The Terrorist Threat in Cargo Containers

Two years ago, South Korea's busiest port installed a $3.5 million scanner to check U.S.-bound shipping containers for nuclear weapons. The machine sits idle, however, because truckers won't drive through it. They're afraid of radiation exposure. That means about 1.9 million containers left Busan for American ports last year without U.S.-mandated screening. Singapore and Hong Kong, the world's busiest and third-busiest ports, also don't participate. Fewer than 1 percent of the 14.5 million cargo boxes reaching the U.S. by water are scanned abroad for terrorist threats, the U.S. government says. "The system remains very vulnerable," says Stephen Flynn, president of the Center for National Policy, which studies security. "If I were an adversary who wants to cause mass destruction to the global economy, this is the system to target."

Although the security of air cargo has grabbed headlines in the wake of the discovery in late October that terrorists in Yemen had planted explosives in packages destined for Chicago, 90 percent of cargo is carried by sea. About 14.5 million loaded twenty-foot equivalent containers reached the U.S. last year, says the U.S. Army Corps of Engineers. Homeland Security Secretary Janet Napolitano says high costs and technology challenges mean a July 1, 2012, deadline for inspection of 100 percent of cargo from overseas will be pushed back at least two years. The Secure Freight Initiative requires the U.S. to buy scanners and install them after reaching agreements with host countries. It did not specify who will pay the full cost.

That's one reason the mandate is opposed by the Retail Industry Leaders Assn. (RILA), whose members include Apple (AAPL), Costco Wholesale (COST), Home Depot (HD), Nike (NKE), Target (TGT), and Wal-Mart Stores (WMT). RILA supports current programs requiring shippers to send cargo manifests to Homeland Security 24 hours before a container leaves a foreign port, says Kelly Kolb, the group's vice-president for supply chain policy. "It's not effective or feasible to scan every container that meets our shore," she says. Napolitano told a Senate panel in December it would cost $16.8 billion to deploy scanners in all ports. Customs so far has spent $61 million.

"Most observers have serious doubts about whether that will ever be implemented," says Ron Widdows, chief executive officer of Singapore-based Neptune Orient Lines, owner of Asia's second-largest container company by capacity. It would cost 10 percent more to ship goods from Europe to the U.S. if the mandate were instituted, according to a European Commission staff report. European countries would spend €430 million ($595 million) initially to comply and €200 million annually after that, according to the document. Says Kurt Nagle, president of the American Association of Port Authorities: "It could actually bring the flow [of trade] to a screeching halt."

The bottom line: Despite a requirement that all cargo containers be scanned for terrorist threats before entering the U.S. by 2012, less than 1 percent are.

    Before it's here, it's on the Bloomberg Terminal.