One-Hundred Percent Scanning of Port Containers:
The Impact on Maritime Transport Chains
Wayne K. Talley
Executive Director, Maritime Institute
Frederick W. Beazley Professor of Economics
Old Dominion University
Norfolk, Virginia, 23529 U.S.A.
Ph: 757-683-3534
Fax: 757-683-5639
Abstract
In July 2007 the U.S. Congress passed the Implementing Recommendations of the 9/11
Commission Act that requires one-hundred percent scanning of U.S. bound containers at their last foreign ports by the year 2012.
This paper investigates the impact of the implementation of this scanning on maritime transport chains via analytical models that consists of such chains over which U.S. bound containers are shipped. The general conclusion is that if scanning economies of scale exist, the one-hundred percent scanning legislation will have a positive impact (in terms of increased container throughput of U.S. bound containers) on foreign transshipment container ports that are the last ports of call for U.S. bound containers.
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1. Introduction
Maritime transport chains are networks over which seaborne international trade is transported. Ports are nodes in these networks. Maritime transport chains are susceptible to terrorist attacks, since disruptions in the flow of cargo over these chains can have significant negative impacts on international trade, and thus the global economy.
The need for security of international shipping operations was formally recognized by the international maritime community in 1985 when the cruise vessel, the Achille Lauro, was hijacked (Bichou, 2008). As a consequence, the International Maritime Organization
(IMO) produced guidelines to protect maritime transport chains from terrorist attacks.
Following the September 11, 2001 attacks on the World Trade Center buildings (that were owned by the Port Authority of New York/New Jersey), it became clear that U.S. ports were at risk for terrorist attacks (Pinto, Rabadi and Talley, 2008). In response to the concern for further terrorists attacks, the U.S. Congress passed several acts (to be discussed below) to protect U.S. ports from terrorist attacks. Also, the U.S. government has sponsored a number of voluntary and involuntary international port security programs. In addition to the U.S., port security programs have been developed in the EU
(Pallis and Vaggelas, 2008) and Asia (Ng and Gujar, 2008).
In July 2007 the U.S. Congress passed the Implementing Recommendations of the
9/11 Commission Act that requires one-hundred percent scanning of U.S. bound containers at their last foreign ports of call by the year 2012. The purpose of this paper is to investigate the impact of the implementation of this Act on maritime transport chains.
For example, will shipping lines and shippers switch from direct-service to transshipment maritime transport chains or conversely in the transportation of containerized cargo? Or will the implementation of the Act not disturb the status quo of maritime transport chains utilized by shipping lines and shippers in the transportation of containerized cargo?
The next section of this paper provides an overview of U.S. port security legislation.
This section is followed by a discussion of the 9/11 Commission Act that requires the
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implementation of one-hundred percent scanning of U.S. bound containers at their last foreign ports of call by the year 2012. Then, issues that may arise in implementing the
Act and the types of scanners that may be used and their costs are presented. In the following section, analytical models are presented that describe the selection processes of shipping lines and shippers in choosing maritime transport chains. These models are used to investigate the impact of the one-hundred percent scanning legislation on maritime transport chains. In the final section, conclusions are presented.
2. U.S. Port Security Legislation
On November 19, 2001 the U.S. Congress passed the Aviation and Transportation
Security Act that established the Transportation Security Administration (TSA). The
TSA’s port security program seeks to improve the access control to U.S. ports by utilizing access-control measures such as alarm systems, perimeter fencing, employee background checks, security patrols, terminal lighting, closed circuit television systems and port access/egress controls on trucks and rail cars.
On November 25, 2002 the U.S. Maritime Transportation Security Act (MTSA) was signed into law, seeking to prevent security incidents in the maritime supply chain. The
Act also incorporated the international security requirements found in the International
Ship and Port Security (ISPS) Code that was ratified earlier in 2002 by the IMO. The
ISPS Code is a risk management code for securing ships and ports.
The U.S. Department of Homeland Security (DHS) is the U.S. that is responsible for providing federal funding for the security of ports and other transportation infrastructures as well as for establishing security standards and strategies. The U.S. Coast Guard deploys Coast Guard personnel, i.e., Sea Marshalls, aboard certain ships entering and
3

leaving ports and establishes port security zones around ships and high-risk port facilities to prevent sabotage or other subversive acts.
