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 international journal of transport economics
vol. xxxvii · no 1 · february 2010

CONTENTS

Claudio Ferrari, Marco Percoco, Andrea Tedeschi, Ports and Lo-

cal Development: Evidence from Italy 9
Pedro Carvalho, Rui Cunha Marques, Álvaro Fonseca, Pedro
Simões, Governance and Comparative Performance of Iberian Penin-
sula Seaports. An Application of non-parametric Techniques 31
Yann Alix, Frédéric Carluer, Brian Slack, The new US 100% Con-
tainer Scanning Law: Impacts on the International Supply Chain 53
Hercules Haralambides, Mohamed Hussain, Carlos Pestana
Barros, Nicolas Peypoch, A new Approach in Benchmarking Sea-
port Efficiency and Technological Change 77
Lawrence W. Lan, Hsiang-Yi Lee, Chieh-Hua Wen, Effects of Tem-
porally Differential Fares on Taipei Metro riders’ Mode and Time-of-day
choices 97
 international journal of transport economics
vol. xxxvii · no 1 · february 2010

THE NEW US 100% CONTAINER SCANNING LAW :  

IMPACTS ON THE INTERNATIONAL SUPPLY CHAIN*

Yann Alix** · Frédéric Carluer*** · Brian Slack****
1234

Abstract : The ‘100% scanning’ law, or House Resolution One (H.R. 1), aims to protect
 

US territory against terrorist risks likely to affect the global logistics chain. A unilateral
step, it may be perceived as a disguised protectionist measure which would transfer the
risk of ‘seacurity’ to its partners, particularly if the principle of reciprocity does not apply.
In this changing economic (over 400 million containers handled, under 0.5% of which are
currently scanned) and regulatory context (following the SAFE framework of standards de-
veloped by the World Customs Organization), this paper provides an analysis of the likely
impacts of this law. The first part begins by examining the reactions to the introduction of
the law and we draw upon official and operational responses to the scanning requirements
from several international bodies, especially a survey of a sample of port authorities that
the authors undertook for the WCO which focuses on an appraisal of the global cost of a
scanned container and we broaden this evidence by considering the actual patterns of US
trade. The second part leads to six scenarios based on the preceding macro- and micro-
economic results combining three dimensions : infrastructure investments, technology and
 

productivity of human resources.

Keywords : 100% Scanning Law, Trade Flows, Transportation Costs, Geopolitical Stakes.
 

jel Classification : F17, F52, G32, L92, O19, R41.

 

1. Introduction

I n the middle of this decade, a total of around 400 million boxes were
handled in around 600 port container terminals. Approximately 20% were
empty boxes, due to chronic imbalances between the major intercontinental
production and consumption zones. Hence around 320 million full boxes
were handled in world maritime and inland port terminals, with the Unit-
ed States representing one-eighth of this traffic. Of this international total,
around 300 million is concentrated on the major-East-West routes and the
key hubs of South-East Asia, the Mediterranean and the Caribbean (Harvard

*  Many thanks to the two referees for their relevant comments and for the assistance of
J. F. Pelletier and S. Deprez.
**  Director of the Port Training and Research Institute (IPER-NBS).
***  Professor in International Management, NIMEC, University of Caen and Norman-
dy Business School.
****  Professor Emeritus, Concordia University.
54 Yann Alix · Frédéric Carluer · Brian Slack

Business Review 2009, “The Threat of Global Gridlock”). It has been esti-
mated that at most 0.5% of the total number of maritime boxes are physi-
cally scanned, representing some 1.2 million scans. There are some regional
disparities that complicate the reading of the world market, however, with
Canada for example scanning a minimum 3% of all boxes, and Australia ap-
pears set to increase its scans from 5,000 to 130,000 a year (out of a total 4.8
million TEU in 2006). Scanning represents an economic challenge, for its is
claimed that scanning in the US market alone cost $380 million in 2006, and
that this total could triple to $1.2 billion in 2013, despite the present eco-
nomic decline and fall of 25% in container handling.
Indeed, the world market estimates of container scanning have been
turned upside down since the September 2001 attack on US soil (Greenberg
2006, OECD 2002, Sheffi and Rice 2003). With the ‘Container Security Initia-
tive’ (CSI), 58 ports (23 in Europe, 21 in Asia and in the Middle East, 13 in
the Americas and 2 in Africa according to the US Department of Homeland
Security 2009) representing more than 85% of exports to the United States
are obliged to scan containers identified as ‘high risk’ following the analysis
of intelligence information relating to the movement of containerized goods
(Caldwell 2008, Payne 2007, Kruck 2006, ISO 28000 2005). More recently, the
US House of Representatives has unilaterally furthered the scanning require-
ments by passing House Resolution 1 (H.R.1), an act that was signed into
law in July 2007 (CRS Report for Congress 2007). The act stipulates that by
2012 all containers destined for the US must be scanned at the foreign port of
shipment. The US Customs and Border Protection Agency (2008) estimates
that equipping the ports of the world with scanning equipment will cost $17
billion and this should slow down the application of H.R.1 according to the
new Secretary of the Department of Homeland Security, Janet Napolitano
(Inside US Trade 2009).
Since the goal of achieving a seamless transportation system is a key factor
in the success of containerized transport, it is our hypothesis that a require-
ment to scan all containers will be a serious impediment to achieving this
goal. The fluidity and management of the system will be seriously impacted
when security trumps all other factors shaping international supply chains
involving the US. The goal of this paper therefore is to provide an analysis of
the likely impacts of this law. The first part begins by examining the reactions
to the introduction of the law and we draw upon official and operational re-
sponses to the scanning requirements from several international bodies and
based upon some of the trials that have been carried out in several ports by
the US Department of Homeland Security. We also add the results of a sur-
vey of a sample of port authorities that the authors undertook for the WCO
 Impacts on the International Supply Chain 55

which focuses on an appraisal of the global cost of a scanned container and

we broaden this evidence by considering the actual patterns of US trade, by
highlighting the fact that it will be China that will be affected most by the
regulation. The second part leads to six scenarios based on the preceding
macro- and micro-economic results combining three dimensions : infrastruc-
 

ture investments, technology and productivity of human resources.

