This paper looks at the effect of risk on the international logistics network of firms operating internationally. The main focus of this paper is identifying the effects on international logistics during and after a significant event and the subsequent repercussions on firms. The events that will be analysed are the Eyjafjallajökull volcanic eruption in April 2010 and the terrorist attack of September 11, 2001. This paper will try to determine the effects of these events and analyse the changes to the aviation industry leading to increased costs to potential increases operational costs to firms.
Keywords: Eyjafjallajökull, September 11, Volcano, Eruption, Terrorism, Logistic Networks
Table of Contents
Theoretical Frame of Reference 5
In the 21st century firms operate in an ever changing and complex external environment and therefore are open to many forms of risks when carrying out day to day business transactions. Globalisation may have provided a need for firms to internationalise to new markets and form complex interdependencies. But by widening a firms operation they have become more susceptible to risk and therefore require greater understandings of potential risks they may face and formulate contingency plans should the risks bear fruit. Likewise as firms have expanded their target audience in other markets, whether consumers or other businesses, they have increased the need to deliver their products or services to the required end user as efficiently and cost effectively as they can. This has lead to the need to have efficient and developed international logistical pathways that allow for the ease of access for the firms consumers whether passengers of an airline, high quality goods or transportation of resources.
Firms operating internationally face many risks to their operations. For the purpose of this paper, the authors will be focussing on the two types of risks faced by firms which have international logistical operations in air travel. These risks include political and environmental risk and will be based on the case studies of the September 11 attack and the Eyjafjallajökull volcanic eruption. The main problem is that firms are susceptible to risk that occur as a direct or indirect result of their operations. Risk also have a varying effect on firms operations and can prove costly to organisations that do not anticipate potential risks and develop some form of contingency plan.
The purpose of this paper is to try to identify if there are measures that can aid firms within the aviation industry or those in other industries that will allow firms to formulate contingency plans that can reduce the negative effects of an unanticipated event.
We have chosen the following research question as a means of trying to solve the identified problem. The authors chose this question to try to identify the effect of unanticipated events and whether firms are able to develop contingency plans sufficiently, that enable to organisation to operate with some efficiency and thereby reduce the negative impacts on the firms operations.
"What were the effects of September 11 attack and the Eyjafjallajökull volcanic eruption on International Logistics in air travel?"
"Probability or threat of a damage, injury, liability, loss, or other negative occurrence, caused by external or internal vulnerabilities, and which may be neutralized through pre-mediated action" (Business Dictionary, Risk Management, 2010).
"Negative event that can cause a risk to become a loss, expressed as an aggregate of risk, consequences of risk, and the likelihood of the occurrence of the event. A threat may be a natural phenomenon such as an earthquake, flood, storm, or a man made incident such as fire, power failure, sabotage" (Business Dictionary, Threat, 2010).
The definition by the World Health Organization (WHO) terms a disaster as "The result of a vast ecological breakdown in the relations between man and his environment, a serious and sudden (or slow, as in drought) disruption on such a scale that the stricken community needs extraordinary efforts to cope with it, often with outside help or international aid" (World Health Organisation, Disaster, 2010).
"Actual or potential threat of adverse effects on living organisms and the environment by effluents, emissions, wastes, resource depletion, etc. , arising out of an organization's activities" (Business Dictionary, Environmental Risk, 2010).
"Organization and coordination of activities of an enterprise, in accordance with certain policies and achievement of clearly defined objectives" (Business Dictionary, Management, 2010).
"Probability of loss due to political instability in the buyer's country that may result in the cancellation of a license or otherwise affect the buyer's ability to make payments. Political risks can also be insured and overlap with the political component of force majeure risks" (Business Dictionary, Political Risk, 2010).
"Policies, procedures and practices involved in identification, analysis, assessment, control and avoidance or elimination or unacceptable risks" (Business Dictionary, Risk Management, 2010)
Structure of the paper
This investigative paper will be divided into seven main sections, each with their own sub headings as required. The first section or section one will focus on the admin aspects of this paper. The authors will utilise this section to introduce our topic of discussion, provide the reader with some background information on the topic area as well as state why we have decided to carry out this investigation. Some definitions will be provided to aid the reader in understanding some key elements of this paper. The authors will also use this section to discuss the scope and limitations of this paper. Section two will focus on the methodology of how we identified our required source materials and provide the reader with a literature review that summarises the main aspects of the source materials. In section three the authors will consider a theory relating to the main subject and scrutinise the limitations and effectiveness of this theory. Section four will display the key data obtained from our investigation of a variety of sources and relate their importance to this investigation. In section five the authors will analyse the gathered data and provide some interpretations. Section six will provide the reader with the overall conclusion to this paper and draw on the analysis to identify where the paper has been able to answer the question posed. Section seven will provide the list of references of the sources utilised in this paper and for the purpose of further enquiry.