The DSH has also established voluntary international security programs that are designed to provide point-of-origin to final destination visibility and control over containerized freight movements. These programs include the: 1) Container Security
Initiative (CSI), in which the U.S. Bureau of Customs and Border Protection (CBP) works with foreign ports to identify potentially dangerous shipments before they arrive in the U.S. and 2) Customs-Trade Partnership Against Terrorism (C-TPAT), through which
CBP provides streamlined clearance of cargo to shippers that establish appropriate security procedures. The CSI is a bilateral agreement between the U.S. and a foreign port, whereby the foreign port is to identify high risk containerized cargo and work with deployed CBP officers (at the foreign port) to target such cargo. Under CSI, foreign ports are asked to pre-screen containers (for dangerous cargo) before they are loaded onto U.S. bound ships.
C-TPAT is a joint government-business initiative to build cooperative security relationships. Businesses seeking to become C-TPAT companies are required to: 1) conduct a self-assessment of their security practices, 2) submit a security profile of their international business practices to the CBP, 3) develop a security plan that incorporates
C-TPAT guidelines and 4) work towards the promotion of C-TPAT guidelines with other global firms (Thibault, Brooks, and Button, 2006). The primary benefit of C-TPAT to C-
TPAT companies is the accelerated customs clearances of their shipments at U.S. ports.
The 24-Hour Advance Manifest Rule (24-hour rule), an involuntary program, requires container shipping lines to provide information electronically to the CBP about
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container cargo on board their ships at foreign ports, but destined for U.S. ports for their next ports of call, at least 24 hours prior to the departure of these ships from foreign ports. The submitted information allows for the pre-screening and targeting of suspected containers.
A DHS rule that is similar to the 24-hour rule but relates to ships rather to cargo is the 96-hour rule that requires that all ships that are to call at U.S. ports to provide the U.S. government with a 96-hour advance notice of arrival. This rule provides the U.S. government with the opportunity to target particular ships for which it has security concerns.
On October 13, 2006 President Bush signed into law the Security and Accountability for Every (SAFE) Port Act. This Act seeks to strengthen port security by establishing technology initiatives and better data-collection programs. One of the Act’s more important technology initiatives is the implementation of the Transportation Worker
Identification Credential (TWIC) program that requires back-ground security checks and biometric-based credentials for all workers working in or around U.S. ports. A person’s
TWIC credential will ensure that this authorized person will have access to the port.
Implementation phases of the program include: 1) TWIC applications, background checks and issuance phase and 2) reassessing the TWIC card and reader technology, installation and use issues phase.
The SAFE Port Act also requires improvements in the U.S. automatic targeting system program that collects and analyzes container cargo data for the targeting of high-risk cargo. Specifically, the data gathered on U.S. bound containers at foreign ports will be encrypted and transmitted in near real time to the CBP’s National Target Center. These
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data are to be combined with other data, such as manifest submissions, to improve the risk scoring for targeting high-risk containers. Participating governments will have immediate access to all data that are used to label containers as high-risk. If a container is labeled as a high-risk container at a foreign port, the foreign government may be asked to inspect the container’s contents and/or shipping lines will be instructed not to load the container until the risk is fully resolved.
The SAFE Port Act also instructed the DHS to establish a pilot program – known as the Secure Freight Initiative (SFI) – to test the feasibility of one-hundred percent screening of U.S. bound containers. That is to say, containers at participating foreign ports and destined for U.S. ports are to be one-hundred percent scanned with both nonintrusive radiographic imaging and passive radiation detection equipment located at the foreign port’s terminal-arrival gates.
In 2007 the ports of Singapore, Puerto Cortes (Honduras), Southampton (UK), Salalah
(Oman), Qasim (Pakistan), Busan (Korea) and Hong Kong agreed to participate in the
DHS pilot overseas scanning program by conducting one-hundred percent scanning of
U.S. bound containers for nuclear or radiological materials. Data gathered from container scanning would be transmitted in near real time to the U.S.’s National Targeting Center, where it would be analyzed to determine whether the containers contained radioactive material. The results of the overseas scanning pilot program would also be used to evaluate the effectiveness of radiation scanning technologies for one-hundred percent radiation scanning of all shipping containers that enter the U.S. by the end of 2008. The findings at the three one-hundred percent scanning pilot programs at ports in Honduras,
Pakistan and the United Kingdom indicate that the program is possible on a limited scale
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in low-volume container ports but would be difficult to implement in ports handling transshipment containers (Staff, 2008).
3. One Hundred-Percent Scanning of U.S. Bound Containers
Rather than waiting for the results of the DHS pilot overseas scanning program, the U.S.
Congress in July 2007 revised the SAFE Port Act provision on one-hundred percent scanning by passing the Implementing Recommendations of the 9/11 Commission Act that requires one-hundred percent scanning of U.S. bound containers at their last foreign ports of call before entry into the U.S. by the year 2012. Possible DHS certified exceptions for one-hundred percent scanning at foreign ports include: 1) scanning equipment is not available, 2) scanning equipment cannot be integrated with existing systems, 3) a port does not have the physical conditions for which scanning equipment can be installed and 4) the use of scanning equipment at the port will significantly negatively impact international trade flow.
