Secure Trade Project Final Report Economy: United States Intermodal & ITS Experts Group Presentation April 2008

1. Secure Trade Project Final Report Economy: United States Intermodal & ITS Experts Group Presentation April 2008

2. Agenda Makati City The Philippines 2008 Secure Trade Project Final Report • Project Background • Objectives and Approach • Summary of Key Findings • Return on Investment (ROI) Model • Recommendations • For more information

3. Secure Trade Project Background Makati City The Philippines 2008 Secure Trade Project Final Report • Secure Trade Project initiated as part of STAR “to promote and facilitate trade and efficiency while enhancing security” • Phases 1 and 2 completed by Australia and the US with focus on container track & trace technologies • Phases 3-5 were combined and focused on testing a specific track & trace technology using the SST (Smart and Secure Tradelane Technology) program • SST program ceased operations in 2006 leaving no test bed for evaluation purposes, resulting in revised objectives and approach

4. The objectives of the Secure Trade Project were focused on 4 key areas: Objectives and Approach Makati City The Philippines 2008 Secure Trade Project Final Report • Efficacy – Assessing the use and performance of selected security technologies. • Economics – Examining the required investments, costs and benefits of selected security technologies • Equity – Assessing the differences between developed and developing economies in the use of security technologies • Standards – Researching the current state of standards and ITS applicability for the selected security technologies.

5. Objectives and Approach Makati City The Philippines 2008 Secure Trade Project Final Report To meet the objectives of the project the team undertook the following approach: • Analyze the current state of 3 categories of Container Security Technology: • Non-intrusive inspection (NII) – using X-ray and other technologies to generate images of contents inside a container • Radiation detection– using equipment to detect the presence of radioactive material inside a container • RFID container intrusion detection – using devices with wireless capabilities that can communicate the breach of a container’s door • Research the deployment of Port Security Infrastructure in the APEC region • Create a Return on Investment model for security deployment

6. Objectives and Approach Makati City The Philippines 2008 Secure Trade Project Final Report The project team conducted surveys, held discussions with technology vendors, and collected information from public sources to provide an overview of each of the selected technologies that includes: • operation of the technology • costs and benefits • efficacy • related standards and ITS • trends driving use of the technology • feasibility within APEC economies • equity between developed and developing economies Yantian International Container Terminal Shenzhen, China

7. Objectives and Approach Makati City The Philippines 2008 Secure Trade Project Final Report The project team conducted surveys, made visits to selected ports, met with customs personnel, and collected information from public sources to better understand the use of port security technologies in 18 ports in 16 APEC economies: • Port of Melbourne, Australia • Port of Vancouver, Canada • Port of Shanghai, China • Port of Shenzhen, China* • Port of Hong Kong* • Port of Tanjung Priok, Indonesia • Port of Yokohama, Japan • Port of Busan, Korea • Port Klang, Malaysia • Port of Auckland, New Zealand* • Port of Callao, Peru • Port of Manila, Philippines • Port of Singapore • Port of Kaohsiung, Chinese Taipei* • Port of Laem Chabang, Thailand • Port of Los Angeles, USA* • Port of New York/New Jersey, USA* • Port of Ho Chi Minh, Viet Nam * Visit conducted.

8. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report • Ports within APEC economies are experimenting with and using security technologies to varying degrees. • Security technologies are at different levels of maturity and present different cost and benefit implications to various users, both public and private.

9. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report Non-intrusive Inspection (NII) technology • Use: Non-intrusive Inspection (NII) technology is widely used (17 of the 18 ports analyzed), has benefited Customs administrations (security, fees) but requires significant human operator involvement. • Efficacy: The combination of a well-conceived targeting process, a clear NII image, and a well-trained operator have resulted in the detection of potential security risks in containerized cargo. New Zealand Customs Mobile X-Ray at Port of Auckland

10. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report The use of Non-intrusive Inspection (NII) technology in the researched ports: (1) According to World Bank

11. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report Radiation Detection technology • Use: Programs such as CSI, SFI and the Megaports Initiative are supporting the increased deployment of radiation detection technologies. Radiation detection infrastructure is not as widely deployed as NII. • Efficacy: “Nuisance” alarm rates and transshipments reduce the efficacy of existing portal-based Radiation Detection Radiation Portal Monitor (RPM) at Port of New York / New Jersey

12. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report The use of Radiation Detection technology in the researched ports: (1) According to the World Bank (2) As of Oct. 3, 2007, Container Security Initiative Operational Seaports according to U.S. Customs and Border Protection (3) Megaports Initiative - Operational port/country or at various stages of implementation

13. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report RFID container intrusion detection/identificationtechnology • Many tests and indications from ports and government entities indicate that the technology can be an effective tool for detecting container door breaches • Questions about efficacy remain as it relates to technologies that only focus on the door and not all 6 sides of the container • A lack of clear requirements, mandates, incentives from government agencies has inhibited the widespread use of the technology GE Container Security Device (CSD) being mounted inside container door

14. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report The use of RFID container intrusion detection/identification technology in the researched ports: (1) According to the World Bank

15. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report • A Cost estimate for port security infrastructure deployment… • Based on a generic port with two container terminals and an annual TEU volume of 800,000 • The deployment of NII, Radiation Detection, and RFID container intrusion detection technology could range anywhere between $4.8M and $19.6M (USD) given certain assumptions • Costs can be offset, shared or recovered through a variety of methods including revenue generation (fee collection), technology vendor support, government program support such as the Megaports Initiative

16. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report • Equity • Hypothesis: Developing nations could be at a disadvantage in terms of their ability to acquire, fund and deploy advanced technologies such as NII, radiation detection and RFID container intrusion detection in the port environment. • Finding: There does not appear to be a correlation between whether an economy is developed or developing and the degree to which container security technologies are available and being utilized by an economy. Two other factors are more relevant: • Participation of the seaport or economy in security agreements or programs (CSI, Megaports Initiative, etc.) • Investment by commercial entities (terminal operators, technology vendors) in advanced security technologies.

17. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report Standards and ITS (Intelligent Transportation Systems) • Standards continue to evolve for container security, particularly with respect to RFID container technologies. • Widely agreed upon requirements, incentives and mandates do not exist to support the use of RFID container technologies. • Standards for NII and Radiation Detection are primarily focused on safety • Container security technologies have applicability for ITS: • Each of the three researched technologies have productivity, safety and economic implications • Networks that read on-container security devices present an opportunity to provide systemic productivity benefits to public and private entities

18. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report Standards - RFID In terms of radio frequency allocation, many economies have opened key frequencies for use in supply chain and logistics applications. Japan was one of the few countries that, until recently, had not approved 433 MHz for logistics applications. This approval took place in early 2007. In addition to Japan, the economies of China and Korea have opened the 433 MHz band in recent years for logistics applications. In early 2007, ISO ratified an active RFID standard for electronic container seals, ISO 18185. It was completed in anticipation of a US government requirement that seals of containers entering the United States be inspected. However, a mandate for seal inspection has not materialized to date. To this point, as it relates to container seals, the ISO (PAS) 17712 specification is the closest thing to a standard for sealing a container. ISO (PAS) 17712 is a set of specifications for mechanical seals which have been endorsed by the WCO as well as by U.S. CBP for required use in the C-TPAT program.

19. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report Standards - RFID As it relates to RFID-based CSDs, U.S. CBP published on Dec 12, 2007, a request for information (RFI) to solicit industry input on determining whether available Container/Conveyance Security Device systems meet its needs. The container security systems are intended primarily for monitoring the doors of shipping containers and other conveyances to determine if an intrusion occurs during the cargo transit. This set of requirements is in response to Section 216 of the “Safe Port Act” of 2006. The RFI from CBP specifically excludes electronic seals attached to the outside of a container. New Zealand Customs Service requires that its “Customs approved seal” must meet Revised Kyoto Convention Annex E.1, “Minimum requirements to be met by Customs seals and fastenings.”

20. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report Standards – Radiation emitting equipment such as NII X-Ray and Gamma Ray In 2006, the International Atomic Energy Agency (IAEA) approved for publication its “Fundamental Safety Principles.” These standards were jointly sponsored with several groups including the International Maritime Organization (IMO) and the World Health Organization (WHO) among others. The Occupational Safety & Health Administration (OSHA) in the U.S. Department of Labor has standards on ionizing radiation (29 CFR - 1910.1096). In 2005 it issued a request for information (RFI) concerning those radiation standards citing that it has been an issue of great interest to the longshoring industry because of the increase in container screening for homeland security purposes. In Australia, X-ray systems must meet stringent radiation safety standards set by the Australian Radiation Protection and Nuclear Safety Agency, and the World Health Organization safety standards.

21. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report ITS Applicability Intermodal Freight applications include applications that track, monitor and communicate with conveyances such as maritime cargo containers. This area of ITS has the most applicability to the research conducted in the Secure Trade project, particularly RFID container intrusion detection/identification technologies. As the networks that read on-container devices extend to include locations outside of seaports, the true intermodal potential of this technology becomes evident. A container that can make its security status, location, and other critical information available to a multi-nodal network that is accessible by various public and private supply chain participants can provide systemic benefits whether the container is under the control of an ocean carrier, trucker or rail operator.

22. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report • ITS Applicability • In the port environment, congestion is a significant issue as trucks often queue for long periods of time waiting to pickup or drop-off containers associated with maritime transit. Port authorities that have responsibility over a large amount of diverse infrastructure could have the most interest in the potential benefits of these on-container technologies. The Port Authority of New York/New Jersey oversees not only the seaport but also airports, roads and bridges. This responsibility could provide an opportunity to take a systemic approach to problems like security and productivity including, for example: • Using the road toll system in conjunction with truck cab/driver information to better plan arrival and entry of container trucks at the seaport • Tracking the history of a truck being stopped on a road for a commercial vehicle inspection so that the same truck is not stopped again on its continuing journey. This would reduce repeated stoppages of moving goods avoid utilizing police and other valuable resources for duplicate inspections.

23. Summary of Key Findings Makati City The Philippines 2008 Secure Trade Project Final Report • There is no single commercially viable security solution that eliminates the vulnerabilities posed by intermodal shipping containers • Gaps in national policies, global standards and international agreements represent difficult challenges to a more secure trade environment • Non-intrusive Inspection (NII) technology is widely used, has benefited Customs administrations but requires significant human operator involvement • “Nuisance” alarm rates and transshipments reduce the efficacy of Radiation Detection • Container intrusion detection deployment is being slowed by a lack of mandates, incentives, and standards • International programs and capacity-building efforts are driving container security technology deployments in developed and developing countries alike

24. Return on Investment (ROI) Model Makati City The Philippines 2008 Secure Trade Project Final Report A return on investment model has been developed for estimating the costs, benefits and potential return by the use of RFID container intrusion detection / identification technology. This is a spreadsheet-based tool that allows the user to enter a variety of information related to the port, supply chain and RFID technology being utilized.

25. Recommendations Makati City The Philippines 2008 Secure Trade Project Final Report • Coordinated efforts between APEC economies to target/screen containers and to effectively use NII technology should be accelerated • APEC should consider studying the effects of different security and scanning scenarios in the region • APEC should incorporate an update of international security programs, policies and standards into its regular meetings • Capacity building and program assistance should continue and be focused on identified security gaps • APEC should consider studying the security implications of transshipments in the region

26. For more information Makati City The Philippines 2008 Secure Trade Project Final Report • Full report posted to the APEC website • Limited hard copies of full final report available • Contact: Adam Kiesel Unisys Corporation adam.kiesel@unisys.com +1 602 412 3240