Scope and Limitations
This paper primarily focuses on the effect of September 11 and the Eyjafjallajökull eruption events on international logistics and therefore our primary sources where those of news articles and some theory on risk management. The articles sourced could be prone to bias and therefore the findings may have not produce a clear and holistic view of the effects on industry and logistical operations.
The majority of the gathered data are all secondary sources this may influence that results and some bias may be present.
This section of the paper will inform the reader on how the authors attempted to carry out the research to address the purpose of this paper.
The research was obtained primarily form secondary data sources like online news websites and other site that were able to shed light of the effects of the September 11 and Eyjafjallajökull events. Information was also gathered from organisations like International Air Transport Association (IATA), Volcanic Ash Advisory Centres (VAAC). These sources provided information on the changes to the aviation industry as a result of the incidents occurring in September 11 2001 and the Eyjafjallajökull volcanic eruption. The main parts of this paper were divided into key areas that focused on the effects of each incident and the changes that occurred as a result. The authors then analysed the data to identify whether measure could be learned from these two events that can be utilised to aid firms in the future.
Most of the information regarding the changes that were made as a result of the terrorist attacks of 9/11 is available on the Internet. Thus, we primarily consulted online newspaper articles and articles found on websites of official authorities. Organizations such as TIACA, the TSA and the European Union provided us with all the information necessary to determine the official actions that were undertaken in the post-9/11 era. However, news reporters cast a critical eye on these decisions and their opinions were subsequently used to suggest improvements for aviation security.
The authors at the Federation of European Risk Management Associations aim to set a basic industry standard from which firms can follow to aid them in implementing their own Risk Management approach. The article offers the reader a guideline on what steps to take when a firm is considering what types of risks affect them and how to prepare and hedge against unwanted negative events. Businesses should see this as a guide and not a direct path to limiting risk (FERMA, 2003)
Theoretical Frame of Reference
In order to achieve homeland as well as transportation security, it is absolutely crucial to effectively manage the risks of terrorist threats and to direct funding towards the areas of highest priority. Risk management is an ideal approach to guide federal responses and programs to better prepare for and resist terrorist threats. This type of approach is a systematic process that identifies and analyzes vulnerabilities and threats, to better support the key decisions that link the resources with the prioritized efforts for results (gao.gov, 2003). As shown throughout our research, during and after the events of 9/11 and the volcanic eruption, governments try to deal with the threats and vulnerabilities of transportation by minimizing the risks and maximizing security.
Main Categories of Risk
The two main categories of risk:
Involuntary risks. These are not knowingly or willingly undertaken. They are often related to rare events with a catastrophic potential impact.
Voluntary risks. These risks are a result of personal actions of people. These risks are less catastrophic and better to control.
An earthquake and a tsunami are very involuntary, natural and intense.
Smoking and food additives are voluntary, manmade and diffuse.
In Figure 1we can see that each of the four groups of risks are on the one hand externally driven and on the other hand internally driven. The internally driven parts can be influenced by the company and the externally driven parts are out of the firms control. It is very important to carry out Risk Management for all the external effects.
For the purpose of this paper, the authors will be looking at to risk factors that affected the aviation industry and effected the international logistical network of many firms. The two risk factors include Political risk and Hazard risk. Political risk is somewhat broad and for the needs of this investigation the authors will focus on the risk of terrorism that can affect firms operations. For the hazard risk the authors with focus on the natural event risk.
The authors consider that both terrorim and a natural event are risks that are out of the firms control or are external risks and therefore the firm is unable to mitigate all of the negative effects of these events and therefore are also unable to predict the effect that such an event could have on its operations.