3.1 Implementation Issues
There are a number of implementation issues with respect to the one-hundred percent scanning of U.S. bound containers at their last foreign ports of call. First, the scanning program would result in an increased amount of scanned data and therefore a greater number of qualified CBP employees would be needed to review and analyze such data.
Second, because of sovereignty constraints, the CBP cannot require a foreign port to use specific scanning equipment or follow prescribed scanning practices, thereby bringing into question of the reliability of scanned results. Third, measuring the performance of
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the scanning program will be difficult, since the CBP will lack the necessary information to determine whether the 9/11 Commission Act program has prevented or deterred terrorist activity. Fourth, the 9/11 Commission Act does not specify who will bear the cost and who will be responsible for operating and maintaining the equipment used in the one-hundred percent scanning of U.S. bound containers at foreign ports. Fifth, there is no guarantee that a container that has been scanned will be unlocked during its trip to the
U.S., therefore invalidating its security certification.
Sixth, the logistical feasibility of one-hundred percent scanning may vary by foreign port. For example, some foreign ports may: 1) be highly congested, 2) lack space to install scanning equipment and 3) have a relatively large percent of transshipment containers. Containers that arrive at a foreign port and then placed in storage prior to their departure from the port are generally easier to scan from a time perspective.
Alternatively, transshipment containers that are unloaded from an arriving vessel and then loaded on a departing vessel have a relatively small time window in which to be scanned. In order to scan transshipment containers, scanning equipment would have to be placed in a port’s container movement stream, i.e., in the stream where containers are moved from one vessel to another.
Seventh, a number of technology compatibility issues may arise at a foreign port such as: 1) mechanical breakdowns of scanning equipment related to the environment, 2) inadequate infrastructure for the electronic transmission of information and 3) problems in integrating different generations of scanning equipment. Radiation scanners, in particular, are subject to reading false positives (Staff, 2008). Eighth, a country’s legal restrictions may restrict it from sharing scanned information with other countries and its
8

agencies. If so, new international agreements may be required for the transfer of scanned information to the CBP. The one-hundred percent scanning legislation may also be in violation of U.S. international trade obligations (Government Accountability Office,
2007).
Ninth, foreign-port countries note that one-hundred percent scanning: 1) is inconsistent with the widely accepted risk management principle that has been used in developing container-security policies, 2) may divert scarce resources away from other areas in the security of the supply chain that present more significant security threats and
3) may be a disincentive for foreign-port countries to adopt risk-based security initiatives
(Government Accountability Office, 2008). Tenth, the one-hundred percent scanning requirement may result in reciprocity of port scanning by foreign countries, i.e., foreign governments may require the U.S. to scan export container to their countries (Edmonson,
2008). If so, one-hundred percent scanning could be viewed as a nontariff trade barrier between the U.S. and foreign-port countries.
3.2 Scanners and Costs
There are basically two types of scanners – the moveable gantry scanner and the passthrough scanner (Carluer, 2008). The former is less mobile than the latter but provides better imaging. The pass-through scanner can scan over 100 trucks per hour and utilizes less space. The cost per TEU (twenty-foot equivalent unit) scanned (i.e., unit cost) by these two types of scanners will vary with the volume of containers that are scanned at a port. The cost per TEU scanned for both types of scanners declines continuously until a volume of 140,000 TEUs is reached at a unit cost of $US20; for less than 100,000
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containers the unit cost for the moveable gantry scanner is slightly less. Beyond a scanned volume of 140,000 TEUs, the unit cost for the pass-through scanner continues to decline while that for the moveable gantry scanner begins to rise. Hence, the passthrough scanner exhibits scanning economies of scale beyond a volume of 140,000
TEUs, while the moveable gantry scanner exhibits scanning economies of scale until a volume of 140,000 TEUs is reached (Carluer, 2008).
The maritime scanning industry includes manufacturers of scanning equipment and scanning service providers. In the short-term, the world-wide price of maritime scanning equipment would be expected to rise following the implementation of the one-hundred percent scanning legislation. That is to say, the increase in the demand for maritime scanners is expected to result in higher prices for maritime scanning equipment. Also in the short-term, the increase in the demand for scanning support services, given the relatively small number of international suppliers of scanning support services, is expected to result in higher prices for scanning support services. The higher prices will reflect the increase in costs for scanning training and for additional customs staff to operate the scanners. Thousands of customs staff will have to be deployed around the world and be competent in knowing the security standards for U.S. bound containers.
