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Osnin, Noor Apandi --- "Financial Implication of the ISPS Code in Malaysia" [2005] MarStudies 7; (2005) 141 Maritime Studies 16

• Financial Implication of the ISPS Code in Malaysia
• Introduction
• Objective
• Methodology
• The survey
• Table 1: IMO criteria on details of cost incurred.
• Survey limitation
• Survey Results for Port Authorities/Operators
• Table 2: Respondent Ports
• View of ports on necessity to comply and the effectiveness of the ISPS Code
• Survey Results for Shipping Companies
• Table 4: Average Cost for Major Ports
• Table 5: Average Cost for Minor Ports
• Table 6: Cost breakdown for Port Authorities/Operators
• Table 7: Status of compliance by respondent shipping companies
• View of shipping companies on necessity to comply and the effectiveness of the ISPS Code
• Table 8: Implementation cost for shipping companies
• Conclusion
• Table 9: Average Cost for Shipping Companies
• Table 10: Total estimated cost for Malaysian Ports in complying with the ISPS Code.
• Table 12: Total Cost for Malaysia Shipping Companies
• BIBLIOGRAPHY

Financial Implication of the ISPS Code in Malaysia

Noor Apandi Osnin[1]

Introduction

The International Ship and Port Facility Security (ISPS) Code came into effect on 1 July 2004. It outlines minimum security standards for ships and port facilities employed in maritime commerce. The objective of the Code is to establish an international framework for cooperation in the efficient collection and sharing of information to detect security threats and to take preventive actions. Malaysia took measures to comply with this security measure.

Objective

The aim of this paper is to identify and evaluate the cost of implementing the ISPS Code by port operators and shipping companies in Malaysia. This cost covers the establishment of Port Facility Security Officer (PFSO), Port Facility Security Assessment (PFSA), Port Facility Security Plan (PFSP), Ship Security Officer (SSO), Company Security Officer (CSO), Ship Security Assessment (SSA), Ship Security Plan (SSP) and an overall implementation of the Code. The scope of the survey conducted was confined to documenting the costs involved in setting up the above as these are the core requirements to be met in order to comply with the ISPS Code.

Methodology

A total of 337 questionnaires were sent out in the last quarter of 2004. Target respondent organisations were all identifiable port authorities/operators and shipping companies operating in Malaysia. The list of respondent organisations was compiled from data supplied by the Marine Department of Malaysia cross checked with the Maritime Institute of Malaysia’s (MIMA) own list.

A total of 78 questionnaires were sent to port authorities/operators and 259 questionnaires to shipping companies. To encourage response, the questionnaire was kept simple; no detailed queries were made on respondent’s organisation i.e. operational matters, size, business volume, company age, etc.

The survey

Two sets of survey questionnaires were prepared to obtain the cost incurred by Malaysian port authorities/operators and shipping companies respectively in complying with the Code. The criteria for the questionnaire was based on the International Ship and Port Facility Security Code and SOLAS amendment 2002 published by the International Maritime Organization in the year 2003.

The questionnaires were divided into three (3) sections:

- Section A

Gathered basic details on the background of the port authorities/operators and shipping companies,

- Section B

Dealt with questions on compliance with the ISPS Code, training courses, comments for the implementation and effectiveness of the ISPS Code in Malaysia, and

- Section C

Queried the costs incurred in implementing the ISPS Code. Details of the costs enquired upon are listed in Table 1.

There are slight differences between the two sets of questionnaires as the requirements for port authorities/operators differ from those of a shipping company. With regards to security officers, it is compulsory for port authorities/ operators to establish a Port Facility Security Officer (PFSO) whereas for shipping companies, they must establish a Company Security Officer (CSO) and a Ship Security Officer (SCO) for each of their ships.

Table 1: IMO criteria on details of cost incurred.

Due to their differences, discussion on the survey results is divided into two sections, one for port operators and the other for shipping companies.

Survey limitation

Up to 15 December 2004, only 22 replies were received from port authorities/operators and 28 replies from shipping companies. Based on follow up telephone calls, reasons given by the non-respondents are that they did not have the authority to provide the cost-related information that was requested; the person in charge was not available or on leave; or simply that the cost is unavailable.

Survey Results for Port Authorities/Operators

78 Malaysian ports were involved in this study. These are identified as major and minor ports based on their administrations. Those that are under federal jurisdiction are major ports while those operated by private operators are identified as minor ports. Out of the 78 ports identified, 22 replies were received. These are listed in Table 2.