2. Operational issues of 100% scanning

The 100% scanning law was promulgated on August 4, 2007 and must be
seen in the context of heightened security since 11 September 2001 in the
US (Van de Voort 2003). It originated as a piece of legislation introduced
by the Democrats in the last years of the Bush presidency whose intention
was to extend further the systematic control over the contents of containers
entering the US from overseas. It completely changed the emphasis of previ-
ous security initiatives such as CSI, C-PAT and the 24 Hour Rule and such
customs regulations such as SAFE, which were based on risk management.
These earlier regulations based security assessments on a control of informa-
tion, by insisting on a transparency and traceability of the goods and their
shippers. These measures and the international ISPS regulation instituted by
the World Maritime Organization gave rise to international solidarity and
compliance, in which all parties along the chain participated. The new US
law changes that, since it is based on a physical examination of all containers,
and not only the few cases flagged by risk management techniques. It will re-
quire special handling for US-bound containers, that is certain to complicate
port operations. As will be demonstrated below technology will not solve
these problems.
Congress surely did not anticipate the organizational and politico-econom-
ic problems the new law would create. It has generated a storm of objections
from the international commercial partners of the US and from within many
sectors within the US itself. The paper examines these reactions and goes on
to estimate the costs of the global implementation of the 100% scanning as
well as the physical challenges that ports will have to overcome, most impor-
tantly for US west coast ports (US Department of Transportation 2005, p.29).
Lastly, a global overview of containers by continent of origin (1997-2006) and
a detailed and mapped analysis of the key trade partners and their dynamic.

2. 1. Reactions to the law : three perspectives

 

The US legislation has drawn a great deal of reaction from the world ship-
ping community and governments. The list of bodies expressing some reser-
56 Yann Alix · Frédéric Carluer · Brian Slack

vations at least is very broad, and includes by the Department of Homeland

Security (DHS), Customs and Border Protection (CBP), present and former
government security experts, the US Chamber of Commerce, major cargo
shipper organizations, the ocean carriers transporting the cargo, as well as
the European Commission and the governments of America’s trading part-
ners.
We examine the responses of two different bodies, the World Shipping
Council (WSC, 2007), a grouping of all the world’s major liner shipping com-
panies, and the European Commission, and conclude with the results of a
survey of port authorities.
The WSC published a response to the 100% scanning act just after it was
signed into law by President Bush in July 2007. The Council outlined a num-
ber of objections to the law that were mainly procedural…. who would in-
spect, who would interpret, who would pay for and maintain the scanning
equipment… as well as health and safety issues. The WSC also raised several
objections based on how the law was enacted… why were the results of the
pilot projects (see below) not considered ; why were no committee hearings
 

held before the vote was called in the House ; and, the failure to seek the co-
 

operation of other governments.

Several of the above points were repeated in a sharply worded response to
the new US legislation by the European Commission (2008). This response
regretted the failure to consider the results of the trials being carried out at
Southampton, and expressed doubt that 100% scanning would increase secu-
rity, but had the potential to seriously disrupt international trade. The most
serious charges were against the unilateral nature of the scanning law. The
document claims that “the US 100% scanning initiative is unilateral and implies
extraterritoriality” (Kovacs 2008, p.14). It compares earlier security initiatives
where international cooperation and agreement resulted in the very rapid
and widespread adoption of security initiatives.
Both documents argue that existing security measures have not been prov-
en to be less effective than 100% scanning. They cite the existing policies
including the “24 hour” rule, the Container Security Initiative, inspections by
Customs and Border Security of all containers deemed at risk, Coast Guard
security plans for all foreign ships arriving at US ports. They argue that the
present multi-level risk based approach works well and causes limited disrup-
tion to international trade.
Since the 100% scanning law stipulates that inspections must take place
in foreign ports, it is useful to consider the reactions of port authorities. In
2007, the authors undertook a survey of reactions of a small sample of 10
port authorities for the WCO (Carluer, Alix and Joly 2008). They represented
 Impacts on the International Supply Chain 57

a cross-section of ports from around the world, including five that were not
major container hubs (Abidjan, Casablanca, Dakar, Montivideo, and Rio de
Janiero), and included five of the major container ports in the world (Dubai,
Hong Kong, Le Havre, Rotterdam and Singapore). Some of the general reac-
tions were varied, including opposition from many of the smaller ports. For
many of the larger ports the responses were more nuanced and fatalistic,
yet with some indication of presenting a commercial opportunity (Dubai
for example also saw it as an opportunity to strengthen their dominance of
trade).
Several operational issues must be considered in assessing the impact of
H.R.1. First is the quest of the cost of scanning ; second is the ability of ports
 

to carry out 100% scanning of US destined containers ; and, third is where the
 

impacts are likely to be felt most strongly.

