New US law may hit Indian ports badly

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New US law may hit Indian ports badly

Commodity Online
A new US law, introduced after the 9/11 terror attacks, has come as a rude jolt to the Indian ports like Paradip, Mumbai and Kandla as the stringent measures in the law are very tough to implement.

The new law will require 100% electronic screening of all cargo coming to the US at the port of origin. Last week, the World Customs Organization (WCO) released a report prepared for it by the University of Le Havre in France, which said that many ports will not be able to meet the 2012 timeline, and that the costs and process changes will reduce global trade.

In fact, the WCO has called for the US to scrap or significantly revise the law.

The WCO joins many companies and trade organisations in the US, such as the National Retail Federation, which opposed the passage of a new US law that will require scanning 100% of cargo bound for the US at the port of origin.

The law, passed by both Houses of Congress and signed by President Bush in August, requires – in theory - 100% scanning by 2012.

Those in opposition believe safety can be achieved with a much less onerous process, to which the WCO now lends its voice.

According to experts, 100 per cent screening rule would cost $100 per container, raising shipping costs substantially and resulting in increased consumer prices for imported goods into the US.

Global port screening costs would rise from approximately $400 million this year to $1 billion in 2012.

Again, US authorities also could face reciprocity demands from Asian countries and the European Union that all sea-bound cargo face similar screening before leaving the United States, raising costs on the currently thriving US export market. Meanwhile, European Union Taxation and Customs Union Commissioner Laszlo Kovacs said the legislation would affect 700 ports worldwide and disrupt 40 per cent of global trade.

The WCO report also suggests some interesting reactions to the new law if left unchanged. For example, it likely will result in the creation of a few mega-ports able to invest in the required technology and keep costs below $10 per container. It might also lead shippers to divert US-bound cargoes to Mexico and Canada to avoid the scanning rules.

The result will resemble an archipelago economy in which a few certified islands, which are secure and at the leading edge of technology, will attract container flows from around the world as obligatory points of passage.

This will not only disrupt current logistics flows and add costs, but could serve as a significant barrier to overall trade.

The WCO and others are recommending that the law start with a much lower threshold for scanning – say 30% — and rising from there as the need and technology advance.

Many believe that focusing on the most suspect containers and shippers for detailed scanning will achieve the same result at much lower cost. Many shippers and industry organizations fought the passage of the new US law.

It’s not at all certain that the law will be executed as currently passed. First, there will be continued pressure from importers and service providers, who in general support enhanced scanning requirements but argue that the 100% level is neither practical nor likely to be effective.

Second, there are real questions as to whether the technology will even be available to support the requirements.

The fear, or course, is that the new process itself and potential technology glitches will cause seriously delays in moving cargo through foreign ports.

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.

Less noticed in the concern about delays in freight movement is the fact that the law may also have a significant impact on which ports US importers can use – and change sourcing patterns and logistics requirements as a result.

For instance, there will be huge expense in acquiring and running the scanning machines, which are expected to cost about $5 million each. There are currently about 700 ports that ship product to US destinations – and not all of those will decide to make the investment, or to have the equipment and processes in place by 2012, especially if there are questions about whether the law will be changed or the deadline extended.

It’s not just the smaller ports that may have trouble complying. Even major but older ports like the huge complex in Antwerp, Belgium face major issues.

The Bush administration has said it wants to cut the number of ports that ship containers to the US to around 100 world-wide, from the 700 that do so currently.

Reducing the number of foreign ports moving goods to the US correspondingly reduces the number of points of risk and allows a more focused program, according to this school of thought.