Oct 11, 2013

Amended KS/RA system drives 50 new KS to give up certification

It has been discovered that about 50 companies have given up their qualifications under the Known Shipper/Regulated Agent (KS/RA) system that aims to secure airborne cargoes, which is being enforced on cargoes loaded in passenger flights bound for the U.S., accounting for about 10% of the known shippers (KS) in the system. It seems that the Civil Aviation Bureau of Japan's Ministry of Land, Infrastructure, Transport & Tourism (MLIT), which has jurisdiction over the system, asked the KS under the system to refortify the security systems at their plants and other facilities that handle air cargoes by the end of September and these shippers determined that they would be unable to comply, so they opted to just give up their qualifications. With the projected rise in inspection processes for U.S.-bound cargoes that are covered by the new system, this new turn seems to have put a crimp to the expansion of the system that is anticipated to cover cargoes that are bound to destinations worldwide by spring of next year.

A little less than 500 firms obtained the necessary qualification as new KS at its peak in summer this year, but that number is now believed to have dropped to less than 450 companies. The business scales of the shippers that gave up their certifications are varied, with major shippers that handle large volumes of air cargoes apparently included in the list. The total volume of cargoes that are loaded onto U.S.-bound passenger flights by these 50 firms is not immediately known.

Through the explanatory meetings that have been held for some shippers' groups starting around May this year, the Civil Aviation Bureau has asked the new KS to build stringent security system at their facilities that handle air cargoes. In particular, they added detailed regulations on the procedures for inspection using such tools as metal detectors in relation to the body checks that are conducted on employees upon their entry into the facilities. Records need to be kept on the checks that are done upon entry and exit of the employees from the facilities, but the burden imposed on will get bigger the larger the scale of the facility. In principle, all facilities that handle air cargoes will be subjected to the system.

In July this year, the Bureau notified the RA forwarders who take charge of ascertaining (verification) the KS to ask them to check the status of compliance at each of the facility of these KS and notify the Bureau in writing whether or not the new KS have established their own security systems that meet these new requirements. Deadline of the submission of the report was October 4. Now based on the report, about 50 companies have given up their accreditation as KS. While some of the companies deemed it difficult to keep their qualification for the time being, there also seems to have been firms that gave up their accreditation as a sign of procrastination in complying since the ruling only applies on cargoes loaded onto U.S.-bound passenger flights until spring next year.

Among the new KS that have kept their accreditation, it appears that many of them ran out of time in building the required system by the end of September due to variety of reasons. The Bureau ordered the RA forwarders to seek for more detailed reasons for failing to establish a system from such new KS in question. In this regard, the Bureau ordered that, "We asked the new KS to build a system by the end of September at the latest. In the future, the reason for the inability to establish a system will be examined for each KS and we will instruct the RA forwarders on the actions to take."

[Limited effects to U.S.-bound cargoes]

Daily Cargo conducted a survey of the 10 major forwarders in the country using a questionnaire that asked about the effects of the requirement to reinforce the security systems at the shippers' facilities, among other matters. When asked about the number of shippers who gave up their new KS certification, they claimed that it was limited to about 10 shippers per forwarder at the most (two of the companies avoided disclosing the number of firms that gave up their credentials). In light of this, only two forwarders projected an increase in inspection processes for U.S.-bound cargoes beyond 10% of the current level. Four of the companies noted that there will be virtually no effects to such cargoes, thereby making it seem that serious effects on the inspection processes have been averted for the entire industry.

The reinforcement of the security systems in place at air cargo facilities is also being sought by the Bureau from the forwarders, with all companies, except one that did not respond, answering that have already begun entry checks using metal detectors at the entrances of their own facilities this spring. Following the commencement of inspections, multiple companies have also deployed security personnel. Some companies have even additionally introduced explosive detection machines, thereby increasing the cost burden in the reinforcement of security across the board.

On a long-term perspective, there are forwarder-related entities who envision mounting momentum in the growing number of new KS. It has been a year since the new system was announced in October last year and the measures that are needed in acquiring the qualification as KS have become more detailed than in the initial stage of the rollout. And with the awareness that the system will be applied to cargoes bound worldwide by spring next year, it is projected that the shippers who move a large volume of cargoes to Asia and other destinations will go all-out in obtaining such qualification henceforth.

[Six months until system is applied to cargoes hauled worldwide]

Even if the number of new KS were to increase by a certain level in the future, when the new system gets to be enforced on all cargoes bound worldwide starting April next year, then a wide-margin rise in demand for explosive detection by RA forwarders, along with the surge in costs such as those incurred in the procurement of additional inspection machines, will become inevitable. Based on the answers given in the questionnaire, many claimed that they ought to abandon their mutual recognition agreements pertaining to airline security with the U.S., which were concluded under the condition that the new system will be applied, and then shift to the implementation of checks at the facilities inside the airports, including the warehouses of airline companies, just like what is now being done at various other countries.

There also those who opined that the government should offer subsidies if the system will be continued in order to reduce the burden in the introduction of machines. For the Haneda Airport and other state-run airports in the country, the system dictates that the government will shoulder half of the cost in the procurement of explosive detection machines. But the major international airports of Narita, Kansai and Chubu are all operated by airport companies. The Bureau is asking these airport companies to shoulder the subsidies, but they have yet to receive an affirmative answer to such request.

The Bureau is urging the forwarders to recoup the equipment introduction costs by collecting the appropriate inspection charges from the shippers, but with the continued decline in ex-Japan export cargoes, the competition in securing cargoes is getting more intense. There is a tendency to seize the inspection process as a new business opportunity, but in not just a few cases, it has actually turned into a factor for discounts. It is uncertain how much the number of new KS will increase or drop in/after spring next year, but many related entities are of the opinion that, "Despite the fact that the application of the system on cargoes bound worldwide is drawing at six months from now, those concerned could not decide how many more machines they need to purchase."

The voices pointing to the dispersion in the application of the new system due to the inefficiency of the forwarders who determine the KS on their own and the differences in the understanding and awareness of the system by the companies concerned are getting louder. In addition to the government's instructions that could not be considered as clear, there are also numerous forwarders who are unable to take a strict approach toward shippers in view of the competition, leading to the gaps in the standards for determining the new KS. "The confusion has become more severe due to this demand for shippers to beef up their security," said a related source. With this in mind, there is a growing number of people in the industry who are getting more concerned that this system will lose substance due to such cases as shippers who are not doing anything to comply acquiring the qualification as new KS just the same.

The new KS/RA system requires KS to build a security system at their own facilities that is stricter than their previous systems. It calls for the explosive inspection on cargoes at the factories and warehouses that handle air cargoes, body checks on people that enter the facilities, training of employees about security and independent audit, among other things. Under the previous system, about 150,000 companies possessed the KS accreditation, but the number of KS under the new system does not even reach 1% of that.

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