2. 2. Cost analysis of 100% scanning : a first estimate

 

The costs of scanning depend in part on the quality, performance and use
of the equipment, and the size and planning of the specific port sites. Other
parameters related to human resources such as workforce productivity, level
of qualification or salary levels of agents also have to be taken into account
when developing a micro-economic analysis of the final projected costs of
100% scanning.
We consider two types of scanners : the first, is a classic moveable fixed
 

scanner (relocatable gantry) with a double tunnel ; and the second a more
 

recent model, the pass-through scanner. The comparison provides both an

estimate of the average unit cost of a scanned container depending on the
quantity scanned and an initial overview of the relative importance of each
of the two machines as a function of the port activity in the site under con-
sideration.
The moveable fixed scanner is a little more cumbersome than the pass-
through scanner, but has a threefold advantage : it can pierce over 33 cm of
 

steel (compared with 26 cm for the pass-through system), allows the truck
cabin to be inspected, and above all provides a better image detailing or-
ganic and inorganic materials. Conversely, the pass-through scanner is more
mobile, permits faster processing with over 100 trucks or tractor/trailer
combinations per hour. It requires less ground area with a simple radiation
protection zone but generates comparatively more manual searches, which
means additional human resources costs by third parties or Customs. In the
following application, the extra cost of searches required in the case of the
pass-through scanner is estimated at 10%, mainly due to the poorer quality
58 Yann Alix · Frédéric Carluer · Brian Slack

of the image to be interpreted by the operator. Moreover, it also has the

advantage of greater flexibility in managing peaks in numbers of contain-
ers to be scanned and adapting to changes in targeting rules. In terms of
risk management, and above all of IT support needs, this system is more
demanding and thus more costly as the associated technologies are inter-
related. i.e. maximum automation and a secure link with Customs and port
computer system. Of course, numerous complementary technologies can
easily be added to increase the power of detection and/or facilitate manual
searches.
Over and above the direct costs of the machines, estimated at $2 millions
for the relocatable scanner and $1.6 million for the pass-through scanner, are
the total indirect costs which can be divided in four segments :  

- the infrastructure (site and dedicated building with all the necessary facili-
ties) ;
 

- the shift work, as there will be more shifts depending on the number of
containers to be scanned, based on a 5 day week and 50 weeks per year ;  

- Human resources for management (manager, system operators, imaging

operators, IT manager, inspectors, administrative staff ) ;  

- Security and maintenance.

The Customs duties at the scanner installation are assumed to be zero,
while VAT is payable at an estimated 20%. Finally, the logistics costs of the
containers, including an estimated 30 minutes to transport the container to
the scanner for an estimated $20, and the cost of the land made available by
the port are not taken into account. Here, two types of scanning machines
are compared. A moveable system, which is faster than the relocatable sys-
tem, has an advantage in terms of this new, indirect, cost and hence provides
a cost saving.
According to cost estimates, based on real average cost data mentioned
by the experts (manufacturers and administrators), and precised with aver-
age real costs provided by Bureau Veritas and refined by including the four
elements listed above, it emerges that the choice of scanner type depends
on the number of containers to be scanned, the configuration of the ter-
minal, and the development potential, including new technology and new
site location (land corridor for example). On balance, it would appear that,
if a limited number of containers is scanned per year (e.g. 5,000 TEU), the
unit cost of scanning is very high (over $400 per scan). The average cost per
scan can be reduced to $20 (for both relocatable and pass-through scanners)
when the number of containers scanned each year exceeds 140,000 units
(Table 1).
 Impacts on the International Supply Chain 59

Table 1. Unit cost ($) of scanned TEU container in $US by type of scanner.
Number of containers Scanner 1 :
  Scanner 2 : Relocatable fixed
 

scanned per year Pass-through 6 Mev scanner 6 Mev Double Tunnel

5,000 440 400
35,000 63 57
75,000 31 30
105,000 21 27
140,000 20 21
225,000 12 52
420,000 10 63

For situations up to 120,000 TEU, the relocatable scanner is more competi-

tive than the pass-through scanner, after which the curve inverts (see Figure
1). If even more containers were scanned, e.g. up to 420,000 containers per
year, the unit cost could fall below $10 in the case of the pass-through scan-
ner. The relocatable scanner is no longer competitive over 140,000 boxes as a
second machine is needed to scan such a volume. This explains the different
breaks in the curve showing the unit price of scanning for this type of scan-
ner (Figure 1), because of additional equipment and personnel (with regard
to the number of scanned containers) contrasting to the linear curve of the
pass-through scanner.

Figure 1. Estimates of the direct unit cost of a scanned TEU container as a function
of overall activity.
60 Yann Alix · Frédéric Carluer · Brian Slack

These curves give an approximate image of reality on the basis of the data
provided by BureauVeritas. The introduction of an ultramodern risk-man-
agement system linked to the scanner would probably generate an addition-
al cost of around $3 per scanned container (for 150,000 TEU annually ; or  

around $15 for 35,000 TEU). There is an immediate return on investment

with risk analysis, as it can considerably reduce the number of containers
which have to be scanned (with a potential 100% screening and 50% scan-
ning, for instance). Once again, it is absolutely essential to consider the scan-
ning of containers as a complementary tool to effective risk analysis.
There remains the question and the cost of image interpretation when
it is not carried out in the port of origin. A somewhat futuristic calcula-
tion may be carried out by estimating. How many Customs officers and/or
other imaging operators would have to be employed within the US Target-
ing Center if the container contents were scanned in the port of origin, and
the images sent encrypted by secure means to the United States ? (Note : the
   

