Editorial: Security Is Not The Only Issue With Container Handling

Rand Corporation says the U.S. government should take a stronger role in developing a strategy to prepare the container shipping industry for terrorist attacks and to help the industry recover quickly if attacks occur (WJ, December 13, 2004).

This advice was contained in Rand's recent report, Evaluating the Security of the Global Containerized Supply Chain, copies of which are available from Rand's distribution services, 877, 584-8642, or via e-mail at order@rand.org. The ISBN is 0-8330-3715-3.

Rand's advice makes sense. Ever since September 11, 2001, we have heard frequent complaints about inadequate security measures involving ports, incoming ships and millions of containers that reach our shores. As could be expected the report dealt with making containers more secure.

But there is another major issue at hand. Because of the failure of the U.S. Customs Bureau to track shipments coming into our country, many of which come in under falsified entry documents, our country loses countless millions in duties. According to Lou Dobbs, writing in Exporting America, "It's not known how much is lost in tariff revenue from this kind of fraud and smuggling, but one case provides some stunning insight." He describes how Long Beach, Calif., stopped and inspected 5,000 containers. Customs agents found illegal merchandise, he said. "The exporter was trying to avoid paying $65 million in duties."

Some $750 billion worth of goods comes into the United States each year, reports Dobbs. (The Rand report says the container industry moves more than $500 billion of goods a year.) It is alarming that not one of the top international shipping companies is American-owned.

Further, according to the book, "These foreign ships are arriving in American port terminals that are increasingly under the control of foreign countries. An estimated 50 percent of East Coast terminals and 30 percent of West Coast terminals are leased and operated by foreign companies—not by U.S. businesses." Remember how much criticism the government received when it agreed to give up control of the Panama Canal? Now foreign countries are operating our terminals. How well would this go over during a time of a much expanded world military conflict?

There is no doubt that to develop an adequate, efficient method of monitoring all of those containers (if that is even possible) is a Herculean task. We reported recently that dozens and dozens of incoming ships were backed up off the California Coast due to problems not related to security. We're told a ship can carry 9,400 containers. If we extrapolate those figures, we get a glimpse of the size of our problem.

Unfortunately, while we are spending billions trying to develop good homeland security, we are losing millions (perhaps even billions) due to sloppy monitoring of incoming containers. We have reported in the past that the General Accountability Office (GAO) says water transportation brings $17 billion annually into the U.S. coffers. How much would that $17 billion increase if we were monitoring ships and containers properly?

We have all heard of how U.S. textile mills are closing, while clothing production is being outsourced. According to Dobbs, 96 percent of all clothing production is done outside our borders. One has only to check labels at various stores to know this is probably true. Here is one example of how fraud is committed. According to Exporting America, "less than one-tenth of one percent of the three million textile shipments that come into this country every year are inspected."

Because foreign textile manufacturers know they are unlikely to get caught, they label clothing, for example, to say that it was made in Honduras, when it actually may have come from China. Then it's shipped to the United States using falsified entry documents. The GAO has confirmed that "the lack of inspection at our borders results in the frequent smuggling of garments past U.S. Customs."

Because Customs allows goods to pass through the United States on their way to other countries free of charge and free from quota restrictions, another opportunity for abuse exists. The U.S. never tracks these shipments to see that they actually leave the country. Many of them do not.

China is considered the seventh largest economy in the world, after (in descending order) the United States, Japan, Germany, France, United Kingdom and Italy. The U.S. economy is $11 trillion, larger than the next five countries combined. The U.S., in 2003, ran a goods deficit with China of almost $124 billion. According to the Economic Policy Institute, "99 percent of our trade deficit comes from goods we now buy overseas because we no longer make them here." The bulk of these products come into the U.S. by ship.

No doubt security issues take precedence when it comes to container shipping. But if we are going to try to fix the system, why not, at the same time, close up some of the loopholes that allow for fraud that is bilking our country of millions (perhaps billions) of dollars?

The sloppy monitoring of ship and container traffic by Customs is no secret. It is obvious that Uncle Sam is not guarding the store.

We may still be reeling from the September 11 attacks, but the inadequate job of monitoring of containers and other ship traffic is a problem that has been around a long time. It is coming to light more and more now that security against terrorists is part of the scenario. Congress should demand a fix.

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