Compliance or Enhance the Competitiveness? The Most Secure Port - HKG

Compliance or Enhance the Competitiveness? The Most Secure Port - HKG Hong Kong, 19 Jun, 2013 Jimmy Pang TAPA China, Board of Director

The Most Secure Port HKG Introduction of TAPA How can we create value from supply chain security? Enhance our competitiveness thought recognition Future model for facing future challenges 2 2011-2012 TAPA. All Rights Reserved

TAPA Transported Asset Protection Association (TAPA) is an association of security & logistics professionals and related business partners originally from the high-tech industry and subsequently joined by companies transporting high value goods who have written security standards for the purpose of addressing the emerging security threats that are common to the high value industry supply chain. 3 2011-2012 TAPA. All Rights Reserved

Association s Mission The Association s Mission is to help protect our members assets by: Exchanging information on a global and regional basis Co-operating on preventative security Increasing support from the logistics and freight industry and from law enforcement agencies and governments Promoting and enhancing TAPA s globally recognized and applied Security Requirements 4

Members 5 5

TAPA Today World Wide Council One World wide Change Control Board (WWCCB) America s Sub- Chapters EMEA Service Centers Each region has a Change Control Board (CCB) representative ASIA 6

y Before FSR was available Buyer 1 Buyer 2 Buyer 3 Buyer 4 Buyer 5 Buyer 6 assessment 1 assessment 2 assessment 3 assessment 4 assessment 5 assessment 6 Freight Forwarder / Carrier To many audits over the year; All different sorts of audits. 2011-2012 TAPA. All Rights Reserved 7

Supplier Facility Assessment Model Buyer 1 Buyer 2 Buyer 3 Buyer 4 Buyer 5 Buyer 6 TAPA authorized auditor Freight Forwarder / Carrier Only one audit form used: Results of one audit can also be used for other customers. 8 2011-2012 TAPA. All Rights Reserved 8

TAPA Standards FSR 3 Levels A,B & C Designed for securing warehouse, logistics and distribution centre's & control of goods TSR 3 Levels of TSR 1, 2 & 3. Designed for securing road transportation carrying High Value cargo/loads TACASS TACSS Designed for securing the Supply Chain en route and within Air Cargo Terminals PSR Designed for securing the Safe Parking of Trucks traveling long distances 2011-2012 TAPA. All Rights Reserved 9 9

TAPA Objectives Develop and utilize common global tools (FSR/TSR/TACSS, Contract Language, Assessment Protocol) to: Increase security awareness amongst its partners & members Communicate Best Known Methods (BKM) to industry and supplier base Provide a security standard designed to increase the value chain Provide an industry forum to evaluate effectiveness, pursue continuous improvement and set future goals Represent members where appropriate with anti cargo crime joint initiatives with Government and Law Enforcement Agencies 10 2011-2012 TAPA. All Rights Reserved

Freight Security Standards Freight Security Standards (FSR) Introduced 2001, revised every two years since 2005. Worldwide minimum standards for freight forwarders facilities handling high tech / high value products. Now covers 850 + facilities worldwide Levels A,B,C decided in partnership between shippers and logistics service providers (Where A is the highest and C the minimum) A and B certification TAPA C by independent audit bodies Accepted by US Customs C-TPAT program as BKM (Best Known Method) Recognized in some countries by AEO programs 11 11 2011-2012 TAPA. All Rights Reserved

Introduction to FSR Requirement Details (Class A, B, C) Mandatory sections (facility) Non Mandatory sections (transportation) Perimeter Security Access Control Facility Dock/Warehouse Security Systems Security Procedures Standard Truck Security Requirements Pre-Alerts Enhanced Security Requirements CCTV, lighting, protection and alarms To office and warehouse Restricted access, secure storage, CCTV, alarm Monitoring, maintenance, restricted access, logging Training, vetting/termination, document controls, security policy, integrity checks of freight/vehicles, search procedures, key controls. Vehicle requirements, sealing, communication, key controls, POD Communication, POD GPS tracking, escorting, training. 2011-2012 TAPA. All Rights Reserved 12

Increase in Crime 13

TAPA fights cargo crime TAPA s Incident Information Service (IIS) constantly captures and shares data, enabling. 14 14

Crime Fight Tool - IIS Incident Information Service IIS Analysis & Trends Breakdown by country Typeofcrime Modus Operandi used Type of Product stolen Location of loss/theft Crime trends analysis Values of freight stolen 15 15 15

Someone asks me. Can we make use of supply chain security to create more profit?