H.R.1 Law does not actually require analysis of the image). Assuming that
an image is 10 megabytes and that an operator can interpret 10 images per
hour, approximately 16,000 images per person per year could be processed,
with a colossal data-base required. At over 18 million US-Bound containers
today and potentially many more in 2012, this would amount to employing
1,125 staff at the Washington nerve centre based on 2007 traffic. By way of
comparison, around fifty staff are currently dedicated to interpreting im-
ages from 58 CSI Ports, with 5 to 10 images are received in total per year
from each CSI Port.
Finally, there is the question of the costs of scanning on large importers
such as Walmart. If the costs of scanning are to be passed on to the ship-
pers, this could represent an additional burden of several million dollars for
each company. As for surcharges induced by the implementation of the ISPS
Code, US shippers are already questioning the economic and financial conse-
quences which will cascade down from customs in each country, onto over-
seas port authorities and international terminal operators (estimate about
$8 million for each line according to the US CBP 2008), to shipping lines,
importers and finally, to the consumer !  

Keeping in mind these quantitative and qualitative elements, our analysis is

merely an initial and approximate estimate but is interesting in one respect :  

under one-third of the overall cost of 100% scanning is related to the value of
the machine purchased (considered to be depreciated over seven years, at a
loan of 10% per annum). In other words, everything to do with the scanning
itself, starting with human resources (in particular systems operators and im-
 Impacts on the International Supply Chain 61

aging operators) but also the dedicated computer systems and infrastructure,
make up well over half of the total cost.

2. 3. Physical challenges to ports or how to transform a constraint into

an opportunity
The US undertook 6 trials in selected ports around the world, including
100% scanning of all US bound containers at Southampton, Port Qasim and
Puerto Cortes, and partial scanning at Busan, Hong-Kong and Salalah. Later
Singapore was added as a partial scanning site (Singapore Customs 2008,
Washington Times 2007). This project was part of the CSI, and announced
before the 100% container scanning law was enacted. The general results
of these trials have been published (US CBP 2008), but the detailed analy-
sis is uneven. Most information is given for Southampton, Port Qasim and
Hong-Kong. In the case of Hong-Kong the experiment was conducted on a
voluntary inspection basis at Modern Terminals. It also applied to truck en-
tries only (about 39% of all containers). For Southampton too the trial took
place in the container terminal which receives truck entries only. While the
evidence from these projects was generally favourable, with little disruption
to general operations, several key problems were highlighted :  

- A major problem identified is monitoring transshipment traffic and con-

tainers that arrive by other modes, such as barges, where it is not as easy to
identify the US bound containers which have to be separated and transported
to the screening sites. These moves represent additional use of yard equip-
ment and an additional cost estimated at $300 by one estimate (EU com-
ments).
- All the ports where 100% scanning was attempted had relatively small
numbers of US bound containers. The total number of US containers han-
dled in the three ports where 100% scanning was carried out over the trial pe-
riod was 51,937 containers. Were the same procedures applied to the major
hub ports the potential for delays would be much greater, especially as these
major ports handle containers via several modes.
- The US absorbed most of the costs of the trials, including equipment
and personnel was $60 million. Given the small scope of the sample, full im-
plementation would have massive cost implications that individual countries
would have to bear.
- The trials were conducted with friendly port authorities and with govern-
ment sanction. Even then a host of difficulties arose, such as the legal au-
thority to release scans taken in the host countries to another (the US). Port
Qasim was not allowed by the Pakistan government to have US personnel
62 Yann Alix · Frédéric Carluer · Brian Slack

man the scanners… the images had to be sent to the US, and the results trans-
ferred back. Full implementation would necessarily involve non-cooperative
countries.
- Release of skilled personnel to monitor the scanning gives less time to
thoroughly investigate other cargoes identified as high risk under existing
procedures.
- There are different levels of IT capabilities in ports. Applying different
operating procedures to a standard scanning requirement is likely to be very
difficult. Similarly differences in the physical characteristic of traffic made
interpretation difficult… the example of the greater height of UK trucks
meant that US designed scanners had to be changed.
In terms of trade patterns, 100% scanning would impact directly on the
strategies of terminal operators and the shipping lines. It could allow, for
example, innovative companies such as DP World to differentiate themselves
from competitors by setting up specific operational and organisational sys-
tems to achieve 100% scanning. Providing value added services linked to en-
hanced security of supply chains could become a commercial selling point.
This could then have consequences on inter-port and intra-port competition
and the spatial organisation of US-bound traffic. By investing in scanning
technology and implementing superior management systems certain hub
ports might seize the opportunities to strengthen their roles in the cross-
trades as ‘safe’ ports. Already the port of Jebel Ali has signaled its intention to
become the secure regional hub for US bound traffic.

2. 4. Operational issues arising out of the geographical features of US traffic

The pattern of US container trade is not uniform, and over the years it has
become ever more asymmetrical (US Department of Transportation 2005,
2007a,b ; US Department of Homeland Security 2006, 2008 ; US Customs and
   

Border Protection 2006). In 1995 the US imported less than 7 million TEUs.
Ten years later the total stood at almost 20 million TEUs (20% of the world
total according to UNCTAD 2007). This represents a growth of more than
10% per year.
Examination of the trade volumes reveal three trends (Table 2) :  

- largely homogeneous growth in the Americas, Africa and Oceania : with  

a growth of around 70% over the past decade ;  

- meteoric rise in Asia (+185%) over the same period, led by China (+472%)
and India (200%). Growth in other Asian markets was less spectacular with
growth of from South Korea (105%), Japan (+14%) and Hong Kong (+12%).
Only Vietnam and Cambodia, which started from very small beginnings on
the US market, do better over this period (1997-2006) ;  
 Impacts on the International Supply Chain 63

- Europe lags behind with a growth of only 52% over the period, corre-
sponding to average annual rate of growth of 4.9%.
Asia today accounts for almost 75% of US imports of maritime containers,
therefore, and is the only continent to have gained market share over the pe-
riod (+12.5 points since 1997). In terms of numbers of containers imported
by the United States, this represents almost 14 of the 18 million boxes (TEU)
imported in 2006.

