Maritime Threats to Supply Chain

By: Mar-John P Cruz, CFI, BCCP Director – BCAPable Inc.

Agenda

1. Why Maritime? Why Ocean Freight?

2. Maritime Threats to Supply Chain

a. Internal Threats b. External Threats

3. Maritime Security Cooperation

- Collaboration between Governments & the Private Sector

1. Why Maritime? / Why Ocean Freight? a) Lesser transportation costs - larger and heavier shipments, it is often much

cheaper to ship by sea.

b) Improving transit times - technology continuously improves in the global maritime industry. Ships are becoming faster and more efficient. Canals have created shorter shipping routes with shipments crossing the oceans with shorter transit times.

c) Environmental Impact: Not everything is about the bottom line and convenience. While the social awareness of environmental issues can change the way the public looks at a company and affect its bottom line, we all have a responsibility of taking care of the planet on which we live. It would seem that ocean freight wins this category. CO2 emissions are much higher in air freight transport than ocean freight transport. This causes cargo shipping by air to have a much larger carbon fingerprint than cargo shipping by sea.

However, considering oil spills and the water ecosystems affected by ocean freight, leaves this subject to debate.

d) Today, nearly 80% of global trade is transported in ships.

e) There are currently over 17 million shipping containers in the world, and five or six million of them are currently shipping around the world on vessels, trucks, and trains. In total, they make around 200 million trips a year.

f) The value of the shipping industry to global economy exceeds US$ 400

Billion per year.

(Source: World Shipping Council)

2. Maritime Threats to Supply Chain The maritime cargo industry, being a vital link in global trade is also subjected to the shared risks and threats inherent in the supply chain. These risks and threats come from internal and external sources which we will briefly discuss. Please take note that the examples outlined in this discussion does not encompass the entirety of the risks and threats in the supply chain.

a) Internal – Theft, Pilferage, Tampering, and Contamination can occur

during the stuffing process both for LCL and FCL shipments. Items,

commodities or goods can be stolen, tampered, pilfered and even

contaminated during the stuffing or loading process.

Organized crime syndicates prevalent in the international “Grey Market”

have reportedly been deploying or recruiting staffs in manufacturing

facilities, transportation agencies, manpower providers, 3PL

warehouses, air cargo and ocean freight cargo terminals.

In a 2014 report by the Transported Asset Protection Association (TAPA)

Asia Pacific, organized crime involved in transportation and trucking

hijackings are becoming more violent and utilize various modus operandi

to perpetrate their crime activities ranging from bribery of corrupt law

enforcement officers, collusion with internal staffs and tiger kidnapping.

In similar fashion, maritime violence has also been the tactic of choice in

piracy and crimes in the shipping industry in Asia Pacific.

Theft, Pilferage, Tampering (which can include the introduction of

narcotics and WMDs) and Contamination (which can include the

introduction of biological and / or chemical agents) can occur in the

following stages of the maritime cargo supply chain process of trucking

transport, storage and shipping:

Manufacturing facility 3PL Warehousing facility During Transport (Threat of hijacking or truck crew theft)

Wharf premises Co-Loaders Premises Container Yards Ocean Freight Warehouses / Terminals

Some common observations include the following:

Inadequate Infrastructures – most ports and harbors, especially in

emerging markets in Southeast Asia have inadequate warehousing and

gated / fenced container yard facilities.

Lack of security systems and processes - Minimal, inconsistent or

non-utilization of security procedures, documentations and controls,

access control systems, electronic security systems such as intrusion

detection systems, CCTV and protective lighting, among others.

Little to Non practice of Vetting Procedures for 3rd Party Vendors,

outsourced and direct hire employees

b) External: Piracy and Terrorism

As of January 2015, Asia maritime piracy attacks rise to 75% of global total (source: Reuters)

Time Magazine featured that Asia’s seas offer rich pickings for marauding pirates who steal oil and supplies worth billions of dollars every year. “Asia – The World’s Most Dangerous Waters”. (Source: Adam McCauley, 15 August 2014)

According to the Singapore-based Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP), 183 actual or attempted attacks took place in Southeast Asian waters during 2014. This figure represents a marked increase from 150 in 2013 and 133 in 2012, and is the highest since 2006.

The International Maritime Bureau’s (IMB) Piracy Reporting Center corroborate ReCAAP’s findings and show a similar increase in attacks in 2013 and 2014. Since a total of 245 attacks took place worldwide in 2014, Asia now accounts for up to 75 percent of all piracy and armed robbery (PAR) incidents in the world, up from 60 percent in 2013.

Over one third of all shipping traverses the Strait of Malacca each year, with an estimated 15.2 million barrels of crude oil transported through this strategic chokepoint every day.

Pirates in Southeast Asia use violence as a tool less frequently, and there are fewer instances of boarding with firearms.