My answer is. If Hong Kong air logistics get no branding, get no future. If security already done, why not it is the brand?

Situation Aviation Supply Chain Security Related Standards Industrial - RA program (ICAO Annex 17) - ICAO - Secure Freight program - IATA National - EU ACC3 100% Screening & Validation (EC 1082/185) - EU - C-TPAT program (US Anti-Terrorism ) - US CBP Customs - AEO Program (WCO Safe Framework) - WCO Commercial - FSR certification Program - TAPA

Situation Political Concerns EU General air cargo security regime ACC3s must ensure that all cargo and mail carried to the EU is screened or comes from a secure supply chain. Until 30 June 2014, asaminimum, the standards of the International Civil Aviation Organization (ICAO) apply. HKCAD Achievement Hong Kong successfully approved by EU for Exemption (conditional) Conditional Exemption without successful implement the new RAR program, Hong Kong will LOST conditional exemption of EU 2014 requirements. 19 ACC3: 'Air Cargo or Mail Carrier operating into the Union from a Third Country Airport' 2011-2012 TAPA. All Rights Reserved

Situation Aviation Supply Chain Security Related Standards Good news Industrial - RA program (ICAO Annex 17) - ICAO - Secure Freight program - IATA or National - EU ACC3 100% Screening & Validation (EC 1082/185) - EU - C-TPAT program (US Anti-Terrorism ) - US CBP Bad news? Customs - AEO Program (WCO Safe Framework) - WCO Commercial - FSR certification Program - TAPA

Situation Aviation Supply Chain Security Related Standards Good news Industrial - RA program (ICAO Annex 17) - ICAO - Secure Freight program - IATA Some countries get no RA program or no AEO program no TAPA certification National - EU ACC3 100% Screening & Validation (EC 1082/185) - EU - C-TPAT program (US Anti-Terrorism ) - US CBP Bad news? Customs - AEO Program (WCO Safe Framework) - WCO Commercial - FSR certification Program - TAPA

Situation Aviation Supply Chain Security Related Standards Industrial - RA Hong Kong RA program 1397 China Singapore Japan USA EU No RA program 268 162 No data No data National EU 2014 ACC3 Conditional Screening & No data No data No data No data N/A - EU ACC3 100% Screening & Validation accept (EC 1082/185) - EU Validation - C-TPAT C-TPAT 100+ No data No data No data 9600+ No data Customs - AEO AEO 9 2174 86 482 10325 10649 Commercial - FSR TAPA (FSR) 30 56 34 17 142 423

My answer is. If Hong Kong air logistics get no branding, get no future. If security already done, why not it is the brand?

Review on Major 3 Standards Comparison of Aviation Supply Chain Security Standards General Target Group RAR Shipper, Forwarder, Terminal & Airline Concern Area Scope Aviation security (Bomb threats) Air export only Driver / Motive Compliance / without - will cause losing business opportunities (forwarder only)

Review on Major 3 Standards Comparison of Aviation Supply Chain Security Standards General Target Group AEO All parties involved in international supply chain Concern Area Illegal Trade & Terrorism Scope All international trade in all mode Driver / Motive Compliance only

Review on Major 3 Standards Comparison of Aviation Supply Chain Security Standards General TAPA TAPA Target Group Mainly related to forwarder, trucking and shippers (Terminal) Target Group Mainly related to forwarder, trucking and shippers (Terminal) Concern Area Criminal threats Concern Area Criminal threats Scope Selected freight operations for high value (mainly air operations) Scope Selected freight operations for high value (mainly air operations) Driver / Motive With - Commercial value, business opportunities Driver / Motive With - Commercial value, business opportunities

Review on Major 3 Standards Comparison of Aviation Supply Chain Security Standards General Target Group RAR AEO TAPA Shipper, Forwarder, Terminal & Airline All parties involved in international supply chain Mainly related to forwarder, trucking and shippers (Terminal) Concern Area Aviation security (Bomb threats) Trade & Terrorism Criminal threats Scope Air export only All international trade in all mode Selected freight operations for high value (mainly air operations) Driver / Motive Compliance / without - will cause losing business opportunities (forwarder only) Compliance only With - Commercial value, business opportunities