Table 2. Evolution in US-bound container trade by continent.

Number of US-bound Share (%)
Continent Evolution Growth (%)
containers (TEU)
(points)
2006 1997 2006 1997 Global annual
Asia 13,750,115 4,818,955 74.42 61.88 +12.5 185.3 12.5
Europe 2,482,559 1,633,006 13.44 20.97 -7.5 52.0 4.9
Americas 1,937,439 1,155,060 10.49 14.85 -4.3 67.7 6.1
Oceania 184,322 107,534 1.00 1.38 -0.4 71.4 6.4
Africa 121,690 71,248 0.66 0.91 -0.3 70.8 6.3
World 18,476,126 7,785,804 100.00 100.00 0.6 +137.3 10.2

Given these extremely asymmetrical continental dynamics, with Asia, and

more specifically China, representing such a large proportion of US contain-
er imports (more than 50% today against less than 5% in 1980 ; Hummels  

2006, p.3), it is evident that 100% scanning would fall heaviest on Asian traf-
fic, with China bearing the brunt of the impacts (see Map 1), behind Japan,
Hong-Kong, Taiwan, South Korea and… Germany (less than 3%).

3. Potential impacts
From the issues raised in this paper, several possible outcomes are discussed.
Some relate to the possible effects on future patterns of trade flows. Others
relate to the difficulties of implementation and possible modifications of the
100% scanning container law. From a technical point of view, the conditions
and rules imposed on scanning (US CBP 2008) could be revised in order not
to render obsolete three-quarters of the 1300 existing scanners in use around
the world. Furthermore, the new Obama administration might decide delay
beyond 2012 the implementation of the Act and perhaps even water down
some of its provisions, as has already been hinted by Janet Napolitano, the
new Secretary of Homeland Security (Inside US Trade 2009).
Several different scenarios that describe future trends and that take into
account the politico-economic and technological uncertainties are construct-
ed. They are analysed using game theory (Gibbons 2001 ; Rasmussen 2006 ;
   
 64
Yann Alix · Frédéric Carluer · Brian Slack

Map 1. Growth (in %, top of histogram) of exports of US-bound maritime containers (TEU) from their top 50 trade part-
   
ners 1997-2006 (relative to the share of each country : width of the histogram, and to the ranking of each : colour of the
histogram).
 Impacts on the International Supply Chain 65

Shoham, Leyton-Brown 2009), which permits a wide range of alternative

strategies to be considered from the perspectives of the actors, while recog-
nising institutional, environmental and technological constraints.

3. 1. Potential economic impacts of the application of the US law

Game theory permits the strategic choices of the actors to be assessed in an
environment with constraints. The outcomes are represented as a tree of suc-
cessive decisions based over time periods. In this study situation the leading
actor is the US government and its relations with the international community
(European Commission, WTO, WCO…), as well as its commercial partners
(especially China, but also its domestic population concerned with national
security and its domestic industries (importers, scanner manufacturers…).
In this highly complex situation political decisions are likely to be the most
important. Thus a number of scenarios are developed regarding the capacity
of ports to scan 100% of containers : 

• Scenario 1 (Status quo) : no port is capable of applying this law ;

   

• Scenario 2 ( ‘triadic’ concentration) : no port apart from a few Asian and

 

European megaports ;  

• Scenario 3 (Dedicated polarization) : all major European and Asian ports

 

and some ports in developing countries, but only for US traffic ;  

• Scenario 4 (Polarization) : all major European and Asian ports and a few
 

ports in developing countries for all traffic ;  

• Scenario 5 (Dedicated networking) : all of the world’s major ports but

 

only for the United States.

• Scenario 6 (Networking) : all of the world’s major ports.
 

The decision tree sets these six scenarios (S1 to S6) against a time frame
and other factors influencing the decisions (Figure 2).
In applying these six scenarios we have to consider their potential impacts,
particularly with reference to the logistics chain. It has to reconcile securi-
ty imperatives with the extra costs and disruptions to traffic fluidity. At the
same time there will be differences in the willingness and ability for different
countries to adopt the US-imposed security measures. For countries with
large trade relations with the US it may be a necessity, but for other countries
the small traffic may not be worth the costs and dislocations of adoption. It
may be noted that this distinction spans the developed/developing country
distinction, since there are countries in both groups that face the same deci-
sions. A further factor that affects the scenarios is technology. Considered
by many observers as utopian in its stipulation of applying 100% scanning
by 1 July 2012, it may also be viewed as a tremendous technological boost,
66 Yann Alix · Frédéric Carluer · Brian Slack

and could give rise to important technological advances in scanning. Finally,

there is the role of international organizations such as the World Customs
Organization, whose primary objective is the control of goods and standardi-
zation of practices internationally, and others including the World Bank and
the IMF who favour the facilitation of world trade and look unfavourably on
potential barriers to movement of goods.