4. Maritime Transport Chains
The one-hundred percent scanning of U.S. bound containers may disrupt the movement of these containers and the maritime transport chains over which they move. Bilateral trade flows and access to U.S. markets may be affected. This access would vary among countries throughout the world (Davies and Weinstein, 2003). Both physical and information flows over maritime chains may be affected. In 2006 China (including Hong
10

Kong) accounted for 50 percent of all containers bound for the U.S., followed by Japan with approximately 5 percent (Carluer, 2008). Hence, China is likely to be more affected by the U.S. one-hundred percent scanning legislation than any other country. Since U.S. bound containers from China generally enter the U.S. via U.S. West Coast ports, the
Pacific maritime transport chains (and their key Asian and U.S. West Coast ports) are likely to be impacted more from the one-hundred percent scanning legislation than U.S.
East Coast ports and Atlantic maritime transport chains.
The one-hundred percent scanning legislation will increase the maritime logistics costs of U.S. bound containers from China. Chinese debarkation ports for U.S. bound containers may also be affected, e.g., the share of U.S. bound container at some Chinese ports may increase, while other Chinese ports may experience a decrease in their share.
Those Chinese ports that experience a significant increase in their share of U.S. bound containers may also experience (as a consequence) an increase in port congestion.
Ports that are the last foreign ports of call for U.S. bound containers will experience greater costs in handling containers – attributable to the higher cost of handling U.S. bound containers. Container shipping lines transporting U.S. bound containers may initially bear this cost, but are expected to shift this cost forward (at least partially) to shippers of U.S. bound containers. The costs that are not shifted forward to shippers may be borne, for example, by shipping lines, foreign ports, and foreign customs and taxpayers (Staff, 2008).
If implemented, the one-hundred percent scanning legislation may impact more than
700 ports worldwide (Government Accountability Office, 2008). Also, the legislation will place an additional burden (e.g., the cost of acquiring scanning equipment and
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constructing the necessary port infrastructure for the operation of scanning equipment) on developing countries and their ports and may lead to a diversion of containers from smaller to hub container ports (Carluer, 2008).
The operations at and performance of foreign ports where U.S. bound containers are scanned are likely be affected by the one-hundred percent scanning legislation. In addition to congestion, these ports may experience on-site container-storage space shortages that require the use of off-site storage areas for scanning that could be several miles from the port (Government Accountability Office, 2008). If scanning interferes with other operations of a port, the port’s performance will likely be negatively affected.
4.1 Maritime Transport Chains: Shipping Line Selection
In order to gain insight into how the one-hundred percent scanning of U.S. bound containers at their last foreign ports of call may affect the maritime transport chains selected by container shipping lines, suppose there are two foreign ports D and E on the same coast (e.g., the coast of China) and one U.S. port (e.g., the Port of Los Angeles on the U.S. West Coast), known heretofore as port US. These three ports present a container shipping line with four possible maritime transport chains (or networks) for transporting
U.S. bound containers from ports D and E to port US: 1) chain DUS, where there is direct transport service from port D to port US, 2) chain EUS, where there is direct transport service from port E to port US, 3) chain DEUS, where U.S. bound cargo at port D is transshipped on a feeder containership to transshipment port E and combined with U.S. bound cargo at port E for transport to port US, and 4) chain EDUS, where U.S. bound cargo at port E is transshipped on a feeder containership to transshipment port D and
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combined with U.S. bound cargo at port D for transport to port US. For the sake of simplicity, the chain EDUS is not considered in the following discussion. However, the results of this paper are not affected by this omission.
Assume that a container shipping line seeks to maximize profits. The line’s profit for chain DUS (Π
DUS
) may be expressed as:
Π
DUS
= TR
D
DUS
- C
D
DUS
(1)
Where, the first term to the right of the equality sign represents the revenue received by the line in transporting containers that originate at port D from port D to port US and the second term to the right of the equality sign represents the cost incurred by the line in transporting containers that originate at port D from port D to port US. Note that:
TR
D
DUS
= P
D
DUS
* Q
D
DUS
(1a)
Where, P D
DUS is the freight rate per container charged by the line for containers that originate at port D and are transported by the line over chain DUS and Q
D
DUS
is the number of containers that originate at port D and are transported by the line over the chain DUS. The cost C
D
DUS is defined as:
C
D
DUS
= C
D
(Q
D
DUS
) + C
DUS
(Q
D
DUS
) + C
US
(Q
D
DUS
) (1b)
Where, the first term to the right of the equality sign represents the cost incurred by the line at port D for Q
D
DUS
containers, the second term represents the costs incurred by the line in transporting Q
D
DUS
containers over chain DUS and the third term represents the cost incurred by the line at port US for Q
D
DUS
containers.