Figure 1: Factors of Risk Management
Source: FERMA, Arisk Management Standard (2003)
In this Section of the paper, the authors will be scrutinising the data collected during the investigation and attempt to identify the main effects of both identified risk firms can face in daily operations which can have great negative impacts on their international logistical networks. (RM)
The Effect of the Eyjafjallajökull eruption on International Logistic Networks of Firms
Firms operate in an ever changing and complex interdependent system that is susceptible to risks both internally and externally. Internal risks can influenced by the company and the externally driven parts are out of the firms control. This section of the analysis will consider the effects of the Eyjafjallajökull volcanic eruption in April 2010 on firm operations in international logistics of air travel that lead to the closure of European airspace for a period of around seven days. The main focus will be the effect on air freight and passenger transport during the eruption and airspace closure. During the Eyjafjallajökull volcanic eruption, air travel into and out of Europe was halted. This affected the mobility of people and goods. In figure 1, we can see the rendition of the ash cloud over Europe and the major airports affected. This may not be an exact realistic depiction of the ash cloud coverage as the dust is dry and undetectable by radar and the image states that the ash cover concentration levels are projected as of April 17th.
Figure 1: Eyjafjallajökull Ash Cloud Cover
Source: Risk Management Monitor, 2010
The main topics of discussion will include what we have concluded to be the primary cost for airline and airfreight firms along with its consequences. We will also consider secondary effects that have affected business operations and national economies within Europe and around the world.
Cause and Effect
Through the investigation the authors have concluded that the primary cost faced by firms which have international logistical operations, was the financial burden incurred by firms due to the closure of Europe's airspace during the Eyjafjallajökull eruption. The key players that were affected by the eruption were passenger airliners and those firms which goods were transported through air freight. Europe's airspace was closed by the 'Volcanic Ash Advisory Centre (VAAC) London, one of nine regional centres' (The Economist, 2010), which provide services on volcanic activity and ash fallout for the majority of world. The nine main Volcanic Ash Advisory centres (VAAC) regions along with the major flight paths and locations of the major active volcanoes can be seen in figure 2. Figure 2 also shows the major hubs for airline travel between Europe and South East Asia and Oceania. Europe provides the main interchange point for airlines travelling form regions in Africa, Middle East and Central to Western Asia to the American continents and South East Asia and Oceania. This places Europe in an important position and therefore the disruptions during the Eyjafjallajökull volcanic eruptions proved costly to airlines and other sector firms with international operations.
Figure 2: How world flight routes cross active volcanoes
Source: The Guardian Online, 2010
The primary reason for the closure of airports across much of Europe was due to the expanding ash cloud that was being driven eastwards. According to Marks (2010) 'Volcanic ash is composed of particles of glassy pulverised rock.' The idea is that the dust is sucked into the engines of the aircraft and then melts in the hot combustion chamber and forms globs on the turbine veins which block the inflow of air to the engines, it in turn cuts out the engines and the aircraft plummets towards the ground. This poses a significant safety risk and therefore the VAAC initiated the closure of EU airspace.
A prominent effect of the eruption was the financial cost incurred by firms (especially airlines) due to the grounded fleets across much of Europe. According to Adam and Milmo (The Guardian Online, 2010) the International Air Transport Association (IATA) stated that "the disruptions were costing carriers up to $200m (â‚¬150m) a day in lost revenue and European airports saying they have lost $336m (â‚¬250m)". Without the inflow of revenue, many airlines may have faced cash flow shortages and therefore prolonged disruptions may have even resulted in the collapse of smaller airlines.
Airlines also received financial bruising when share prices began to be affected by the ongoing paralysis across Europe. According to Spiegel Online (2010) two of 'Germany's biggest airlines, Lufthansa and Air Berlin lost around 5 percent of their share value'. This reduces market confidence in the firm's ability to perform and reduces investment potential and revenue inflows.
The Economist (2010) states that "European airlines are obliged to provide hotels and food for passengers awaiting re-routing". This will have burdened airlines further as potential customers where seeking compensation for their cancelled flights and airlines were expected to pay for (possible some not all) passenger accommodation. To get a sense of the numbers the Economist (2010) also states that "on April 17th 2010 some 17,000 flights to and from Europe were cancelled out of about 22,000 on a normal day". Therefore the disruption and cost to airlines was immense. Airlines have suffered great revenue losses due to the financial recession of 2008/ 2009 where Europe's airlines are according to the Economist (2010) said to have 'lost $3.8billion during the financial crisis over the previous year and a forecasting loss of $2.2 billion for this fiscal year before the cost of the Eyjafjallajökull eruption..... now experts are pushing the cost to around an expected $4 billion'.
The mobility of both people and goods is very important in the 21st century as many firms are interdependent and thus rely of suppliers of inventory and produce deliveries. The mobility of people also allows national economies to gain revenue through tourism and trade can be conducted to enhance income for national economies. Firms which have international operations are able to relocate people easier and are able to take advantage of inventory strategies like Just in Time (JIT) that strive to improve the firms return of investment by reducing stock or inventory holdings and associated opportunity costs allowing deliveries to arrive only when needed.
