Academic journal article The Economic and Labour Relations Review : ELRR

Supply Chain Security: Agency Theory and Port Drayage Drivers

Academic journal article The Economic and Labour Relations Review : ELRR

Supply Chain Security: Agency Theory and Port Drayage Drivers

Article excerpt


As with any chain, the strength of the freight security chain depends on the strength of each link. In a world highly dependent on international trade, the chain linking the producer to the consumer extends across thousands of miles, across many firms, and across many levels and forms of government. This article reviews studies that estimate the cost of this security--and lapses in security that have caused or have the potential to cause great personal and economic harm--and focuses on the human resource aspect of supply-chain security from an economic perspective. The US Department of Homeland Security (DHS) policy, as articulated in the Customs-Trade Partnership Against Terrorism (CTPAT) program, relies on importers to know their supply chain partners and to manage risk intelligently. Although the program has a sound theoretical foundation, low-paid supply-chain workers in the United States and abroad may provide an exploitable opening.

This analysis differs from preceding work in that it attempts to get at economic factors that underlie the human resources essential both to transportation and to threats to transportation. Rather than focus on institutional or technological aspects of security, we look at supply chain security as a complex phenomenon of industrial organisation. Embedded in the economic relationship, the application of principal-agent theory and labor economics to the industrial relations and industrial organisation of supply chain operations provides a different perspective on global supply chain security. While security of facilities and borders provides certain personnel and technology challenges, security of an industrial process requires application of economic reasoning and the kind of process orientation appropriate to the industrial setting. The insights gained from this kind of analysis give policy makers and security experts a different set of tools to consider in their work.

Security and the Global Supply Chain: A Brief Summary

A product manufactured in Wuhan, China may be composed of multiple components outsourced by that factory to other factories in China. After assembling the product it sells, the manufacturer may pack a container at an inland port facility on the Chang Jiang (Long River, or Yangtze), after which it likely will travel on a barge to Yangshan, Shanghai's deep-water port and one of the busiest ports in the world. (2) According to Lee Perkins, Lloyds' expert in Chinese logistics and CEO of China Intelligence Online, with only 17 per cent of all freight currently containerised at the manufacturer, the product more likely will travel via barge loaded in baskets for later containerisation, making the freight subject to tampering. Gaps in supply chain security hamper the safety and security of freight transport in China, and this risk increases the deeper in the hinterland it originates. (3) Twenty-four hours before departing, the steamship operator must notify US authorities in detail regarding the nature of the freight in each container to be loaded on the ship; the US will ask for inspections of containers it considers suspicious.

Maritime terminal cranes will load the container onto a ship along with thousands of other containers for the ocean voyage to the USA. Most containers from China probably face a safe and routine journey, at least for now, but the hazard posed by pirates (or terrorists) gaining access to the container on the high seas is increasing. Piracy especially has become a problem in regions such as the Malacca Straights near Indonesia and near the horn of Africa, near Somalia (BBC 2008a, 2008b, 2008c; Gettleman 2008a, 2008b; Nankivell 2004; Westcott 2008; Worth 2008). In addition, the ship may fly a 'flag of convenience' (FOC) representing a country with lax safety and/or manning regulations and low taxes, employing a crew from the poorest nations in the world (McPhee 1990: 65-71); regardless of ownership, it probably will probably fly a flag from Panama, Liberia, the Bahamas, Greece, or Malta (Coyle et al. …

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