Similarly, the line’s profits for chain EUS may be expressed as:
Π
EUS
= TR E
EUS
- C E
EUS
(2)
Where, TR
E
EUS
= P
E
EUS
* Q
E
EUS
(2a)
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C
E
EUS
= C
E
(Q
E
EUS
) + C
EUS
(Q
E
EUS
) + C
US
(Q
E
EUS
) (2b)
The line’s profits for chain DEUS may be expressed as:
Π
DEUS
= TR
D
DEUS
+ TR
E
DEUS
– C
D,E
DEUS
(3)
Where, TR
D
DEUS
represents revenue received by the line in transporting containers that originate at port D over the chain DEUS, TR
E
DEUS
represents revenue received by the line in transporting containers that originate at port E over the chain DEUS, and C
D,E
DEUS represents the cost incurred by the line in transporting containers that originate at ports D and E over the chain DEUS. Note that:
TR
D
DEUS
= P
D
DEUS
* Q
D
DEUS
(3a)
TR
E
DEUS
= P
E
DEUS
* Q
E
DEUS
The cost C
D,E
DEUS is defined as:
C D,E
DEUS
= C
D
(Q D
DEUS
) + C
DE
(Q D
DEUS
) + C
E
(Q D
DEUS,
Q E
DEUS
) +
C
EUS
(Q
D
DEUS,
Q
E
DEUS
) + C
US
(Q
D
DEUS,
Q
E
DEUS
) (3b)
Where, C
D
(Q
D
DEUS
) represents the cost incurred by the line at port D for Q
D
DEUS containers; C
DE
(Q
D
DEUS
) represents the cost incurred by the line in transporting Q
D
DEUS containers from port D to port E; C
E
(Q
D
DEUS,
Q
E
DEUS
) represents the cost incurred by the line at port E for Q D
DEUS
and Q E
DEUS
containers; C
EUS
(Q D
DEUS,
Q E
DEUS
) represents the cost incurred by the line in transporting Q
D
DEUS and Q
E
DEUS containers from port E to port US; and C
US
(Q
D
DEUS,
Q
E
DEUS
) represents the cost incurred by the line at port US for Q
D
DEUS and Q
E
DEUS containers.
It is interesting to note that Q
D
DEUS containers may be interpreted as the number of transshipment containers and port E may be interpreted as the transshipment port for chain DEUS. Also, given the existence of economies of containership size, it is expected
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that ∂C
EUS
/∂Q < 0.
Proposition 1: A container shipping line will choose a transshipment maritime transport chain rather than direct-service maritime transport chains if the cost savings are greater than the revenue loss.
Proof:
Under the assumption that a container shipping line seeks to maximize profits, the line will choose the transshipment maritime chain DEUS as opposed to direct-service maritime transport chains DUS and EUS if:
Π
DEUS
> Π
DUS
+ Π
EUS
(4)
Substituting equations (1a) and (1b) into equation (1), equations (2a) and (2b) into equation (2) and equations (3a) and (3b) into equation (3) and then substituting into equation (4) and rewriting, the following equation is obtained:
[C
D
(Q
D
DUS
) + C
DUS
(Q
D
DUS
) + C
US
(Q
D
DUS
)] + [C
E
(Q
E
EUS
) + C
EUS
(Q
E
EUS
) + C
US
(Q
E
EUS
)]
- [C
D
(Q
D
DEUS
) + C
DE
(Q
D
DEUS
) + C
E
(Q
D
DEUS,
Q
E
DEUS
) + C
EUS
(Q
D
DEUS,
Q
E
DEUS
) +
C
US
(Q
D
DEUS,
Q
E
DEUS
)] > P
D
DUS
* Q
D
DUS
+ P
E
EUS
* Q
E
EUS
- [P
D
DEUS
* Q
D
DEUS
+
P E
DEUS
* Q E
DEUS
] (5)
Note that the expression to the left of the inequality sign in equation (5) represents the costs incurred by the shipping line in providing direct service from port D to port US and from port E to port US minus the cost incurred by the line in using a transshipment maritime transport chain to provide service from ports D and E to port US. This difference may be interpreted as the cost savings to the shipping line in using the transshipment chain DEUS rather than the direct service chains DUS and EUS (e.g., to
15

take advantage of economies of ship size in transporting containers from port E to port
US). The expression to the right of the inequality sign may be interpreted as the revenue loss in using the transshipment chain versus the direct service chains. Revenue losses may occur from using a transshipment chain because of the greater time incurred by transshipment containers in reaching their destination port (and thus the lower quality of service) as opposed to using direct service chains. Hence, the proposition holds.