With the closure of European airspace, many firms and people where cut off from the global transport network. This affected many firms' like 'BMW who was unable to send important components to the United States...... while production plants continued as normal' (Spiegel, 2010). This would have led to inventory cost to BMW and the lack of part moving to the US may have also This would have led to inventory cost to BMW and the lack of part moving to the US may have also place strain on production. Courier companies like TNT, DHL and others which also operate services in air freight, have been affected by the disruption across Europe.
According to the BBC Online (2010) 'Freight being transported by air may suffer delays to FedEx services...operational contingency plans had been put in place and shipments were being "routed to non-affected airports" where possible'. Likewise The Association of German Chambers of Industry and Commerce (DIHK) "estimate losses throughout economy to amount to â‚¬1 billion a day" with many "parts of industry and airlines, airport operators and tourism oriented companies being affected" (Spiegel, 2010). This above statements highlight that the disruption caused by Eyjafjallajökull has had a diverse effect on many firms and industries, with similar costs to many countries in Europe. This event has placed further strain on organisations that have so recently emerged for the financial recession of 2008 and 2009.
Other effects of the disruption saw that transportation of perishable goods were affected and therefore this placed pressure on firms whom supplied some industries. For example flowers from Kenya to UK supermarkets were discarded and this in turn affected supermarket availability and revenue for those suppliers. Volker Trier stated that "Urgent, perishable or high quality goods cannot simply be transported by trucks or ships instead of air" (Spiegel, 2010). Then there is also the matter of airline consumer. Many passengers requested compensation for the cancelation of their flights and this in turn prompted a rise in demand for other transportation modes like rail. In the UK for example Virgin rail (BBC News, 2010) stated "it was carrying an extra 2,000 passengers between Glasgow and London". Eurostar and other transport firms also experienced greater demand as people sought to bypass airports to get to their destination.
The Eyjafjallajökull eruption occurred in Iceland and the ash fallout cover most of north and central Europe. However the global effect of the closure of Europe's airspace has had an impact on many firms and passengers across the globe, according to Science Daily (2010) 'the closure of the 27 major airports saw 10% of the global air traffic system removed'. This meant that access for firms and people from outlying locations like Singapore for example had increased travelling times then before the disruptions. The that the cleared skies over Europe 'affected high traffic airports like Hong Kong and Beijing and had forced airports like Madrid and Dubai to act as centralised hubs of the air transportation network, taking over the role of the closed airports' (Science Daily, 2010).
These changes to the air transport network will have affected many firms significantly and this would have increase pressure on airport operators in place like Madrid and Dubai to keep aircraft flowing. Passengers travelling form Mumbai to the US would have experienced great travelling times and this would have also increased costs both to firms and consumers. The transport of goods would have included alternative modes of transport from unaffected airports to their destination, increasing operational cost to firms like FedEx or suppliers of BMW. Lead times will have also increased to reduce the backlog of cargo created due to the air travel disruptions.
Changes Resulting from Eyjafjallajokull's Eruption
In the beginning there were some logistical problems in Iceland itself. "Up to 800 people had to be evacuated from around the Eyjafjallajokull volcano in southern Iceland... The construction men dug holes in the highway in four different places, thereby affecting the direction of the flood" (Gunnarsson, 2010).
A few hours after the eruption Great-Britain's airspace was closed and later on the mainland of Europe. Travellers had the choice between money compensations or waiting until the next plane left. Another option was to buy a bus or train ticket, for intercontinental trips. The flight ticket was refunded by the airline (The Guardian, 2010). People had to change their plans. Holidays, meetings and visits were cancelled or postponed. They sensed the influence of nature. "The eruption was a great shock because people were beginning to believe in progress and improving their lives. It must have been a great blow to realise they did not control their lives and see how powerless they were if the natural conditions were so strong" (Karlsson,2010).
The Air Transport Association had some proposals. "IATA proposed several changes to Europe:
- Operational decision-making process responsibilities should be transferred from ANSPs to air carriers to allow airlines/pilots to make decisions
- Enhancing and standardizing Volcanic Ash Operational Procedures for the industry
- Challenge the current VAAC scientific model to use data from test flights and pilot/maintenance reports, and improve the overall quality of predictive products
- Create a Crisis Contingency Center at Eurocontrol, and implement a network manager for Europe to coordinate response
- Accelerate the Single European Sky implementation
- Pursue through the ICAO Volcanic Ash Task Force (IVATF) standards, procedures and guidance to determine safe levels of volcanic ash and contaminated airspace as well as the establishment of operational procedures and development of contingency plans" (IATA,2010).