Probabilities ( , , , , ) Main decision criteria

Status quo S1 Politics &

. Technology

.(1- )
S2
Remains Megaports
inapplicable
The 100%
scanning law Port hubs Politics &
S3
(1- ). . Costs
(1- ) Only for
the US (1- ). .(1- )
Becomes the (1- ). Regional port hubs S4
new frame of (1- ).(1- ) S5
standards Big ports
At the world
scale (1- ).(1- ).(1- )
Costs &
(1- ).(1- ).
S6 Port size
All ports

August 2007 2010 July 2012 2014

Legend : The decision tree shows for example that the 100% scanning law has a probability
 

of β% to remain inapplicable and the opposite probability (1-β)% to become a global scale
standard.
Figure 2. Six scenarios for H.R.1 : a game theory viewpoint.
 

The different scenarios are examined below taking into account the factors
reviewed above and are summarized in Table 3.
In the first Scenario (no port is capable of applying 100% scanning by 1
July 2012), the status quo prevails : current security systems will remain in
 

place and because of internal and external objections H.R.1 will be repealed
by Congress. Three radical solutions would remain : completely abandoning  

the law, concluding bilateral agreements (with China in particular if 75% of

the containers arriving in the United States originate from China in 2012),
 Impacts on the International Supply Chain 67

or conversion at all costs on the planned date and, since it will be impossible
for all partners to meet the specifications, setting up nearby port enclaves
with the necessary material and operational conditions which would be an
alternative to the direct import into its territory of non-scanned containers.
Massive investments (more traffic planned at Long Beach in 10 years’ time) in
the Mexican port of Ensenada (a stone’s throw south of San Diego) testify to
this desire to “diversify” the options and therefore the risks. Finally, we have
every reason to believe, in the context of this Scenario, that international or-
ganizations (starting with the WCO) will favour a pragmatic approach by re-
concentrating on what is feasible and operational (SAFE framework of stand-
ards : WCO (2005) ; Kovacs (2008, p. 15), i.e. a targeted risk analysis or even the
   

introduction of a Megaport 2 guideline. The probability of this Scenario is

strongest as things stand. It also leaves the most doors open in policy terms.
The second Scenario, the ‘triadic’ concentration, may be associated with
a fairly strong probability. It would be characterized by the appearance of a
number of advanced ports which have staked their bets on technology and the
logistics reorganization required by the United States (ad hoc terminals). This
limited club of ultra-secure ports combining risk analysis and 100% scanning
(or a similar amount, around 50% for instance) would establish their world
logistics dominance thanks to this positive differentiation which would make
them essential hubs (bringing to mind Head’s “Gravity for Beginners”, 2003). A
“plurilateral approach” would therefore prevail over a “multilateral approach”
(Wilson and Otsuki 2005) at the expense of other world ports, in particular in
developing countries : CSI ports would be able to claim targeted exemptions.
 

Heightened risk analysis, with a direct link with US intelligence services, could
therefore determine in advance the level of scanning required (30%, 50%, or
more) depending on the seriousness of the information intercepted. The ports
would therefore have to increase their scanning capacity (in other words a
higher percentage of containers, even up to 100%) depending on the nature of
the potential threat (system of indicators). International organizations would
only be able to advocate an extension of port certification (less binding), a sin-
gle international framework and multilateral negotiations.
The third and the fourth Scenario, although less probable, cannot be
ruled out entirely. It involves polarization, in other words the appearance
of around fifteen “hub” ports either with terminals dedicated to the United
States (Scenario 3) or without them (Scenario 4 : complete, uniform port
 

reorganization). This asymmetric technical-logistics expertise would of

course be to the advantage of the developed countries and to the detriment
of developing countries, although a few rare network heads could emerge
in South America, South-East Asia and possibly Africa, if only to promote
68 Yann Alix · Frédéric Carluer · Brian Slack

optimization of the world logistics chain and, more or less directly, improve
commercial trade flows (while avoiding too many diversions of traffic and
thus reducing medium-distance cabotage). The framework of international
standards could therefore only be strengthened as it would be considered an
imperative intermediate step to the sought-after certification. Support, even
aid, from international organizations could therefore help some ports which
make colossal efforts to catch up.
There remains the fifth and the sixth Scenarios and the most utopian : net-  

working. It would involve a revolution in both ways of thinking and above

all in logistics which would go hand-in-hand with conversion to the 100%
scanning law of a large proportion of the big world ports with dedicated ter-
minals (Scenario 5) or of all major ports in the world (around 40) (Scenario
6). This multi-actor networked economy (of developed countries and a good
number of the larger developing countries, with four to five multi-modal
platforms per continent) would mean sharing the logistics dominance of the
countries which are today leaders in the maritime security field. The US law
would therefore certainly gain ground, at least at the level of the OECD
(and in the European Union in particular), and would probably become the
new framework of standards internationally. In view of the current scanner
technology and ICT in general, port congestion, the lack of trained imaging
operators, and of course the financial constraints, the likelihood of this sce-
nario occurring remains infinitesimal.
The occurrence of these scenarios is therefore a direct function of techni-
cal-logistics 1 and managerial trends which are described in detail in the next
section.
The scenarios represent a rising scale of the scope of possible scanning im-
plementations. From S1 which presumes the status quo will be retained with
only limited scanning under present rules, to complete adoption (S6). The
actual probabilities of each of the scenarios will be determined by political
choices and technical-logistics factors. In order to put our comments in con-
crete form, we attempted a global assessment through as series of indicators
(mainly qualitative) in Table 3 : political choice, stakeholder lobbying, tech-
 

nological evolution and performance, and also the human and material costs
of port reorganisations associated (most of all to mitigate congestion), not to
mention the impacts of the economic crisis and the massive investments in
large infrastructure programs that have recently been accepted.