Suppose the one-hundred percent scanning of U.S. bound containers at their last foreign ports of call has been implemented. Thus, U.S. bound containers Q
D
DUS
moving over the chain DUS must be scanned at port D, since port D is the last foreign port of call for these containers prior to entering port US. Consequently, the shipping line that is transporting the Q
D
DUS containers will have its cost increase at port D from C
D
(Q
D
DUS
) to
C
’
D
(Q D
DUS
) because of the additional scanning cost. Similarly, U.S. bound containers
Q
E
EUS
moving over the chain EUS will be scanned at port E. Therefore, the shipping line that is transporting Q
E
EUS containers over this chain will have its cost increase at port E from C
E
(Q
E
EUS
) to C
’
E
(Q
E
EUS
) because of the additional scanning cost. The shipping line in transporting transshipment containers Q
D
DEUS
(originating at port D) and containers
Q E
DEUS
(originating at port E) over the chain DEUS will have its cost increase at port E from C
E
(Q
D
DEUS,
Q
E
DEUS
) to C
’
E
(Q
D
DEUS,
Q
E
DEUS
) because of the additional scanning cost and since port E is the last foreign port of call for both groups of containers prior to entering port US.
Lemma 1: The one-hundred percent scanning of U.S. bound containers at their last foreign ports of call will not result in container shipping lines switching from currently-
16

utilized transshipment maritime transport chains in transporting containers to U.S. ports if scanning economies of scale exists.
Proof:
Suppose a container shipping line is currently using a transshipment maritime transport chain in the transportation of U.S. bound containers and the cost savings to the line in doing so are greater than the revenue loss as opposed to using direct-service maritime transport chains (Proposition 1). Assume that the possible maritime transport chains that may be selected by the line are those found in Proposition 1. In substituting C
’
D
(Q
D
DUS
),
C
’
E
(Q
E
EUS
) and C
’
E
(Q
D
DEUS,
Q
E
DEUS
) for C
D
(Q
D
DUS
), C
E
(Q
E
EUS
) and C
E
(Q
D
DEUS,
Q
E
DEUS
), respectively, in equation (5) and rewriting, we obtain:
[C
’
D
(Q
D
DUS
) + C
DUS
(Q
D
DUS
) + C
US
(Q
D
DUS
)] + [C
’
E
(Q
E
EUS
) + C
EUS
(Q
E
EUS
) +
C
US
(Q E
EUS
)] - [C
D
(Q D
DEUS
) + C
DE
(Q D
DEUS
) + C
’
E
(Q D
DEUS,
Q E
DEUS
) +
C
EUS
(Q
D
DEUS,
Q
E
DEUS
) + C
US
(Q
D
DEUS,
Q
E
DEUS
)] > P
D
DUS
* Q
D
DUS
+ P
E
EUS
* Q
E
EUS
- [P
D
DEUS
* Q
D
DEUS
+ P
E
DEUS
* Q
E
DEUS
] (6)
If Q
D
DUS
= Q
D
DEUS
, Q
E
EUS
= Q
E
DEUS
and scanning economies of scale exists, i.e.,
C
’
D
(Q
D
DUS
) + C
’
E
(Q
E
EUS
) > C
’
E
(Q
D
DEUS,
Q
E
DEUS
), then the inequality in equation (6) holds, where cost savings are greater than revenue loss, all else held constant. Hence, the lemma holds.
Lemma 2: If a shipping line switches to a transshipment maritime transport chain from direct-service chains after the one-hundred percent scanning of U.S. bound containers legislation is implemented, then the cost savings to the shipping line in using directservice maritime transport chains rather than a transshipment maritime transport chain
17

before the scanning was implemented will be less than the cost savings in using the transshipment maritime transport chain rather than direct-service maritime transport chains after the scanning was implemented.
Proof:
If a container shipping line utilizes direct chains rather than a transshipment chain prior to the implementation of the one-hundred percent scanning of U.S. bound containers, then the line’s profit from a transshipment maritime transport chain will be less than the line’s profits from direct-service maritime transport chains or:
Π
DEUS
< Π
DUS
+ Π
EUS
(7)
From the proof of Proposition 1, equation (7) can be rewritten as:
[C
D
(Q
D
DUS
) + C
DUS
(Q
D
DUS
) + C
US
(Q
D
DUS
)] + [C
E
(Q
E
EUS
) + C
EUS
(Q
E
EUS
) + C
US
(Q
E
EUS
)]
- [C
D
(Q D
DEUS
) + C
DE
(Q D
DEUS
) + C
E
(Q D
DEUS,
Q E
DEUS
) + C
EUS
(Q D
DEUS,
Q E
DEUS
) +
C
US
(Q
D
DEUS,
Q
E
DEUS
)] < P
D
DUS
* Q
D
DUS
+ P
E
EUS
* Q
E
EUS
- [P
D
DEUS
* Q
D
DEUS
+
P
E
DEUS
* Q
E
DEUS
] (8)
That is to say, the cost savings in using the transshipment chain rather than the directservice chains are less than the revenue loss.