After some days, planes took another route, to avoid the ash in the air. Another change was to check how much ash is in the air, to make it possible to allow more flights. The governments of different countries had to do this in May 2010 (IATA, 2010).
Eurocontrol made a system to make clear where the density of ash is high, to check which areas should be closed for airplanes. The impact of the eruption of Icelandic volcano Eyjafjallajokull in April 2010 highlights the nature of globalisation and interdependencies among states and peoples. It calls into serious question our level of preparedness in response to 'low probability, high consequence' events.
Maybe in the future, forecasts of researchers are taken more serious. More than 2 months before the eruption of Eyjafjallajökull professors said that the volcano showed some clues to an eruption. "By monitoring volcanoes, we can understand the processes that drive them to erupt", said Kurt Feigl, a professor of geosciences at the University of Wisconsin-Madison.
In the end, it's all about natural force majeure. Human beings cannot stop a volcanic eruption, even when they know it will happen.
Effect of Terrorist Attacks on International Logistical Networks
The airlines all around the world are attractive targets for terrorists, who could "easily" shoot down an airliner. The first aim of terrorists is to cause terror among the population and in a second time to lead the government to lost/spend a lot of money, for example by taking costly measures in order to install new preventive actions. However, the population could not be entirely protected against all of the threats.
As the 9/11 attacks remember to us, the direct effect of shooting down an airplane full of people would be hundreds of deaths, with a cost to the airline of approximately $1 billion included aircraft and indemnities to victims' families, as well as a decreased demand for airline services. Unfortunately, the same disturbances in transport and economic losses could be achieved by an attack attempt that has failed! Furthermore, another inconvenient effect of terrorist attacks is encountered when a government or an airport decides to close an airport for several days. This would cause diversion of flights, stranded travelers, and major additional costs for airlines and travelers by the same time.
This would also generate losses for companies that depend on airport and air transport of freight, as FedEX or DHL for example. Moreover, thousands of people would be jammed at the airport and would be unable to reach their home or even their workplace (Balvanyos and Lave, 2005).
According to the research of Balvanyos and Lave (2005), if a terrorist succeed to shoot down "a large passenger aircraft", resulting "in grounding all aircraft for 2.5 days" the approximate loss would be "$1 billion for the air craft" and "$4.75 billion in losses to business and leisure passengers." The total amount could be "$6.3 billion per 2.5 days" according to this study.
All the above can easily explain the airplane attacks' attractiveness for terrorists. This area is one of the few where terrorists may inflict such a huge cost on the economy, and cause a possible widespread terror.
The Effect of the September 11 Disaster
Everything started the 11 September 2001 at 8.45 a.m. when a Boeing 767 (a commercial airplane) crashed into the north tower of the World Trade Center in New York City. Then, 18 minutes later, a second Boeing 767 crashed into the south tower of the WTC. The United States of America was under terrorist attack. The attackers were Islamic militants associated with al-Qaeda terrorist organization. They hijacked two other airliners. One of them hit the Pentagon, outside Washington D.C., and the last airplane crashed in a field in Pennsylvania.
Approximately 3,000 (The official death count was 2,976 (Bernbaum, 2004)) people died during the attacks, including more than 400 police officers and firemen. The attacks also compromised the U.S. initiatives to fight terrorist and jeopardized the government of George W. Bush (history.com).
FAA's Decision to Shut Down Air Traffic Across the United States
A few minutes after the 9/11 attacks, the Federal Aviation Administration (FAA) decided to shut down the airspace over the U.S. to commercial traffic. It was the first time in the history that the U.S. government has taken such a drastic decision. This decision resulted in a few consequences: the first one is that every plane that was on the ground was prohibited from taking off. The second one concerns the planes that were currently in the air, they received two options: (1) continue to their planned destinations or (2) turn away at the nearest airport. Most airlines chose the option 2, placing thousands of travelers far away from where they planned to go (Zuckerman, 2001). The FAA required the planes to stay grounded for several days after the attacks, resulting in the loss of millions for airline companies. (lawbrain.com)
Approximately 4,000 airplanes were flying the day of the attacks, according to the FAA.
