAT implementation cost for SMEs ($100K) at an interest rate of 12% p.a. over 5 yrs. then annual payment »$104M • Trucks typically carry 61.5% of Canadian exports of $300B/year to the US so if border related waste cost these SMEs just 1% of truck-based exports then annual total cost of waste = $1.85B(17 times loan repayment)

  46. INFRASTRUCTURE STILL MATTERS If the Canadian economy loses just half of 1 percent of truck-borne export revenues because of reduced trans-border operations, this amounts to $922 million per year. If one assumes that the Canadian liberal government’s campaign promise of $4.5B over 10 years for border and gateway infrastructure represents a reasonable estimate of deficit in border/gateway investment then the investment is worthwhile: spend $450 million per year to prevent a loss of $922 million

  47. Thanks for Listening Questions/Comments?

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