If after the one-hundred percent scanning has been implemented, the shipping line switches from direct to transshipment service, it would follow that:
Π’
DEUS
> Π’
DUS
+ Π’
EUS
(9)
Where, the prime denotes that scanning is in effect.
Based upon equation (6) in the proof of Lemma 1, equation (9) can be rewritten as:
P D
DUS
* Q D
DUS
+ P E
EUS
* Q E
EUS
- [P D
DEUS
* Q D
DEUS
+
P
E
DEUS
* Q
E
DEUS
] < [C
’
D
(Q
D
DUS
) + C
DUS
(Q
D
DUS
) + C
US
(Q
D
DUS
)]
18

+ [C
’
E
(Q
E
EUS
) + C
EUS
(Q
E
EUS
) + C
US
(Q
E
EUS
)] - [C
D
(Q
D
DEUS
) + C
DE
(Q
D
DEUS
) +
C
’
E
(Q D
DEUS,
Q E
DEUS
) + C
EUS
(Q D
DEUS,
Q E
DEUS
) + C
US
(Q D
DEUS,
Q E
DEUS
)] (10)
In comparing equations (8) and (10), it follows that:
[C
D
(Q
D
DUS
) + C
DUS
(Q
D
DUS
) + C
US
(Q
D
DUS
)] + [C
E
(Q
E
EUS
) + C
EUS
(Q
E
EUS
) + C
US
(Q
E
EUS
)]
- [C
D
(Q
D
DEUS
) + C
DE
(Q
D
DEUS
) + C
E
(Q
D
DEUS,
Q
E
DEUS
) + C
EUS
(Q
D
DEUS,
Q
E
DEUS
) +
C
US
(Q
D
DEUS,
Q
E
DEUS
)] < P
D
DUS
* Q
D
DUS
+ P
E
EUS
* Q
E
EUS
- [P
D
DEUS
* Q
D
DEUS
+
P E
DEUS
* Q E
DEUS
] < [C
’
D
(Q D
DUS
) + C
DUS
(Q D
DUS
) + C
US
(Q D
DUS
)] + [C
’
E
(Q E
EUS
) +
C
EUS
(Q
E
EUS
) + C
US
(Q
E
EUS
)] - [C
D
(Q
D
DEUS
) + C
DE
(Q
D
DEUS
) + C
’
E
(Q
D
DEUS,
Q
E
DEUS
) +
C
EUS
(Q
D
DEUS,
Q
E
DEUS
) + C
US
(Q
D
DEUS,
Q
E
DEUS
)] (11)
Thus, the cost savings to the shipping line in using direct-service maritime transport chains rather than a transshipment maritime transport chain when the one-hundred percent scanning has not been implemented is less than the cost savings in using the transshipment maritime transport chain rather than direct-service maritime transport chains when the one-hundred percent scanning has been implemented, all else held constant. Hence, the lemma holds.
4.2 Maritime Transport Chains: Shipper Selection
Suppose the objective of shippers in selecting maritime transport chains is to minimize their logistics costs incurred in the transportation of their containers of cargo over these chains. If so, a shipper will select direct-service maritime transport chains rather than a transshipment maritime transport chain if the logistics costs related to the former are less than that of the latter in the transportation of given number of containers of cargo and conversely. The logistics costs that the shipper incurs include, for example,
19

transportation, inventory management, warehousing and ordering processing costs.
Suppose the maritime transport chains that are available to the shipper are those that were considered in the above discussion, i.e., maritime transport chains DUS, EUS and
DEUS. The logistics prices (i.e., the unit logistics cost or logistics costs incurred per container of cargo shipped by the shipper) are LP
D
DUS and LP
E
EUS for maritime transport chains DUS and EUS, respectively. If the number of containers of cargo shipped by the shipper over the chains DUS and EUS are Q D
DUS and Q E
EUS
, respectively, the total logistics costs incurred by the shipper over these chains will be LP
D
DUS
* Q
D
DUS and
LP
E
EUS
* Q
E
EUS ,
respectively. When the one-hundred percent scanning of U.S. bound containers at their last foreign port is implemented, the logistics costs will increase to
LP
D’
DUS
* Q
D
DUS and LP
E’
EUS
* Q
E
E
, where the prime denotes that scanning is in effect.
That is to say, the increase in the logistics costs is a result of the added scanning costs at ports D and E, assuming that these scanning costs are shifted forward to the shipper.
