Terrorism Threat Makes Port Exposures Risky Business

Some lawmakers, according to Mr. Baker, have attempted to create a national money-making mechanism, such as imposing a fee on each cargo ship docking or each container handled to raise money for port security, "and some ports are already doing just that," he noted.

As a serious stakeholder, the insurance industry naturally has concerns about legislation that amounts to unfunded mandates regarding the entire transportation supply chain.

Peter Scrobe, vice president of the American International Marine Agency in New York, relatively up the block from the former World Trade Center complex, recalled the costs involved in the port shutdowns stemming from the Sept. 11 attacks as well as the West Coast dock workers strike in 2002.

With that in mind, he said that one of the concerns expressed at a Department of Homeland Security Cargo Summit last December was the "potential for overreaction and legislation by the government that might actually threaten the supply chain more so than a terrorist attack."

From an insurance industry perspective, the longer that insured goods remain in the supply chain, the greater the exposure to underwriters, Mr. Scrobe noted.

The events of Sept. 11 transformed the entire complexion of the port security debate. In a nutshell, concerns changed from unauthorized removal of goods from ships and trucks to unauthorized and potentially disastrous entry of lethal materials.

In an effort to enhance measures to prevent terrorist-related materials from entering the country through the portsbut still maintain an efficient flow of commercea public-private joint effort known as the Customs/Trade Partnership, or C-TPAT, was launched in April 2002.

Participating members use sturdy, approved locks and electronic sensors that detect tampering to earn something of a "Good Housekeeping Seal of Approval," which in theory will entitle them to expedited clearance for their goods.

"C-TPAT was a tremendous start and has raised awareness with importers/exporters by helping them and their providers understand the workings of the global supply chain and the effort involved with the entire process," Mr. Scrobe told the U.S. House of Representatives Subcommittee on Crime, Terrorism and Homeland Security, on March 15.

Earlier this year, the U.S. Bureau of Customs and Border Protection promised a "global green lane" in which C-TPAT participants that meet its security requirements would receive preferential treatment, resulting in fewer or no inspections, according to a bulletin from the New York-based law firm of Thacher Proffitt Wood.

While the initiative has enhanced port security and efficiency, its effectiveness in speeding up the movement of goods has been hampered by congestion in the ports, Mr. Scrobe noted.

The congestion will only be worsened if the Bush Administration succeeds in carrying out its budget proposals to seriously underfund several deep-draft dredging projects, according to Kurt Nagle, president of the American Association of Port Authorities in Alexandria, Va.

Mr. Nagle said the Administration in its 2006 budget proposal has called for the elimination of the Port Grant Security Program, as well as its replacement by a Target Infrastructure Program that "would lump grant proposals from ports together with requests from a host of other transportation-related industries."

"While airports receive most of the federal attention and funding for security and terrorism prevention, seaports remain largely underfunded at the federal level," according to Mr. Nagle. "As a result, they must often sacrifice important transportation and economic development initiatives by diverting scarce state and local funds to pay for enhanced security."

Both the private sector and state governments will be partnering with the federal government to provide post-Sept. 11 security needs.

Last spring, the U.S. Transportation Security Administration and Florida lawmakers and transportation officials announced a program in which the TSA would provide a Transportation Worker Identification Credential for those truck drivers, dock workers and others who needed access to state seaports.

TSA official Lolie Kull said at the time that by "pooling our resources and expertise, Florida will be helping TSA take the next step in its effort to implement a national credentialing program for the transportation workforce."

Federal/private sector partnerships include not only the C-TPAT program but also the Container Security Initiative and Operation Safe Commerce, but more can be done in that regard, according to Mr. Scrobe.

"Although there have been discussions on a private sector/government partnership, it has still not become a reality of true sharing, but more of a one-way street," he told the committee.

Terrorism Risks Overshadow Cargo Theft

Federal law fails to include several loss control items sought by insurers

By steven tuckey

While terrorism exposures have certainly raised the stakes for cargo underwriters, it is not as if so-called "Sept. 10th" concerns have suddenly vanished from the insurance industrys radar.

James Craig, president of the New York-based American Institute of Marine Underwritersclose by the former World Trade Center complexsaid in the days prior to Sept. 11, 2001, loss prevention efforts on Capitol Hill centered on traditional underwriting concerns, such as gathering the data necessary to get a true picture of the theft exposure facing the nations ports. In addition, there was an emphasis put on increasing penalties for cargo theft.

"We thought we were doing well, and then all of a sudden, Sept. 11 hit," he said.

Peter Scrobe, vice president of the American International Marine Agency in New York, also up the block from the former World Trade Center, told House Committee members recently that transportation-related industries have been working with Congress to enhance port security for nearly a decade.

However, what ultimately became the Marine Transportation Act of 2002 did not include several key elements that related industries sought in negotiations leading up to passage of the bill.

"During the consideration of the original Crime Bill of 2002, language to address intermodal aspects, enhanced sentencing guidelines, creation of Multi-Jurisdictional Cargo Task Forces and creation of a separate category for cargo crime in the Uniform Crime Reporting System database was unfortunately not ever considered," Mr. Scrobe told the committee.

He said he hoped that Congress would consider such legislation this year.

The intermodal aspect of the legislation is critical. "It is important to note that, with regard to cargo crime, the ports have been less of a problem for theft of containers and trailers," Mr. Scrobe told the panel. "The majority of thefts and hijackings occur during the inland transit phase and usually prior to reaching final destination."

Meanwhile, with the U.S. Supreme Courts Kirby vs. Norfolk Southern Railway decision, it became abundantly clear losses that occurred hundreds of miles from any port would be subject to courts admiralty jurisdiction, along with the defenses that limit an insurers ability to recover losses, according to Christopher Raleigh, a New York City-based maritime attorney. (See related article on page 18.)

Good underwriting will always require good databoth historical and currentyet that has been lacking in the case of cargo theft, stressed both Mr. Scrobe and Mr. Craig.

Without that specific cargo crime category, it was nearly impossible to quantify the problem to any close degree, they contend.

Mr. Scrobe said estimates of international cargo theft are in the $30-to-$50 billion range.

"Although many believe the numbers to be much higher, the lack of a true data system contributes to our inability to properly analyze the magnitude of the problem, which impacts local businesses, jobs and the economy at large, as well as to correctly allocate resources and identify anomalies that may indicate terrorist activity," he told the committee.

"We were being told by law enforcement that maybe 80 percent of these thefts were inside jobs, where somebody would actually notify the thieves of trailers that were going out which contained valuable goods," noted Mr. Craig.

With that figure in mind, underwriters were urging their customers to institute loss control programs that included better screening of employees to try to prevent such thefts, he added.

Reproduced from National Underwriter Edition, April 1, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.