GENEVA — The economies of most major nations are becoming ever more dependent on the fast and free flow of goods. Yet trade remains vulnerable to terrorist attacks on major ports or shipping systems, which could cost the U.S. and world economy tens of billions of dollars in losses, according to private and public sector experts.

This story first appeared in the November 18, 2003 issue of WWD. Subscribe Today.

Following the Sept. 11, 2001 attacks, transportation experts began to warn that the millions of cargo containers traveling between world ports could be easily used to smuggle weapons of mass destruction. They have sketched out fears of a possible nightmarish scenario in which a report that such a weapon was headed to an unspecified U.S. port could lead to a shutdown of all ports, bringing billions of dollars in trade to a grinding halt.

Security experts have said the just-in-time distribution model that many U.S. companies rely on, coupled with an extensive use of imported goods, means that the closure of any or all major U.S. ports for a significant period of time could bring commerce to a grinding halt.

Sten Bertelsen, vice president, trade assurance, at SGS group, a Swiss verification, testing and certification services firm, said the world economy has become critically dependent on how quickly and cost-efficiently goods move across the globe, especially as companies continue to adopt lean manufacturing, quick response and make-to-order strategies.

The SGS official cited a World Bank study that found the welfare of the world economy declined by $75 billion a year for every 1 percent increase in the costs of trade from programs to tighten border security.

Another study concluded that every day spent in customs adds nearly 1 percent to the cost of goods, he said.

A senior U.S. official who spoke on condition of anonymity said that a national U.S. risk assessment would not be completed before 2005.

According to U.S. Congressional estimates, the U.S. relies on ocean transport for “95 percent of cargo tonnage that moves in and out of the country.”

In September, Admiral Thomas Collins of the Coast Guard, part of the Department of Homeland Security, told a Senate hearing on transport security that his agency has “completed port security assessments at 13 of the 55 most significant military and economic ports in the U.S. and will complete the assessments of all 55 ports by the end of calendar year 2004.”

At the same hearings, U.S. Customs Commissioner Robert Bonner said sea-container inspections have increased from 2 percent prior to 2001 to 5.2 percent of the estimated 7 million that arrive in the U.S. each year.

Bonner said it would be counterproductive and “damaging to the U.S. economy to inspect 100 percent of the sea containers or the 11 million trucks that arrive in the U.S. each year.”

Instead, he emphasized, “we must use some risk-management techniques to identify and screen the relatively few high-risk shipments out of the virtually millions of virtually no-risk shipments.”

Collins said: “A terrorist incident against our maritime transportation system would have a devastating and long-lasting impact on global shipping, international trade and the world economy.”

He noted that as part of a recent port security training exercise, the government ran a simulation showing that a maritime terrorist act would “cost up to $58 billion in economic loss to the U.S.”

According to a U.N. study, that simulation assumed that all U.S. ports were closed for eight days, and that it took three months to clear out the resulting cargo backlog.

A recent study by the Rand Corp. on the issue of cargo security said it “is clearly an accident waiting to happen.”

The Rand study said one of the challenges is that a cargo container changes many hands, causing multiple parties to be responsible for the same container.

“The real origin of the container can be hidden from officials at the destination, helped by corrupt officials at intermediate ports who are willing to falsify documentation,” the study said.

Claude Mandil, chief of the 30-nation International Energy Agency, which includes the U.S., said energy transport is the weak link in the heightened post-Sept. 11 attacks security setting, and has become a more important and strategic concern.

“What is unthinkable now needs to be thought,” Mandil told a forum hosted by the Geneva Center for Security Policy.

Energy transport, the IEA executive director said, is susceptible to natural and planned disasters.

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