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Please site this presentation as: Pallis, T., (2006). International Shop and Port Facility
Security (ISPS) Code and the cost of port compliancr. Maritime Security Forum,
Piraeus, Greece, October 2006.
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International Ship and Port Facility Security (ISPS) Code and the Cost of Port
Compliance
Author(s):T.Pallis
Thispresentationhasbeenpresentedatthe:
2006MaritimeSecurityForum,Piraeus,Greece.
1
International Ship and Port
Facility Security (ISPS) Code
& The Cost of Port Compliance
Dr. Athanasios A. Pallis
Dept. Shipping Trade and Transport
University of the Aegean
apallis@aegean.gr
Maritime Security Forum2006,
Piraeus, Greece, October 2006.
2
Shipping Industry biggest Transport and Logistic Provider
far above 90 % of the intercontinental traffic
40 % of the internal European Exchange
39.100 Ships above 300 GT with 800 Mill. tons Deadweight
Transport performance 5,8 Bill. tons of cargo moved
Sea traffic is a key element of the global world economy
vulnerable and unprotected for threats and attacks against
passengers, cargo and port facilities.
Port Facilities as hubs of the multi-modal transportation
network are the most sensitive and vulnerable interfaces of the
world trade.
Unlawful Acts Unlawful Acts may target Shipping may target Shipping
2
3
1
st
of July 04 was the Big Deadline
Implementation of the most
important global security ever:
affecting international shipping
industry
testing the ability, reliability and
liability of active members across the
supply chain
testing outsiders (governments, P&I
underwriters, training institutions etc)
4
The immediate challenges:
How to finance the costs of the ISPS implementation?
How to incorporate and adjust costs to pricing and
marketing strategies while maintaining their market
shares and achieving reasonable profit margins?
Long-term challenge:
Adjust relations with suppliers and customers to
ensure competitive supply chains, while overcoming
security risks and vulnerability threats
Facing the Challenges
3
5
Ports have a strategic role in Security
Complex and multipart organisations in which
functions and players intersect at various levels.
The only node/link that brings together so many
institutions functions assets processes.
ISPS: targets a variety of entities, facilities across
international shipping
Scope and dimensions of port security go beyond the
IMO agenda of facility security to include logistics and
supply chain security.
6
Reaction of the USA after the 11.09.2001
The US Senate and House of Representatives decided:
Port and Maritime Security Act of 2001
Port Threat and Security Act
Maritime Enhancement Act
Seaport Enhancement Act
Port Security and Terrorism Act
Maritime Transportation Anti-Terrorism Act of 2002
Homeland Security Act of 2002
4
7
ISPS Code ISPS Code
International Ship and Port Facility Security Code
PART A PART B
Binding Measures
Guidance
Ships/ Companies
Port Facilities
Contracting Governments
Backgrounds
Options of Fulfilment
Support
8
Crew
Supplier/
Service
Stevedores
Gate
Provisions
Freight
Duty-Free
Transit-
Passenger
Luggage
Special Cargo
Port Authority Police
Customs
Area of Conflict Risk- & Security Factors
Check-In
5
9
Security Threats and risk factors in Ports
A. Assets, facilities and physical movements of cargo
Cargoes and cargo movement are of a higher threat
to ports
Vessels and vehicles, people, equipments and facilities
do not pose a threat if systematically and safely
monitored.
B. Non-physical flows and process
Capital, payment and information flows (can be used
for financing, communicating and/or logistics support by
and for terrorists) are of a higher threat.
10
PORT FACILITIES PORT FACILITIES
Compulsory Actions:
Port Facility Security Assessment (PFSA)
Port Facility Security Plan (PFSP)
Port Facility Security Officer (PFSO)
Training, Drills and Exercises
Declaration of Security (DOS)
Compulsory Actions:
Port Facility Security Assessment (PFSA)
Port Facility Security Plan (PFSP)
Port Facility Security Officer (PFSO)
Training, Drills and Exercises
Declaration of Security (DOS)
6
11
Summary of OECD and USCG estimates
of ISPS Cost Compliance for Ports ($, m.)