Hundreds to thousands more were on the ground waiting to take off, including those of cargo carriers like FedEX and United Parcel Service, facing logistic problems that they had never encountered before (Zuckerman, 2001).
US Airline Industry's Situation Post September 11
Before September 11, the airline industry was already in financial trouble due to the national recession; nevertheless the situation went from bad to worse (cts.umn.edu, 2002). In earlier 2001, ATA, the American Trans Air airlines, forecasted $1.5 billion net loss for US airlines for the coming year due to the awful second quarter of the year 2000. The economy slow-down had a significant impact on airline industry, for example the average profit in August 2001 was 12.5% lower than the previous year, and the income from business-types fares was 30% lower.
Furthermore, in the beginning of the year 2001, the average operating costs increased due to the augmentation of fuel prices and labor costs. Nevertheless, there was one encouraging point regarding the US airlines' capacity that has increased between years 2000 and 2001.
One other apprehension before 9/11 was the growing of customers' complaints regarding the "poor service" offers by airline companies and the exacerbation associated with delays and congestion. In addition, the US airline industry environment was dominated by the decrease of employee morale, which went together with the threats of future strikes in order to negotiate their contract extension (Belobaba, 2002).
Impact of September 11 on the US and European Economy
Almost immediately after the attacks, most North American and European airlines reduced capacity and staffing. There were '80,000 layoffs only for United States airlines. This went together with a $7 billion net loss for 2001' (Belobaba, 2002). The air service was 'suspended during 2.5 days after 9/11 attacks, and it cost $4.75 billion to the nation' (Balvanyos and Lave, 2005). The phenomena "fear of flying" appeared just after 9/11 in the mind of people all around the world and especially in US. But this phenomenon is not new, since 1986 there have been approximately thirty fatal airline accidents only involving US commercial airlines.
Although this "fear" and the panic directly resulting from September 11th has dissipated, new security screening and the increase of the risk's perceptions coming from the passengers have altered "the demand for and experience of" air travel. This finding can be suggested for countries worldwide, but especially for the US market (Ito and Lee, 2004). The after 9-11 effects have been felt both in the U.S. foreign markets. Numerous airlines have been facing a ï¬nancial crisis like never seen before in aviation history. The incertitude concerning the regaining in passenger demand has been the primary concern in the minds of airline leaders in the months following the disaster. However, there is a controversy within the aviation industry concerning the longer term impact of 9-11 on the sector due to the precedent weak economic conditions (Ito and Lee, 2004).
Immediate Changes Needed in Security
In the days following the attacks, the FAA immediately began thinking about new guidelines and procedures in order to have a better airports and airlines' protection to prevent future attacks.
The first decision made concerned the baggage and passenger checking which is reinforce and more thoroughly (lawbrain.com). Since September 11, the federal government proposed substantial changes regarding airport security, which has led to the establishment of the Transportation Security Administration (TSA) in November 2001(cts.umn.edu, 2002). The (long-term) changes will be discussed more deeply in the following section which looks at the changes resulting from the events of September 11 2001.
Changes Resulting from the September 11 Disaster
After having discussed the effects of the 9/11 terrorist attacks on air travel, in this section we will examine the changes that were made as a result of this event. Indeed, several actions were undertaken in the aftermath of the 11th of September 2001 in order to prevent such dreadful deeds from ever occurring again. Every day, millions of travellers who board an airplane experience the measures that were undertaken at the time. However, commercial airlines were not the only ones that were affected; since 9/11 cargo airlines are also subject to heavier security measures.
Cargo / Airfreight
Unfortunately, in the 90's security was not really an issue for the airfreight business. Everybody was focused on moving as much cargo as possible through the skies in the most efficient way. That was until the events of 9/11 occurred; America never really saw it coming. 'Their entire national security policy was based on fighting an away game' (Flynn, 2002). Sadly, Al Qaeda brought the war to the US, and since then home defences are being bolstered from scratch.
The International Air Cargo Association (TIACA) is: "a worldwide organization that serves a membership which includes all major segments of the air cargo and logistics industry (airlines, airports, all-cargo carriers, customs brokers, etc.)" (tiaca.org, 2010). Airfreight's "time-is-money" philosophy has led to one of TIACA's following objectives: "Support security measures that are effective, workable, and affordable and create a minimum of disruption to the flow of air cargo that essentially relies on speed".
Both the US Transport Security Association (TSA) and the European Commission (EC) acknowledge the importance of this objective and recognise the following supply chain as the basis for airfreight security systems. Responsibilities have to be distributed effectively among the airlines, forwarders, and customers as seen in figure 3.
