July 22, 2003

The price of maritime security
New maritime security measures will require an initial investment by ship operators of at least $1.3 billion, and will increase annual operating costs by $730 million thereafter, according to estimates in a new OECD report.

However, the added spending is substantially less than the potential cost of a major terror attack, concludes the report, "Security in Maritime Transport: Risk Assessment and Economic Impact." And some of the additional cost may be offset by savings from increased efficiency.

The world's maritime transport system, comprising more than 46,000 vessels and nearly 4,000 ports, is open and flexible--attributes that make it vulnerable to terrorist attacks or misuse, concludes the report. It can be used to conceal weapons, or provide logistical support for terror organizations. Because ship ownership is easily concealed, the system can also serve as a source of funds for terrorists.

Cargo shipping is also crucial to global commerce. More than 80% of world trade is transported by sea.

A large, well coordinated attack could shut down the entire system, as governments implement emergency security measures, says the report. The steps could be drastic, such as the complete closure of ports, or inefficient, such as duplicative and lengthy cargo checks. The cost of such an attack on the U.S. could run as high as $58 billion, according to a simulation by the Conference Board and consultant Booz Allen Hamilton Inc.

Against this backdrop, governments have stepped up security in the maritime transport network, for example by requiring ship and port security plans, as well as alarm systems for most vessels. Most of the measures become effective in July 2004. Additionally, the United States has also developed its own set of maritime security measures, ranging from advance notification of cargo contents for U.S.-bound ships, to pre-screening of high risk cargoes in the port where they are loaded.

To comply with the new rules, ship operators will need to install security equipment and add staff at an estimated cost of at least $1.3 billion. The new equipment and manpower will also increase operating costs by an estimated $730 million every year. Seaports will need to upgrade security as well, however accurately projecting the cost is more difficult.

These costs may be partly offset by greater efficiency, says the report, as new security measures could have positive side-effects, such as reducing theft, shortening delays and lowering insurance costs.

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