1
  For instance, the Americans are to lay down a radioscopic performance standard for
scanners which are currently in use or to be built, and this will thus become the ‘approved’
standard (H.R. 1 law Title V, Section 501A).
 Table 3. Potential macro-economic impacts of the application of the US ‘100% scanning’ law on 1 July 2012
Impacts on
Developed Developing International Validation
Scenarios Logistics chain US policy Probability
countries countries organizations criteria
(ports)
Status quo (strengthening of “First mover Not penalized - Abandoning the - Preferential risk Strong Prohibitive cost
current trends) advantage” of but “avoided” law analysis related to crisis
1 Largely heterogeneous precursors    
- Deferral : 2014 ? - Towards Mega- Inapplicabil-
None practices - Bilateral agree-  
port 2 ? ity and/or
ment (China) abandonment
- Nearby enclaves of the law
‘Triadic’ concentration : Limited club of Marginalized - Time limit grant- - Strengthening Fairly strong Strong techno-
strong hub ports (incentive leaders : positive ed to CSI ports existing provi- logical develop-
2 for transhipments) differentiation of - Targeted exemp- sions ment
Megaports Port terminals dedicated to secure ports tions - Alert mecha- Affordable unit
the US - 50% scanning nism graduated cost.
according to risk
Polarization : “hub” ports Points of passage One or two - Time limit - Strengthening Low Strong lobbying
Port terminals dedicated to required network heads awarded to CSI existing provi- of manufactur-
3
the US ports sions ers & adminis-
Many
Technical-logistics expertise - Targeted exemp- - Communication trators
dedicated
tions Fear climate in
the US
Polarization : “hub” ports Strengthened A few network - Modulated - Support Very low Performant
4 Technical-logistics expertise positions heads application - Communication technologies
Many (cabotage) and port mana-
gement
Impacts on the International Supply Chain

Networking : networked Shared logistics One or two - Modulated - New standards Tiny Innova-
5 economy dominance continental application if EU follows suit tive world
All Port terminals dedicated to platforms megaports and
dedicated the US companies
Organizational innovations US isolationism
Networking : networked Loss of the Several - Strict application - Development of Marginal Attack in a
6 economy competitive ad- continental a new framework mega-port
All Port reorganizations vantage acquired platforms of standards : SFI Reduced unit
Organizational innovations in recent years cost
69
70 Yann Alix · Frédéric Carluer · Brian Slack

3. 2. Technical-logistics developments underlying the potential scenarios

Three key dimensions, understood as “barriers to the success” of this law
(Cirincione 2007, Smyrlis 2007), need to be taken into account to examine
the probability of realizing the above scenarios analyzed.
Firstly, the first key factor is undoubtedly the technological dynamics (by
2012), in other words the technological revolution required at the level of the
scanners themselves, in terms of modularity and performance (throughput
or number of scans which may be carried out in one hour). The introduc-
tion of a fixed machine which may scan up to 200 containers an hour in the
port of Ras Al Khaimah (in the United Arab Emirates) in 2008 (contract with
Nuctech signed on 1 October 2006) shows that this technological leap is pos-
sible.
Secondly, (apart from feeding a stored memory to explain a misdemeanour
ex-post) 100% scanning is of interest in itself only if all scans are interpreted
scrupulously. This raises the question of the competence of the human re-
sources (expertise of imaging operators) and of the interpretation software
at their disposal, combined with an upstream risk analysis. Without a train-
ing policy, covering both initial and continuing training, 100% scanning will
go unheeded or will take the shape of a simple transfer of images to the
United States (transferring the risk and the burden of interpretation to the
National Targeting Center).
Thirdly, massive and strategic investments (extension of dedicated termi-
nal capacities, optimal organization of routes, traceability of containers from
one end of the chain to the other, co-ordination between the actors involved,
etc.) will be essential to ensure fluid traffic flow within the dedicated area
ensuring that the “check lane” is not saturated and the terminal blocked.
More than the technology or the training, the facilitation of the logistics
chain demands a rethink of existing infrastructure in terms of intermodal-
ity and strategic location, requiring a relatively complex port reorganization.
Underlying financial constraints result from the costs of setting up and oper-
ating this managerial transformation, and the many associated investments
in infrastructure required.
It therefore remains to define how these three key factors will interact and,
depending on how they evolve (large or small technological, managerial and
organizational innovations), how they describe and correspond to the sce-
narios discussed above (Table 4).
 Impacts on the International Supply Chain 71

Table 4. Key factors in achieving the potential scenarios.

Productivity of technology
very high identical
of human resources
Investments high identical high identical
infrastructure large S6 S5 S4 S2
(port reorganization
and logistics) small S4 or S3 S3 or S2 S1 S1

Combining these three dimensions produces eight hypothetical cases :  

- the first is the ideal-type case, i.e. coupling the three innovations. Invest-
ment in infrastructure (and the associated port reorganization) thus goes
hand-in-hand with the improved productivity of the machines (throughput)
and human resources (interpretation), and 100% scanning can become a re-
ality for all the world ports which are not prisoners of financial constraints.
This is S6 : Networking of a large number of ports worldwide thanks to the
 

diffusion of technology, convergence towards a framework of standards ac-

cepted by all and a new port organization logic.
- Once the technological leap has been made, four more scenarios may be
envisaged.
+ Firstly, one whereby a large number of ports invest in infrastructure
even if the human resources are not trained in an ideal way (S5 : dedicated  

networking ?). This ensures scanning of all US-bound containers but the risk
 

(problem of interpretation) is transferred to the US.