Figure 3: The Air Cargo Supply Chain
Source: TAS, 2010
Regulation (EC) 300/2008 is the result of security measures undertaken by the European Union. It establishes common rules to protect civil aviation (all non-military aviation) against acts of unlawful interference. This is a list of some of the most important actions that are applied on cargo loads through the regulation:
use of cargo screening equipment to detect 'prohibited articles'
list of 'prohibited articles'
all cargo and mail shall be subjected to security controls prior to being loaded on an aircraft
cargo and mail to be carried on an aircraft shall be protected from unauthorised interference from the point at which security controls are applied until the departure of the aircraft on which it is to be carried
In the United States, the Transportation Sector Network Management (TSNM) Air Cargo Division and the Office of Security Operations (OSO) are two program areas of the TSA's transportation security regime for airfreight. The Air Cargo Division is responsible for the strategic development of programs, such as technological solutions, new regulations, and policies that constantly increase the security of the air cargo supply chain while trying to maintain TSA's pledge to guarantee the flow of commerce. OSO, on the other hand, is instructed with program compliance.
TSA's security regime for air cargo is the creation of a layered solution with each one of these layers designed to stop security breaches from happening within the air cargo supply chain. This is achieved through a combination of process, information, and technology-based solutions. The multi-layered solution includes:
vetting companies that ship and transport cargo on passenger planes to ensure they meet TSA security standards
establishing a system to enable Certified Cargo Screening Facilities (CCSFs) to physically screen cargo using approved screening methods and technologies
employing random and risk based assessment to identify high-risk cargo that requires increased scrutiny
inspecting industry compliance with security regulations through the deployment of TSA inspectors
Suggestions to Further Improve Air Cargo Security
A stepped-up Known Shipper program
"Passenger Air Carriers and Indirect Air Carriers must comply with a broad range of specific security requirements to qualify their clients as Known Shippers" (tsa.gov, 2010). But according to Flynn (2010), this is not enough. Having a track record of making legitimate shipments is no assurance of future performance. Hence, three measures have to be taken:
First of all there needs to be a system that reviews an organization's obedience to regulatory guidelines over the way goods are packed into an airfreight container. And the loading dock should be continuously monitored by surveillance equipment and supervisors.
Second, in order to avoid that the cargo container is being tampered with en route from the point of loading to the air terminal there should be constant monitoring. This can be achieved through the use of tracking and sensor devices.
Last, the procurement of data about the containers loads at the point of departure is crucial. Indeed, government regulators need to be able to pinpoint suspicious shipments before they arrive at the air terminal or on the plane itself.
Flynn concludes that "Should there be a terrorist attack involving air freight, having such a system would help Congress and the American people conclude that the attack resulted from a correctable breach in security rather than the absence of security" (Flynn, 2010).
"Risk rating" systems
Nowadays, 100 percent of cargo on passenger planes within and from the US is being physically screened, as required by the law passed in Congress in 2007. Unfortunately, this cannot be said about passenger flights arriving in the US from abroad or from all-cargo flights. Furthermore, the 2007 law does not apply to cargo-only flights. Because a physical screening system for this type of air travel is simply not feasible, a risk rating system is a practical solution to increase security.
Risk rating is generated through the analysis of data on every container that enters the country. This data contains the container's buyer, seller, country of origin, location where it was packed, and so forth. Containers with a high rating will get significant additional scrutiny (Heifetz, 2010).
The United States Government Accountability Office  (GAO) did a study in 2003 about the post-September 11th initiatives and long-term challenges. Since September 2001, Congress instructed a reorganization of all federal agencies responsible for transportation security, transferring them to the Department of Homeland Security. Created in November 2001, the Transportation Security Administration has assumed overall accountability for America's transportation security, and has achieved significant progress in addressing aviation security challenges.
Just as for airfreight carriers, 'TSA uses a series of layers to protect passenger flights' (gao.gov, 2003).
A few examples of these layers are:
the use of passenger screeners
the use of baggage screeners
screen checked baggage with explosives trace detection equipment or explosives detection systems
canine teams, hand searches, â€¦
expansion of the Federal Air Marshal Service
hardened cockpit door
On the 3rd of August 2007, the 110th United States Congress enacted the "Implementing Recommendations of the 9/11 Commission Act of 2007". Section 1602 paragraph 1 states that no later than three years after the date of enactment there shall be a system that screens 100 percent of cargo (outbound and inbound) transported on passenger aircraft (nctc.gov, 2007). As stated in regulation (EC) 300/2008, the majority of these measures are also applied in Europe.
