Economic cost of regulatory changes

Even as the global liner industry seeks desperately to steady its course in the light of the current severe disequilibrium in the marketplace, it now faces uncertainty in its ability to cope with the speed and the volume of regulatory measures that are expected to have significant structural impact on the trade.
 
The regulatory measures and reforms aimed at strengthening global maritime security and safety have raised concerns of the industry to absorb them quickly but also on the cost and price the providers (and users of maritime transportation services) would have to pay to ensure compliance.
 
The raft of measures, which have been initiated largely by US in response to the September 11 event, are ahead of host of other measures that are being prepared by the London-based International Maritime Organisation when it meets in December.
 
The global maritime industry is bracing itself for biggest change in the conduct of international maritime trade for more than a century, which some parties predict promises would nothing but chaos.
 
Major current initiatives led by US to enhance global maritime security include, among others, the Container Security Initiatives (CSI), the US Customs-backed Customs Trade Partnership Against Terrorism (C-TPAT), the requirement that all US-bound ships must provide cargo manifest 24 hours before a container is loaded in a foreign port, finger printing of seafarers as part of new visa and shipboard security and the right of US Navy to board any suspect merchant ship in territorial waters.
 
The C-TPAT is aimed at improving security along the whole maritime transportation chain.
 
All parties along the chain - manufacturers, warehouse operators, logistics service providers, cargo brokers and shipping lines - are required to sign up the agreement to improve the security of America's international trade.
 
Almost all leading lines, both which call US ports direct as well as those which do not, like the Malaysia International Shipping Corporation Bhd, have signed or indicated their willingness to do so.
  
"We have little choice not to do so," said the managing director/CEO of MISC Datuk Hj Mohd Ali Hj Yasin said recently.
  
"But who is going to carry the cost?" he asked rhetorically, and added perhaps it would be shipowners but eventually customers may have to shoulder the increased costs brought about by complying with the various mandatory regulatory measures.
  
Aside from C-TPAT that is aimed at the transport chain, the US has introduced the CSI which gives the right to US government, under agreement, to station its Customs Service officials at any of the foreign ports.
  
Under the initiative 20 major ports which generate large volume of trade with US ports have been approached.
  
Leading European ports like Rotterdam, Le Harve, Antwerp as well as Singapore and Japanese and Chinese ports have agreed to station US Customs inspectors.
  
Talks with Malaysia to place similar officers at Port Klang and Pelabuhan Tanjung Pelepas are still in progress.
  
The requirement on cargo manifests 24 hours before a container is loaded in a foreign port is to improve pre-shipment clearance of container security at a time when box traffic into the US has been identified as an area particularly vulnerable to terrorism.
  
The stringent new requirements on information provision will likely require significant, and potentially costly, changes in business practices for shipping lines, non vessel operating common carriers and shippers.
  
The requirement could potentially change the age-old manner in which international trade has been conducted.
  
Also in the pipeline is a US security legislation that is expected to force shippers and container lines to rethink standard clauses in transport documents as Customs seeks to establish precisely what is carried in every container.
  
The new security measures, at present in draft form but expected to become law very soon, could have a serious impact on carriage of goods legislation.
  
The legal requirement to identify goods clearly under the security legislation may mean that certain century-old standard phrases used in transport documents relating to contents details may no longer be sufficient to protect carriers.
 
While shipping lines are entitled to rely on the shipper's description of the goods with the words "said to contain" included in bills of lading, multimodal or combined transport documents, this will not be sufficient under the security legislation.
  
The use of the term "said to contain" has the legal effect that the operator or owner of the vessel, port or facility can receive the goods without knowing exactly what their type or condition is and is reliant on the ship- per to provide detailed information.
  
The shipper might have to face the losses on his own and taking into consideration exclusion clauses for liability for acts of war contained in the Hague-Visby rules and US Carriage of Goods by Sea Act, "the shipper may well find himself unable to claim from the carrier if goods have been lost, damaged or delayed.

 
Meanwhile, the International Maritime Organisation is getting to grips with how to amend to Solas chapters V and XI, and develop the new mandatory International Code for the Security of Ships and of Port Facilities, which will be commonly known as the ISPS Code.

 
At the IMO Diplomatic Conference on Maritime Security in December 2002, new regulations to enhance ship and port security and prevent ships being used as weapons, or as a target for terrorist attacks, will be approved under the tacit amendment procedure (aimed at speeding up the amendment process and paving the way for its early entry).

 
The industry is watching with considerable concern and apprehension the unilateral moves by US as well as measures being considered by IMO.

 
The World Shipping Council, a body of the world's elite liner shipping companies, including MISC, has expressed its concern over the pace with which the measures being pushed down.

 
The World Shipping Council, which will present its views on this subject at a major maritime conference in Kuala Lumpur 14-15 October, organized by the Malaysian Shipowners Association, has urged US government to delay for 12 months over its plan to tighten vessel manifest declarations at foreign ports.

  
(Details of the conference are available on www.masa_kl@tm.net.my. )

 
The European Commission has also reacted strongly claiming the changes would "seriously disrupt EU transport operations without necessarily giving the US the security assurance it seeks".
 
The new requirement that cargo manifests would, for instance, be extremely complex and could have far reaching consequences to international trade.
 
Failure to address its implications fully in advance could bring chaos to international maritime trade and mean a setback in the supply chain, affecting shippers, forwarders, ports and maritime transport service providers.

  
What worries the industry is that the various regulatory actions will have significant economic impact and it would increase carrier and shipping costs and it will require trade processes to change significantly.
 
The worry is especially heightened in the light of prognosis of a weak growth in world trade and the burgeoning capacity that shipping lines are already compounded with.
  
Is the scene being set for another around takeovers, mergers and acquisitions and witness the emergence of new dimension in shipping? What is there in terms of future for liner shipping?
 
These are questions that a concerned Datuk Ali, the managing director of MISC Bhd, posed but ventured to give no answers which are anybody's guess.