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Cablegate: Sri Lanka: Mixed Reactions to New U.S. Law On Maritime

VZCZCXRO4085
RR RUEHCI RUEHLMC
DE RUEHLM #1391/01 2820930
ZNR UUUUU ZZH
R 090930Z OCT 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 6943
INFO RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 1439
RUEHKA/AMEMBASSY DHAKA 0452
RUEHIL/AMEMBASSY ISLAMABAD 7439
RUEHKT/AMEMBASSY KATHMANDU 5577
RUEHKP/AMCONSUL KARACHI 2248
RUEHCG/AMCONSUL CHENNAI 8036
RUEHCI/AMCONSUL KOLKATA 0361
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION

UNCLAS SECTION 01 OF 02 COLOMBO 001391

SIPDIS

SIPDIS

STATE FOR SCA/INS AND EEB/TRA/OTP
STATE PASS USTR FOR ADINA ADLER
COMMERCE FOR JONATHAN STONE
MCC FOR S. GROFF, D. TETER, D. NASSIRY AND E. BURKE
TREASURY FOR LESLIE HULL

E.O 12958: N/A
TAGS: EWWT ETRD PREL PTER KMCA CE
SUBJECT: SRI LANKA: MIXED REACTIONS TO NEW U.S. LAW ON MARITIME
CARGO SCANNING REQUIREMENTS

REF: A. SECSTATE 119837 B. COLOMBO 1134

1. SUMMARY: Colombo Port authorities and managers of shipping lines
expressed opposing views on the ability to meet the new U.S. law on
maritime cargo scanning requirements. Authorities of the Port of
Colombo maintain that the port will be able to scan all U.S.-bound
shipping containers by year 2012. With the port already operating
the Container Security and Megaports Initiatives, they say the port
is well-positioned to implement the new law before 2012.
Authorities have several logistical concerns but they are confident
these can be resolved. These issues include: above all, timely
cargo flow; infrastructure costs and space limits; shortage of
skilled manpower; legal access to all containers; and added costs
associated with all these issues. By contrast, shipping lines
operating in Sri Lanka argue that Colombo Port will not only be
unable to fulfill the requirement in five years, but also that the
port is only a small piece of how the entire global shipping network
will be negatively affected and unable to efficiently manage the
requirement. End Summary.

2. Econoff separately delivered ref A points to the Secretary to
Ports and Aviation, Tilak Collure; Harbourmaster of the Port of
Colombo, Captain Ravi Jayawickrema; Director General of Customs,
Sarath Jayathilake; and Deputy Director of Customs and Intelligence,
L.M. Nelson. All supported the law and affirmed that the Port of
Colombo, the country's main international port, would be able to
scan all U.S.-bound shipping containers before the 2012 deadline.
All agreed that the port, compared to others in the region, has
fewer technical and logistical challenges to overcome as it already
operates the Container Security Initiative (CSI) and the Megaports
Initiative. Presently, approximately 200-250 containers bound for
the U.S. are handled each day at the port, of which 20 percent are
local exports and the rest are transshipments.

SCANNING DELAYS CARGO FLOW
--------------------------

3. The primary concern all parties expressed was whether the Act
would have a negative impact on cargo flow. Currently operating at
full capacity, the port's productivity is in steady decline and has
caused enough congestion to persuade some shipping companies to
reroute their lines to bypass Colombo Port (ref B). Port
authorities told Econoff that CSI and Megaports operations are among
the factors contributing to the delays in cargo flow. With each
scan taking 15 minutes and an average of 10 to 15 cargo containers
scanned daily, cargo flow is delayed by at least a couple hours each
day. Presently, only one of four scanners is fully operational with
a second due to operate within a month. The port authorities cited
lack of space and limited skilled manpower to explain the delay in
operating all the scanners. Customs officials said they will submit
to Econoff a detailed plan as to how they will get the remaining
scanners in operation. Though the port authorities blamed CSI and
Megaports for exacerbating the delays, authorities appeared
optimistic that once scanning inspections were integrated into the
overall operations, the port will have an advantage over other
regional ports that have not joined the two initiatives.
Authorities told Econoff that they felt more comfortable tackling
these logistical problems now knowing that their competitors will
experience similar challenges in the future.

WHO IS GOING TO PAY?
--------------------

4. One concern port authorities expressed involved the cost
associated with conducting secondary scanning inspections. Port
officials and the Treasury were still in discussion as to who would
bear the costs of the false-alarm secondary inspections. Secretary
Collure predicted that the Treasury would likely favor shippers and
that the costs would be incurred either by the Ports Authority or by
the Customs Department. To help defray the costs of non-fraud
container inspections, the port is considering increasing fines for
contaminated containers.

5. Other costs that port authorities foresaw included new

COLOMBO 00001391 002 OF 002


radioactive systems-detection systems (depending on new technology
requirements) and associated equipment such as cranes and trucks;
building of the dedicated sites for the scanners; and training of
technicians and operators assigned to the systems. With a
multi-million dollar infrastructure expansion underway already,
authorities did not know how they would cover these additional
costs.

SHIPPING LINES AND EXPORTERS SEE LA AS UNWORKABLE
--------------------------------------------- ----

6. By contrast, local shipping ine managers and exporters said the
U.S. containr scanning initiative was "unnecessary," "unthinkale,"
and "not viable." One country manager of amajor shipping line
asked Econoff why the U.S. culd not bear the burden and scan all
the containes upon arrival in the United States. Moreover,
hipping lines and exporters doubt that Colombo Por would be able
to fulfill the requirement withinfive years as the port is already
experiencing lw productivity, high costs, limited space, and delas
in its expansion plans. Managers of the shipping lines also pointed
out that the law will require significant funding, especially to
procure more scanners, as the port's present inventory of four is
not sufficient. In addition, land for the placement of scanners,
cargo containers, cranes, trucks, etc., has not been included in the
present expansion plans.

7. The biggest worry for shippers is global congestion in the
shipping line network. The scanning requirement will affect the
whole journey of each vessel, forcing shipping lines to manage new
delays at each port their vessels visit. One country manager stated
that such delays would increase costs for shipping lines, decrease
the confidence of their customers who expect their cargo to be
delivered on time, and negatively impact the environment as vessels
burn more fuel to rush to their next destination port.

8. Garment exporters in Sri Lanka likewise have told shipping lines
that they think the requirement is unfeasible in the next five years
as they cannot afford delays in their supply chains. If the law is
implemented, the "cut-off time" for exporters to have their cargo at
the port for loading could be increased by two or three days;
currently, exporters have to ensure their cargo is at the port 24
hours before vessel arrival. By forcing shorter production windows,
the measure would increase costs.

9. COMMENT: Port officials and shipping lines agree that Colombo
Port's biggest problem is its congestion and low berth productivity.
While port authorities are focused on the port's operations and how
to logistically accommodate the new requirement, shipping lines
argue simply that the new requirement will negatively affect the
entire global shipping network. Showing the same pragmatism and
foresight that led them to make Colombo Port the first port in Asia
to implement both CSI and Megaports, port authorities are resigned
to working out the logistics to fulfill the requirement within the
prescribed time.
BLAKE

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