If one were to give examples of companies that are affected by all these security measures, it would have to be all of them. Indeed, if, for instance, an airline wishes to fly to the United States of America it would have to comply with all necessary regulations.
Although a lot of efforts have been put in trying to strengthen the aviation security system after 9/11 in order to prevent future terrorist attacks, the system is still flawed. For example, in 2006 there was the trans-Atlantic aircraft plot with several terrorists committed to detonate liquid explosives they intended to smuggle aboard at least 10 airliners travelling from the UK to the US and Canada. (Testa, 2006) On Christmas Day 2009, an Al-Qaeda terrorist tried to set off plastic explosives he had sewn to his underwear on a passenger flight from Amsterdam to Detroit. Luckily the explosives failed to detonate properly, resulting in flames and popping sounds (Slevin, 2009). Sadly, terrorists have to get it right only once, whereas we have to get it right every single time.
Commonalities and Differences between Both Events
Economic consequences, bankruptciesâ€¦
The cost was huge for both events (first cost coming from the event + cost in security measures)
Both global impact (but the volcano had a greater impact on European domestic traffic when the 9/11 attacks had greater effects on US domestic traffic) => shut down for several days
After traffic reopens, it turns to normal quickly
Both 9/11 and the ash cloud were major events that had a global impact, even if the volcano had a greater impact on European domestic air traffic and the 9/11 attacks had a greater effect on the US domestic air traffic (closing of airspace for several days).Additionally, immediately after the occurrence of both events governments had to intervene. Furthermore, the events had massive economic consequences and in some cases led to bankruptcies.
One is just inconvenient and the other produced fear of air travelâ€¦
US security measures just affected US market, in the contrary the security measures took in Europe affected several different European countries.
Can or cannot be prevented
Negative effects can only be reduced for 9/11 (security measures) but
9/11 impact on security, not volcano
If volcano happens again they are prepared, can use an emergency plan (use trucks, train,â€¦ alternatives transport)
9/11 had a longer effect => changes in aviation â€¦ vs measure amount of ash
Volcano and nature events we cannot predict, at least not completely... where the political events/risks like terrorist risks we can more easily "predict"
There are quite a lot of differences between the tragic events of 9/11 and the Icelandic volcano eruption. First of all, 9/11 was a manmade disaster as opposed to the volcano being a natural disaster. The events of September 11th could have been prevented, whereas the eruption could not.
In the aftermath of 9/11 only the United States decided to close their airspace. The ash cloud on the other hand caused several European countries to close theirs. Furthermore, security wise, the effects of 9/11 are still being felt today; something that cannot be said of the volcano. Moreover, after the disappearance of the ash cloud aviation resumed its natural course. The terrorist attacks however caused a severe drop of transportation by air. Finally, should there be another volcanic eruption, Europe will be better prepared. Terrorism, on the contrary, remains unpredictable.
It is difficult to compare the impact both events had and still have on Europe. On the one hand we have the consequences of a terrorist attack, on the other hand a natural disaster that severely disrupted European aviation for several days. First of all, let us try to assess the economic effects of both events. According to an article in The New York Times the United States have spent $40 billion rebuilding aviation security since 9/11 (Alcorn, 2010). Although we haven't found any hard evidence concerning Europe's spending on security, we think it is safe to presume that Europe isn't far behind.
Just like the US, Europe has had to invest in passenger/baggage screeners, and additional security personnel. Furthermore, 9/11 triggered a loss of confidence that caused a drop in transportation by plane. The financial consequences of this psychological matter are difficult to evaluate. Even though the Eyjafjallajökull ash cloud had a greater impact on aviation, registering a total loss of around â‚¬2,8 billion for European airliners, other modes of transport, such as rail, water and road, hugely benefited from the 7 day blockage of European airspace. Finally, the impact of 9/11 is still experienced by thousands of Europeans every day, whereas the volcano incident has become a distant memory.
It has been identified that due to the nature of the risks identified in this paper, it is difficult for organisations to formulate contingency plans that will enable to the fully buffer their operations in their external environment for acts of terrorism or force majeure. Most organisations can develop contingency plans that will enable them to continue operations to a certain degree for a limited time. While firms are unable to predict the effect of such an event that could ensure that all risks are identified no matter how remote they may seem.