Review on Major 3 Standards Comparison of Aviation Supply Chain Security Standards Justification RAR AEO TAPA Requirement Framework Procedure for cargo handling practice + training + recording Comprehensive management system Investment Not significant Very high (more facility / operation mode cause more) Specific high value shipment handling framework (hardware + procedure + training + record) Depend on operation scale Time for Achieve Within one month Months till year 3-5 months

Review on Major 3 Standards Comparison of Aviation Supply Chain Security Standards Key Aspect RAR AEO TAPA Facility & Security Hardware Training Documentation & Recording Low Medium High Hours for related staff Hours general staff Days each key ops representatives Hours related staff Not significant Heavily Few procedures + few daily checklists

Comparison of Aviation Supply Chain Security Standards

Review on Major 3 Standards

Screening of Business Partner Security Controls Activities Operation / Procedural Security People Security Conveyance Security Physical / Premises Security

From Business Perspective Business Concerns (Risk) Commercial - Bad debt - Claims Criminal - Deception - Robbery - Smuggling Management - Error - Poor Client info. Highly effective Highly effective Effective Effective Highly effective Highly effective

Security Controls in Daily Business Screening of Business Partner Business Concerns (Risk) Commercial - Bad debt - Claims Highly effective Criminal - Deception - Robbery - Smuggling Highly effective Management - Error - Poor Client info. Effective Security Controls Activities Operation / Procedural Security People Security Conveyance Security Physical / Premises Security Effective Nil Nil Nil Highly effective Highly effective Highly effective Highly effective Highly effective Nil Nil Nil

Security Controls in Daily Business Screening of Business Partner Business Concerns (Risk) Commercial - Bad debt - Claims Highly effective Criminal - Deception - Robbery - Smuggling Highly effective Management - Error - Poor Client info. Effective Security Controls Activities Operation / Procedural Security People Security Conveyance Security Effective Nil Nil Highly effective Highly effective Highly effective Highly effective In-direct effect In-direct effect Physical / Premises Security Nil Highly effective In-direct effect

Compliance

Compliance Profitable Business

Comparison of Aviation Supply Chain Security Standards

Comparison of Aviation Supply Chain Security Standards TAPA C TAPA B TAPA A

The way for long-term solutions 1. Encourage the shipper to implement Supply Chain Security Standards 2. Recognize the shipper security best practices 3. Rank & Award the RA/ cargo agent performance 4. Risk-based approach 45 2011-2012 TAPA. All Rights Reserved

The way for long-term solutions 1. Encourage the shipper to implement Supply Chain Security Standards What is the motive? 2. Recognize the shipper security best practices 3. Rank & Award the RA/ cargo agent performance 4. Risk-based approach 48 2011-2012 TAPA. All Rights Reserved

The way for long-term solutions Benchmark TAPA experience is the solution! 1. Encourage the shipper to implement Supply Chain Security Standards 2. Recognize the shipper security best practices 3. Rank & Award the RA/ cargo agent performance 4. Risk-based approach 50 2011-2012 TAPA. All Rights Reserved

Cross border Aviation Cargo Risk Model China China Shipper Hong Kong Hong Kong Shipper Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model China China Shipper Hong Kong Hong Kong Shipper Without full control cargo integrity B With full control cargo integrity A Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model China China Shipper Can we extend our security control practice? Hong Kong Hong Kong Shipper Without full control cargo integrity B With full control cargo integrity A Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model (Present Model) China Non-controlled China Agent (multi-level contracting, non-direct shipper etc.) RA s China Agent (under HK RA control) RA s China Shipper (full control the cargo integrity) Hong Kong Non-RA RA Standard security controls procedure for all Terminal /Airline