With respect to the transshipment maritime transport chain DEUS, the shipper ships
Q
D
DEUS containers and Q
E
DEUS containers that originate at ports D and E, respectively. If the shipper’s logistics prices for these shipments are LP D
DEUS
and LP
E
DEUS
, respectively, the total logistics costs incurred by the shipper in shipping Q D
DEUS and Q E
DEUS containers of cargo over the DEUS chain will be LP
D
DEUS
*Q
D
DEUS and LP
E
DEUS
*Q
E
DEUS
, respectively.
If the one-hundred percent scanning of U.S. bound containers at their last foreign ports of call is implemented, the logistics costs will increase to LP
D’
DEUS
*Q
D
DEUS and LP
E’
DEUS
*Q
E
DEUS
, where the prime denotes that scanning is in effect. Specifically, the total logistics cost for Q D
DEUS
increases because of the additional scanning cost for
Q
D
DEUS
at transshipment port E (assuming that these scanning costs are shifted forward to
20

the shipper). The total logistics cost for Q
E
DEUS increases because of the additional scanning cost for Q E
DEUS
at transshipment port E (assuming that these scanning costs are shifted forward to the shipper).
Proposition 2: The implementation of the one-hundred percent scanning of U.S. bound containers at their last foreign ports of call will not result in shippers switching from a currently-utilized transshipment maritime transport chain to direct-service maritime transport chains for transporting containers to U.S. ports if scanning economies of scale exist.
Proof:
Suppose before the one-hundred percent scanning legislation is implemented, the shipper chooses to utilize the transshipment chain DEUS as opposed to the direct-service maritime transport chains DUS and EUS. If so, it follows under the assumption that the shipper seeks to minimize logistics costs that:
LP
D
DEUS
*Q
D
DEUS
+ LP
E
DEUS
*Q
E
DEUS
< LP
D
DUS
* Q
D
DUS
+ LP
E
EUS
* Q
E
EUS
(12)
If the one-hundred percent scanning is implemented, Q
D
DUS
= Q
D
DEUS
, Q
E
EUS
= Q
E
DEUS and scanning economies of scale exist, the inequality in equation (12) will still hold, since the cost of scanning Q
D
DUS
= Q
D
DEUS and Q
E
EUS
= Q
E
DEUS
at transshipment port E under scanning economies of scale will be less than the cost of scanning these number of containers separately at ports D and E in the direct-service maritime transport chains, all else held constant. That is to say,
LP D’
DEUS
*Q D
DEUS
+ LP
E’
DEUS
*Q E
DEUS
< LP D’
DUS
* Q D
DUS
+ LP
E’
EUS
* Q E
EUS
(13)
Hence, the proposition holds.
21

5. Conclusion
This paper has investigated the impact on maritime transport chains from the implementation of the Implementing Recommendations of the 9/11 Commission Act that requires one-hundred percent scanning of U.S. bound containers at their last foreign ports of call by the year 2012. This investigation was undertaken by using analytical models that consist of maritime transport chains over which U.S. bound containers are shipped.
The objective of a shipping line in selecting a maritime transport chain is to maximize profits. The objective of a shipper in selecting a maritime transport chain is to minimize logistics costs.
With respect to shipping lines, the analysis suggests that following the implementation of the one-hundred percent scanning of U.S. bound containers at their last foreign ports of call, shipping lines will not switch from currently utilized transshipment maritime transport chains in transporting containers to U.S. ports if scanning economies of scale exist, all else held constant. Further, it was found that if a shipping line switches to a transshipment maritime transport chain from direct-service chains after the one-hundred percent scanning legislation is implemented, then the cost savings to the shipping line in using direct-service maritime transport chains rather than a transshipment maritime transport chain before the scanning was implemented will be less than the cost savings in using the transshipment maritime transport chain rather than direct-service maritime transport chains after the scanning was implemented, all else held constant. With respect to shippers, the analysis suggests that t he implementation of the one-hundred percent scanning legislation will not result in shippers switching from a currently-utilized
22

transshipment maritime transport chain to direct-service maritime transport chains for transporting containers to U.S. ports if scanning economies of scale exist, all else held constant.
The general conclusion of the analysis is that if scanning economies of scale exist, the
U.S. one-hundred percent scanning legislation will have a positive impact (in terms of increased container throughput of U.S. bound containers) on foreign transshipment container ports that are the last ports of call for U.S. bound containers, all else held constant. A caveat to this conclusion is the extent to which port congestion that is attributable to scanning increases. Since equipment to be used in scanning transshipment containers would need to be located where containers are moved from one vessel to another, the scanning will likely contribute to port congestion. If the congestion is significant, it may be enough to offset the scanning advantage of the transshipment port that is attributable to scanning economies of scale.
23

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