The majority of attacks are directed against small local ships that are easily boarded, rather than major oil tankers or cargo vessels.

A large proportion of all attacks consist of petty thefts and crimes of opportunity against ships in ports. Major (and violent) hijackings are a much rarer occurrence than in the Gulf of Aden or the Gulf of Guinea.

Given the breadth of Asian waters and sea lanes, some areas are bound to be more at risk than others as the share of violent incidents rose substantially in 2014. (Source: The Diplomat)

The continent’s share in global PAR statistics is rapidly increasing as the number of attacks in other parts of the world – most notably the Gulf of Aden – continues to decline due to the efforts of allied naval forces.

World Bank estimates the global economic impact of piracy at US$18 billion a year

In Southeast Asia, as fish stocks decline, coastal dwellers are turning to piracy to supplement their incomes (source: Lily Kuo, qz.com)

Maritime Security Challenges in Asia-Pacific region

1. National Stability Concerns 2. Piracy and maritime terrorism 3. Territorial claims and maritime boundaries delimitation, particularly in the West

Philippine Sea / South China Sea, East China Sea, Sea of Japan, and others

4. Major/Non-regional powers interests, particularly the problem of navigation

through semi-enclosed seas, archipelagic waters, the straits of Malacca and Singapore and others

5. The problems of implementing UNCLOS provisions, particularly maritime space and resources management and;

6. Foreign military intelligence activities in the EEZ of other countries.

(Source: Prof. Dr. Hasjim Djalal, An ASEAN Perspective on Maritime Cooperation)

Terrorism in the Southeast Asian Maritime Industry

Southeast Asia Terror Groups with Maritime Capability

Al Qaeda

Jemaah Islamiyah

Abu Sayyaf Group

Liberation Tigers of Tamil Eelam – partnering with ISIS?

(Sources: Institute of Defence & Strategic Studies Singapore; Prof. Hudson McLean, Lankaweb 16 March 2015)

Piracy versus Terrorism

Maritime “Common Piracy” - attacks which have been carried out with an economical objective and by perpetrators who are driven by greed rather than political motivations.

Political piracy - the attacks in which politically oriented groups use piratical tactics to finance their activities.

Maritime terrorism and maritime insurgency - attacks which clearly have a political motivation and are carried out by organizations with political objectives. While international maritime terrorism has the aim and potential to harm international security as well as international trade, maritime insurgency has mostly local geographical repercussions.

While some actors such as Al Qaeda and its affiliates aim at harming the ‘Western’ civilization as such, local insurgencies such as the Abu Sayyaf Group (ASG) in the Philippines or the LTTE in Sri Lanka use or have used terrorist attacks at sea in order to fight their local government.

Economically oriented terrorism - politically motivated attacks conducted by organizations primarily interested in financial benefits with only a marginal part of attacks amounting to maritime violence.

(Source: Mr. Andreas Graf, PiraT-Working Papers on Maritime Security

Nr. 5, April 2011)

c) External: Natural Disasters & Climate Change

Climate change will cause storms, hurricanes and tropical storms to become

more intense.

Scientific research indicates that climate change will cause hurricanes and

tropical storms to become more intense — lasting longer, unleashing

stronger winds, and causing more damage to coastal ecosystems and

communities.

Scientists point to higher ocean temperatures as the main culprit, since

hurricanes and tropical storms get their energy from warm water. As sea

surface temperatures rise, developing storms will contain more energy.

Other factors such as rising sea levels, disappearing wetlands, and

increased coastal development threaten to intensify the damage caused by

hurricanes and tropical storms.

More than 2.7 Billion people around the world were affected with US$ 1.3

Trillion lost to disasters from year 2000 to 2011.

(Source: United Nations Office for Disaster Risk Reduction)

3. Maritime Security Cooperation

Council for Security Cooperation in the Asia Pacific (www.cscap.org)

ASEAN Plan of Action to Combat Transnational Crimes. Covers 8 areas: (a)

trafficking of persons, (b) illicit drugs trafficking, (c) money laundering, (d) sea

piracy, (e) terrorism, (f) smuggling of small arms, (g) cyber-crime, and (h)

commercial crime.

Regional Cooperation Agreement on Combating Piracy and Armed Robbery

against Ships in Asia (www.recaap.org)

International Ship & Port Facility Security Code (ISPS)

(www.imo.org/ourwork/security/instruments/pages/ispscode.aspx)

US CBP Customs Trade Partnership Against Terrorism (US C-TPAT)

(http://www.cbp.gov/border-security/ports-entry/cargo-security/c-tpat-customs-

trade-partnership-against-terrorism)

Transported Asset Protection Association (TAPA) Security Standards

(www.tapa-apac.org)

ISO 28000 – Supply Chain Security Management

(http://www.iso.org/iso/catalogue_detail?csnumber=44641)