Oz forwarders warn of ill-conceived security plan

With less than a year to go, Australia’s impending air cargo security regime still faces substantial opposition and much uncertainty, not least amongst the government department responsible for it. The new security regime is targeted for implementation by July 2014 and will have major ramifications for not simply air cargo supply chain players, but the entire Australian export community. Australian forwarders say the plan is ill-conceived and will seriously impede the flow of commerce and trade. By Donald Urquhart.


Oz forwarders warn of ill-conceived security plan


The plan, put forward by Australia’s Office of Transport Security (OTS) along with the Department of Infrastructure and Transport (DIT), is to have a three tier security scheme. The first tier will see a Regulated Shipper Scheme implemented where cargo belonging to registered shippers will not require any security screening from the point cargo leaves their warehouse to the time it’s loaded on the aircraft. The second tier will involve cargo not originating from a known shipper being sent to a freight forwarder for security clearance either by X-ray and/or explosive trace detection. The third tier will see cargo going straight to the cargo terminal operator (CTO) for screening.

The current system in Australia involves a mix of measures including holding cargo at a freight forwarders warehouse for 24-hours, hand screening if it does not come from a known shipper and random screening of all cargo at the CTO prior to aircraft loading.

The proposed system on the other hand, “will slow down the movement of exports by air, which will have a detrimental effect on export sales,” warns Paul Golland, chairman of the Australian Federation of International Forwarders (AFIF), who along with their counterparts at the Customs Brokers and Freight Forwarders Federation of New Zealand (CBAFF), as well as CTOs, have all made submissions on the government proposal.

The proposed regime represents an “impediment to business, both those engaged in air cargo security and those businesses seeking to export cargo by air,” he said. “The additional time and expense required to export air cargo will jeopardise supply chains and key export markets, such as the high value agricultural export sector.”

“Our view is that very few of the exporters will become regulated shippers,” says Golland pointing to the example of the UK where there are nearly 65,000 exporters, of which barely one per cent are regulated shippers. “Our argument is that most of the people who sell EXW (Ex Works) or FOB (Free On Board) will not want the costs of becoming a regulated shipper,” he says.

At this point it’s also not clear what the process to be ‘regulated’ will entail, although based on other jurisdictions it will likely involve a validation and audit system including physical premises and employee checks. The DIT confirmed in a recent meeting with forwarders that they estimate the fee for validation would be up to A$2,000 (US$1,790), but added it would ultimately be market driven.

 

Security weakness

Golland notes that the problem with such a regulated shipping scheme is that no further security checks are conducted on this cargo between the point it leaves the exporter’s warehouse and is loaded on the aircraft.

This for the AFIF is the weak point of the Regulated Shipper scheme and in their submission expressed their view that at present a terrorist does not know what cargo will have additional screening done which is not the case under the Regulated Shipper Scheme. As such the AFIF members felt it is a weaker security system.

“Our understanding from talking to the CTOs is that they may not accept that and the airlines may not either. We are still trying to ascertain from the airlines exactly what their position is. So at present the airlines may still want the cargo to be examined by the CTOs, so the Regulated Shipper Scheme (RSS) potentially becomes pointless and an additional cost.”

And if the cargo emanates from a shipper not under the regulated shipper scheme, the next level will see the cargo going to freight forwarders. And most freight forwarders, aside from a handful of very large forwarders, cannot afford to invest in an X-ray machine.

He notes in some cases it may make sense for forwarders to invest in screening equipment, pointing markets like Hong Kong, Singapore, London or Frankfurt for instance. “These gateways have one airport and everyone feeds into that airport and therefore all the freight goes out of that one place. They also have a much bigger export market than we do – we’ve got three per cent of the world’s exports so it’s not major.” He gives the example of the UK where for example, the vast majority of air cargo exports go out of London Heathrow. There the cost of screening is around 15-16 cents a kilo but is feasible because of the volumes which give economy of scale.

“A machine to X-ray a freight forwarding or euro pallet, you’re talking about $250,000 dollars and Australia is different because it has seven export ports whereas most countries in Europe, Hong Kong, or Singapore, it’s one port. So if you’re a freight forwarder in Australia and you’ve got operations in Sydney, Melbourne, Brisbane are you going to put three machines in at $750,000 in total? You won’t do it. What you’ll do is just lob it to the airline.”

The other issue he highlights is the fact that nearly 35 per cent of Australian exports go to New Zealand and they all go palletised. As the forwarders build the pallets, if they don’t have an X-ray machine that freight would have to be screened at the airport and the CTO is likely not going to build the pallet as well as the forwarder because the CTO doesn’t have the same incentive to maximise the density of the pallet like the forwarder does.

 

Hurting competitiveness

But the next problem that Golland raises is the fact the CTOs say they don’t have the space, time or manpower to carry out the added volume of screening this would generate. And of course there is the issue of cost. “The CTOs have been talking about a range of around 14-20 cents a kilo for screening and if you look at the fact that the rate for 1,000 kilos into somewhere like Bangkok, or Hong Kong is only 40-50 cents, that’s a huge increase to what we have now.”

The forwarders, Golland says, believe it will push up the costs for Australian exporters and potentially put some freight forwarders out of business. “It’s really a big concern as it will be inefficient for the industry because the unit builds won’t be as efficient as we can do and basically the costs that will be incurred will be so high that it will make Australian exports uncompetitive. At some point buyers will say, ‘do I buy from Australia, or do I buy from Korea or somewhere else?’.

Two other key problems also linger in the background – transhipment cargo and perishables. “There is also no understanding on the part of the OTS and DIT as to how to deal with transhipment cargo,” Golland says. “If a shipment comes from London and its going to New Zealand and it’s an unknown shipper, who’s going to pay? Nobody knows. And perishables, nobody knows.”

“The government doesn’t really understand how the industry works. Their idea to examine perishables was to use a metal detector and we said to them, everything gets loaded into a ULD which is made of metal, so all of sudden there was a realisation of ‘maybe we should rethink it’.”

The solution, Golland admits, is not obvious. “The system right now is not great, but it works so should we be looking to build on it. The industry is all in favour of security and the system we have at the moment works, the problem is we don’t believe the OTS understands the industry.”