Cross border Aviation Cargo Risk Model (Future Model) China Non-controlled China Agent (multi-level contracting, non-direct shipper etc.) RA s China Agent (under HK RA control) Known Agent RA s China Known Shipper (full control the cargo integrity) RA assigned security controls procedure Hong Kong C B Monitoring and control by HK RA A Non-RA C grade security controls RA A grade security controls Risk-base security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model (Future Model) China Non-controlled China Agent (multi-level contracting, non-direct shipper etc.) RA s China Agent (under HK RA control) RA s China Shipper (full control the cargo integrity) C B A Hong Kong Non-RA C grade security controls RA B grade security controls A grade security controls Risk-base security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model (Future Model) Process channel Without Known shipper / agent controls procedure With Known shipper / agent controls procedure Path A Low risk Very low risk Path B High risk Low / Medium risk Path C High risk High risk (N/A) 59 2011-2012 TAPA. All Rights Reserved

Cross border Aviation Cargo Risk Model (Future Model) Recommendation for changing the present RA security control procedure - Into a Risk-base security controls procedure - A New Known Shipper and Agent certification process - With the controls to their Known Shipper - With controls to their Known Agent - Adding a black list Shipper/ Agent system 60 2011-2012 TAPA. All Rights Reserved

Cross border Aviation Cargo Risk Model (Future Model) Recommendation for changing the present RA security control procedure Security controls processes Current problem Possible solutions Recognition of KC 1. Conflict of interest between the shipper and the RA. 2. Shipper may not have controls of cargo integrity 1. Integrate the commercial risk factor into current security risk during the risk assessment process Cargo / order verification processing 3. Integrated concerns of various risk factors in each shipper 3. Enhance the risk assessment from approach, skill and focus during each order processing. Staff training 4. Present training is focus on the administration process 4. Enhance the training content with integrated approach, and specialized the training for CS, operation and warehouse staff.

RA profile At least one year RA experience Selection of respondent Based on 2011 QCP record Mode of survey By phone call By questionnaire Data quality Manager or above to reply the survey 62 2011-2012 TAPA. All Rights Reserved

Cross border Aviation Cargo Risk Model China China Shipper Hong Kong Hong Kong Shipper Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model China China Shipper Without full control cargo integrity With full control cargo integrity F E Noncontrolled China Agent Controlled China Agent C D Hong Kong X F E Hong Kong Shipper Without full control cargo integrity B With full control cargo integrity A Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model (Future Model) Risk Model Risk Scale Very Low Very High Present situation A B C D E F X Present situation Path A<C<B<D<E<F<X

Cross border Aviation Cargo Risk Model (Future Model) Risk Model Risk Scale Very Low Very High Present situation A B C D E F X Furture Model A B C D E F X Present situation Path A<C<B<D<E<F<X Future Model Path AC<BD<EF<<<X

Cross border Aviation Cargo Risk Model China China Shipper Without full control cargo integrity With full control cargo integrity Sample Total : A+B+ +F 32,291Ton 32,291,514Kg Noncontrolled China Agent F E Controlled China Agent C (44%) D (6%) 25 RA Tonnage from 2011 QCP Hong Kong X F (1%) E (20%) Hong Kong Shipper Without full control cargo integrity B (22%) With full control cargo integrity A (7%) Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model China China Shipper Without full control cargo integrity Noncontrolled China Agent F With full control cargo integrity E Controlled China Agent C (38.9%) D (7.8%) Sample Total : A+B+ +F 3,695Ton 3,694,904Kg 15 RA Tonnage from 2012 QCP Hong Kong X (3%) F (0.3%) E (1.4%) Hong Kong Shipper Without full control cargo integrity B (38%) With full control cargo integrity A (10.6%) Non -RA RA Security controls procedures Terminal /Airline

Cross border Aviation Cargo Risk Model (Future Model) Risk Model Risk Scale Very Low Very High Present situation A B C D E F X Paradigm Shift : 38% Improvement Furture Model A B C D E F X Present situation Path A<C<B<D<E<F<X Future Model Path AC<BD<EF<<<X

Conclusion If there is no 911 If there is no FedEx If there is no Intel Penang case If there are no lithium battery fire cases What is our competitive edge compare with our neighbor airports? 71 2011-2012 TAPA. All Rights Reserved

Conclusion Threats The biggest threat is focus on negative side, spending effort on complaining instead of developing. Opportunities The best foundation that we already have, just need marketing and enhancement. 72 2011-2012 TAPA. All Rights Reserved

75 Questions