With some fanfare, the U.S. House of Representatives Tuesday night easily passed a measure requiring the inspection of all cargo carried aboard passenger aircraft and ships bound for the U.S.
While the proposal, which is likely to face closer scrutiny in the Senate, makes sense on many levels, from a practical standpoint the devil may be in the details, particularly for the manufacturing industry.
The Anti-terror legislation is patterned on recommendations of the September 11 commission, directing the Homeland Security Department to establish a system for inspecting all cargo carried on passenger aircraft over the next three years. It also requires the scanning of all cargo containers bound for the U.S. using the best available technology.
Large ports would be given three years to comply; smaller ports have five years.
“It is very easy to vote for a security measure, but we have to look at the economic implications,” said Vice President of Marketing and Business Development at TradeStone Software, Holly Allison. “Only six percent of incoming cargo is currently screened.”
Currently 300 foreign ports ship approximately 12 million cargo containers to the U.S. each year.
Many overseas manufacturers are already participating in the voluntary Customs-Trade Partnership Against Terrorism (C-TPAT) program, which allows for fast tracking of products through ports by pre-certifying the supply chain.
There are many companies using creative means to get their products to market quickly by utilizing low price distribution centers with the ability to react quickly. (For a one billion dollar retailer, inventory in the supply chain represents at least one million dollars each day, so any delay in time-to-market can prove costly.)
“Many manufacturers are shipping components from China to Africa, where the manufacturing of the product is completed,” said Allison. “Then the product is shipped to a smaller port, like Charleston, SC,” citing the five year compliance time for a smaller port like Charleston in the measure. (The Port of New York/New Jersey is the largest port complex on the East Coast of North America, which would need to comply with this measure by 2010.)
Allison sees a simpler solution to this issue.
“Proper paperwork is all that’s necessary,” Allison said. “There’s a lot of paperwork out there that doesn’t currently comply,” citing the influx of counterfeit goods as an example.
Twenty-four-hour advance notice of a shipment with a bill of lading and a manifest would help track the shipment of goods more closely.
“Simple communication between the retailer and the manufacturer makes a big difference,” Allison said.
Democrats provided no cost estimate of the package, but a similar Senate bill introduced last year to adopt the commission's proposals had a five-year price tag of $53 billion.
Erik Autor, Vice President and International Trade Counsel to the National Retail Federation, said that the organization is setting up meetings with members of Congress this week to discuss their concerns.
“We are interested in more than just creating a bumper sticker for the next election,” Autor said. “No one has really thought this through.”
According to Autor, a screening pilot-program was established in 2006 as a compromise to 100 percent screening of incoming cargo. The program calls for input from customs officials, as well as industry experts without a specific timeline for full implementation. The program is currently underway at Hong Kong ports.
“This is a more reasonable, and well thought out approach,” Autor said. “Anyone who has stood on those ridiculous security lines at the airport is getting a look as to what this measure could do to trade. This could seriously and adversely impact our economy.”
A Republican homeland security committee aide also said when reached that the 100-percent screening measure doesn’t make sense.
“The Senate is doing this right by holding hearings to review the 300 page bill,” the aide said. “There was no time to hold hearings in the House.”
Bill Primosch, Director for International Business Policy for the National Association of Manufacturers (NAM), said the bill will be “enormously challenging” for manufacturers if it is to pass the Senate.
“The potential for disruption to the supply chain is great,” Primosch said. “When the Congress was considering port reform a few months ago, NAM received calls from the membership expressing concern.”
According to Primosch, 26 of the 40 largest ports are in developing countries, which is where the biggest issues relating to equipment training could occur. There are nine ports in China, which is experiencing 30 to 40 percent annual growth. China is still considered a developing country.
“For any country that is going to use this screening process, it is unlikely they would set up two different screening processes,” Primosch said. “They will have to screen all their containers,” which could add to an even greater slowdown of the supply chain.
The NAM has been working with the Port Security Coalition, helped by the National Retail Federation, on educating Congress and the public on the potential supply chain impact.
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