Indirect
Costs
Annual
costs
Initial
costs
Nature of estimates
Undetrd
Undetrd
52
Undetrd
17
Undetrd
US port Costs (USCG)
Global port costs (OECD)
Security Training/
drills
Undetrd
Undetrd
146
Undetrd
565
Undetrd
US port Costs (USCG)
Global port costs (OECD)
Security Staff/
Equipment
509
Undetrd
335
Undetrd
1
0,8
1
0,8
US port Costs (USCG)
Global port costs (OECD)
US port Costs (USCG)
Global port costs (OECD)
US port Costs (USCG)
Global port costs (OECD)
US port Costs (USCG)
Global port costs (OECD)
963
>2.000
335
Undetrd
23
27,9
23
27,9
0
0
PFSP
Undetrd
Undetrd
Total ISPS
Undetrd
Undetrd
PFSO
0
0
PFSA
12
Economic approaches to Cost Control & Analysis
A. Project Appraisal and Risk Analysis of investment decisions
Applicable when new security decisions are translated into
port investment
Discounted cash flow model to analyse profitability and the
risk associated with investment decisions
B. Premium Price Analysis
New security costs are added to the price of port services
Variations in rates and insurance premiums
C. Cost-benefit analysis for optimal decisions
Contrasting loss-earning or the cost of failure against the
benefits of compliance
Most common in the maritime sector
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13
Limitations of the economic costing approach
A. Considering security as a sub-category of safety
False premise: that freight transport is separate for other
logistics components (i.e. purchasing, production, inventory
management and marketing)
B. Overlooking complexities and dissimilarities between ports
Institutional and organisational discrepancies
Physical operational and management differences
Port Resource systems vary
No international benchmark or compensation scale for
computing ISPS costs
ISPS and non-ISPS initiatives provide general guidelines
14
Limitations of the economic costing approach
C. Ignoring the cost of operational redundancies and supply
chain disruption
Ship detention and cargo delays leading to less reliable
demand scenarios
D. Cost spin-off of security expenses
Early figures: 5% for port tariffs;
4% initial costs and 2% thereafter for maritime freights
costs
Market players try to generate extra profits by transferring
costs to each other
8
15
Port-facility Security vs.
Port-supply chain security
Extended supply-chain framework IMO framework
The entire logistics/supply chain
route from cargo/vehicle port of
origin to the final port of destination
Nautical approach,
Sea/shore interface, port
operations
Operational
framework
Port authorities,
contracting governments,
international agencies
(IMO, ILO)
ISPS Code
Physical assets in ports
and sea/shore interface
+ Shippers, intermodal carriers,
logistics providers, facilitators and
intermediaries international agencies
(WTO, UNCTAD, etc)
+ Various other (governmental or
private) initiatives
+
1. vehicle and cargo movement
throughout the supply chain
2. Associated non-physical flows
Legal
framework
Participants
Nature &
scope of
security
risk
16
Need for a Framework to Port Security
Assessment (FPSA)
1. Process mapping: Design of port supply chain processes
Integrate active port and supply chain members into the
process of security assessment and management
2. Vulnerability identification, risk assessment & management
Incident scenarios?
3. Cost Control and Performance monitoring
Activity Based Costing
Total Cost Analysis
Value Chain Analysis
Balanced Scorecard
etc.
9
17
Conclusions
1. SUPERIOR PORT COMPLIANCE CAN SERVE
AS A GOOD TOOL FOR COMPETITIVE
ADVANTAGE
Ports confirming to the new security standards
will be accredited for best-practice compliance
2. IT IS THE SUPPLY CHAIN THAT MATTERS
Need to shift the subject from the current
agenda of facility security to an extended
framework of supply chain security