Share |

Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

June 13, 2012

Global Supply Chain News: Congress Leaves in 100% Ocean Container Scanning Requirement, but After Napolitano Authorizes Two Year Delay

Shipper Interests Fail to Get Congress to Change Mind, Despite Lots of Evidence It Won’t Work; Two Year Delays Could Go On for a Long Time

SCDigest Editorial Staff

Note: this is a revised article from last week's piece, where we failed to note that Dept. of Homeland Security chief Janet Napolitano had already announced her intention to delay the requirements for 100% ocean container scanning.

A 2006 law mandating 100% scanning of ocean containers headed to the US at the point of origin will not be changed in Congress, as efforts to get language that would eliminate requirement failed to make its way into a new maritime bill.

SCDigest Says:

While importers, freight forwarders, terminal operators and others are naturally enough all in favor of high levels of security, most believe that can be achieved with systems that do not use a 100% scanning approach.

What Do You Say?

Click Here to Send Us Your Comments

Click Here to See Reader Feedback

However, this was something of a moot point in the short term, as Dept. of Homeland Security chief Janet Napolitano had already notified Congress in May of her intention to delay the requirements, which were scheduled to take effect in July, for two years, authority granted to her in the original 2007 law mandating 100% container scanning by 2012.

Napolitano said the requirement was "impractible" at present, that it would impact negatively the global flow of goods, and that there were still overall scanner technology issues as well physical constraints in many global ocean freight terminals.

Still, shipper and importer interests had hope to kill the 100% requirement permanently, for the same reasons cited by Napolitano for the delay and more.

Many shippers and carriers say that the requirement if ever implemented would also raise costs that will eventually be passed on to importers/shippers. The expected delays could literally add several days to inbound cycle times, increasing inventory levels and the level of inbound variability.

Retail association NRF, as an example, said a delay in the mandate is not enough - the whole requirement should be eliminated.

“We believe Congress should take this one step further and permanently waive the requirement for the reasons laid out by DHS," the NRF wrote in a letter to committee chairman Peter King of New York before the vote.

Many believe the technology to effectively scan shipper containers does not exist currently. There are other even more practical issues.

For example, under the planned system, huge X-ray devices would scan every one of the containers for suspicious shapes at a rate that is expected to be about three containers per minute. However, it currently takes several minutes to scan a container, and the results are far from perfect.

“Imagine your worst line to get through security at an airport,” said SCDigest editor Dan Gilmore. "Now imagine the luggage scanners aren't working quite right, and they have to keep running bags through repeated times. Can you imagine the delays? That's a real possibility for cargo with the law and the current technology for this as it stands."

“In some of our international operations, there literally isn’t room for one of these machines," an air cargo executive for a major US airline, who asked to remain anonymous, told SCDigest when the bill was first signed into law in 2007.

(Global Supply Chain Article Continued Below)

CATEGORY SPONSOR: SOFTEON

Most of these parties argue that an enhanced risk-based system, which would increase the percent of container and cargo that is scanned or inspected but not require 100% screening, will be just as effective but result in much lower costs and have a much less negative effect on the flow of goods.

In fact, Homeland security recently said, without much detail, that this type of risk-based approach is in fact the methodology that it will encourage in "scanning" 100% of air cargo, a requirement it expects to have in place by the end of 2012.

Big Pushback Internationally

The requirement has also received much push back from countries across the globe. For many ports, would be a huge expense in acquiring and running the scanning machines, which cost several million each to purchase. There are currently about 700 ports that ship product to U.S. destinations – and many of those haven't yet made the investment or put processes in place, especially given the questions about whether the law would be changed or the deadline extended.

That means if and when the requirement is ever put into effect, many current ports used by US importers would be off-limits. That would impact not only logistics flows, but also decisions about sourcing locations.

After the law was passed, a 2008 study for the World Customs Organization predicted a number of negative outcomes if the law was not amended.

The chart below is taken from that report, developed by France's University of Le Havre and professor Frédéric Carluer. It shows the expected cost per container to perform the scanning, based on use of one of two types of scanning equipment and the level of container volume. Since the equipment is a fixed cost regardless of volume, ports with smaller export volumes to the US would incur much higher per container costs and one assumes charges levied to either shippers or importers.

So, for example, a port moving approximately 75,000 TEUs annually to the US would incur a total cost of about $30 per container in either equipment scenario. Above certain volumes (about 225,000 TEU) the "Reloc 6 Mev" scanner can no longer handle the volumes, resulting in a new cost curve.

The upshot: for most large ports, the cost per container would be relatively modest. For example, in a major port like Rotterdam the incremental cost per container would be less than $10, according to this analysis. The real impact would be on the hundreds of smaller and even some mid-sized ports and exporting countries, where costs could approach $50-100 per container - a sizable hit.

So, for now the requirement has been put on hold for at least two years. Homeland Security can continue to delay the mandate for two year periods, depending on the whims of future administrations and whomever is running Homeland Security at the time.

No doubt shipping groups will make further attempts to kill the requirement for good in future legislation. On the other hand, Congress could conceivably pass legislation that removes the ability of HMS to delay the requirement.

What is your take on the 100% container scanning rule? Do you believe the mandate will ever be implemented? Let us know your thoughts at the Feedback section below.

Recent Feedback

No Feedback on this article yet