+ Secondly, the infrastructure investments and appropriate port reorgani-
zation are the preserve of the few (a small number of developed countries)
due to the costs and the complexity of implementing 100% scanning (S2 :  

‘triadic’ concentration). Very disparate port situations emerge with largely

heterogeneous practices within which ports which have been able to invest
in human resources (with US supervision if necessary), operate powerful
machines, with a terminal dedicated to the United States (S3 : dedicated po-
 

larization) or without (S4 : polarization), pull away from the rest.

 

- If the technology does not evolve much between now and 2012 but the
most powerful machines in existence today spread throughout the world,
a large number of countries could envisage 100% scanning provided they
make significant physical and human investments and put these to work on
port reorganization (S3 : dedicated polarization). Unless human resources
 

are made a priority, physical investments will not achieve anything and no SFI
72 Yann Alix · Frédéric Carluer · Brian Slack

certification will be achieved ; hence just a few megaports will emerge from
 

the multitude (S2 : ‘triadic’ concentration).

 

- Finally, it goes without saying that with the same technology and low
investments in infrastructure, gambling on human resources alone will not
allow 100% scanning to be envisaged in any port whatsoever be (S1 : status
 

quo). This will also be true if nothing is done in terms of training (S1), quite
apart from the fact that risk analysis alone would be questionable given the
anticipated explosion in container traffic.

What is the likelihood of the above scenarios occurring ? While not able or
 

willing to vouch for the respective importance of these three factorial dynam-
ics (infrastructure, technology and human resources), which are all looked at
from a qualitative point of view, it would appear that certain scenarios stand
out more than others.
Combined with the latest scientific literature and having regard to the
feedback from experience from the standard questionnaires, scenarios 3 to
6 appear more than unlikely by July 2012. This disparity in reactivity (“time
costs” according to Hummels 2006, p.33) reveals the gaps in performance
(associated with the use of ICT, the expertise of Customs officers, inter-actor
co-ordination (port and Customs authorities above all, but also private ac-
tors), port organization in general) which currently exist between ports in
developing countries and developed countries, with China having made up a
lot of ground since 2004.
There remain scenarios 1 (no port) and 2 (some megaports apply 100%
scanning in 2012). Here again the uncertainties are too great, particularly
at the technological level, and based on the feedback from the experience
of three pilot ports (Southampton, Port Qasim and Puerto Cortes). Unless
there is a major technological revolution which is very sparing in human
resources (which cannot be completely ruled out), the response would there-
fore lie somewhere between scenarios 1 and 2, in other words the appearance
of a few certified megaports through which all US-bound containers would
transit and which would be capable of scanning 50% of them. The world
port dualization (two-tier system ?) 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 polarization will be strengthened if the European
Union goes down the same regulatory route as the US. This new unilateral
framework of standards may however evolve between now and 2012 and be
modified and/or deferred in time, even if the trend would be, as for airports
 Impacts on the International Supply Chain 73

(where it seemed absurd in 1990 to plan 100% scanning by 2000) for 100%
scanning to one day become a reality.
Finally, the crucial problem of the dysfunctions generated by certain na-
tional safety practices and their international impacts should be highlighted
as it must lead to a necessary harmonization of practices, which appears to
translate into a relative reinforcement of security standardization. The key
question remains how to handle alerts and improve operational arrange-
ments and their impacts on traffic flows and blockage of terminal instal-
lations was also mentioned several times. According to UNCTAD and the
professionals, the concern is to avoid disrupting traffic flows in ports, and if
a container is judged suspect, it should be possible to manage this informa-
tion and divert it to a new location where a scan (or even opening of the
container) can confirm what is suspected.

4. Conclusion
Some see the US 100% scanning law as a veiled protectionist measure (Miller
2007, Edmonson 2007, Wilson 2007), others see it as US response to guard
against any world terrorist risks (Richardson 2004). It seems likely to affect
the US logistics chain by ‘allocating’ (Niehaus 2002), or even transferring,
this risk to its partner countries as scanning is required to take place before
loading (WCO 2008, p.13). We demonstrate that the law will fall dispropor-
tionately on China, where estimates of between 50% and 75% of world con-
tainer trade with the US will originate.
If China is to respond to the challenge it will have to invest heavily in
equipment and manpower to enable all the containers to be scanned. They
will probably have to restrict the scanning to few main gateways and assume
some increasing congestion and costs to those ports and terminals. On the
other hand, the scanning process might become an interesting competitive
factor, attracting a large amount of cargo dedicated to the US market. And
finally, this opportunity might be also used by non-Chinese ports like Korean,
Japanese and far away from China, European ports which do not have any
strong sign from the European Union in that matter.
In 1990 it would have seemed absurd to plan for 100% scanning of con-
tainers. Today the question is where (especially in Asia) this will be imple-
mented and at what costs and dislocations to international trade ? However,
 

the economic world crisis and the new US international policy have recently
complicated matters and have confused the issue. That is the mean reason
why Janet Napolitano said few months ago (Inside US Trade 2009) : “I know 

that the Department of Homeland Security is facing a 2012 deadline and that is go-
ing to be difficult to achieve based on what we know today… Whatever the Obama
74 Yann Alix · Frédéric Carluer · Brian Slack

administration and the Congress decide to do regarding container scanning must be

achievable and affordable. It is clearly a critical issue. Whatever we decide to do must
be realistic and sustainable”…

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