All of the 22 respondent ports have complied with the requirements of the ISPS Code, but only 19 of them provided their cost data for the survey. These data are reported in Table 3.

Table 2: Respondent Ports

Out of the 19 ports that provided cost data, four were major ports and 15 were minor ports. Table 4 and Table 5 provide the average cost incurred by the major and minor ports respectively in establishing the required PFSO, PFSA and PFSP.

In total, major ports spent more than minor ports to comply with the Code. On average, major ports spent RM1.8 million compared to minor ports which on average spent RM1.0 million to comply with the Code.

Apart from investigating the total cost spent, the survey also looks at the breakdown of cost as listed in Table 6. This covers the cost incurred for training courses, consultancy, physical, monitoring/surveillance and procedural matters.

The cost breakdown indicates that the ports spent an average of RM64,784.20 for consultancy services, RM197,000.00 for physical cost, RM622,015.80 for monitoring/ surveillance cost and RM26,373.70 for procedural cost. Substantial amounts of funds were spent on the fitting of ‘Closed Circuit Television’ (CCTV) for monitoring/ surveillance. The ports reported that they spent between RM100,000.00 to RM6,200,000.00 to set up the monitoring/surveillance system.

View of ports on necessity to comply and the effectiveness of the ISPS Code

In addition to asking the costs incurred for implementing the Code, the questionnaire also sought the view of ports in relation to the Code. They were asked to answer a simple yes/no query and provide reasons for their answer. Out of the 22 that replied, 90 per cent agreed that it is necessary to comply with the Code while only 10 per cent disagreed. Reasons given for not complying are that they are not involved with trade originating from sensitive terrorist areas; they are not likely to be the target of terrorists; and the number of calls to its port for vessels complying with the Code is few and irregular.

Eighty-six per cent of respondents are of the view that the Code is effective in meeting its objective to ensure port security, while 14 per cent disagreed with this view. The reasoning for those that disagreed is that they are small port operators and hence should be exempted because the cost of implementation is very high.

Survey Results for Shipping Companies

The questionnaire was sent to 259 Malaysian shipping companies. However only 28 replies were received. Out of these 21 have complied with the Code, while the remaining seven have not complied. Details of the respondents and their status of compliance are listed in Table 7.

The reasons given by shipping companies for not complying are that they are not required to comply with the Code as they own vessels below 500 GRT and trade domestically. Of the 21 companies replying that they are in compliance with the Code, only 19 provided data on the cost incurred in implementing the Code. The two that did not provide cost data gave the reason that the information is not available as the ships under their control are chartered from outside companies.

For shipping companies, the cost involved in implementing the ISPS Code depends on the number of ships owned. This is because each ship requires its own security officer, security assessment and security plan. Table 8 lists the costs incurred in implementing the Code, as reported by the 19 shipping companies.

Table 3: Total cost for Port Authorities/Operators.

In order to obtain the average cost incurred by shipping companies for establishing the SSO, SSA and SSP, the total cost of each category is divided by the total number of ships owned by all the respondent shipping companies. This is because each ship (as opposed to each company) is required to have its own SSO, SSA and SSP. Based on data from previous surveys carried out by MIMA, 14 of these shipping companies control 204 ships. Based on this information, the average cost of providing CSO, SSO, SSA and SSP is presented in Table 9. Only the cost of establishing the CSO is divided by the number of company as one company only needs one CSO.

The estimated total average cost incurred for a shipping company operating a ship is RM34,982.05. This figure will increase by RM18,664.20 for each ship added to the company’s fleet. For example, a company operating ten ships will incur an estimated cost of RM202,959.85 in order to establish the CSO, SSO, SSA and SSP.

Table 4: Average Cost for Major Ports

Table 5: Average Cost for Minor Ports

Table 6: Cost breakdown for Port Authorities/Operators

As well as investigating the total cost spent by shipping companies to conform to the requirements of the Code, the survey also looked at the breakdown of costs as listed in Table 10 below. This covers the cost spent on training courses, consultancy, physical, monitoring and procedural matters. The cost breakdown points to the fact that shipping companies spent most on training with an average figure of RM110,174.00 per company. This is followed by physical cost at RM30,173.68 and consultancy cost at RM14,743.14. The results also revealed that additionally, shipping companies are required to install the Automatic Identification System (AIS) and Ship Security Alert System (SSAS). The survey also revealed that the additional average cost to set up AIS is RM113, 333.30 per ship with SSAS costing RM86, 275.00 per ship.

Table 7: Status of compliance by respondent shipping companies

View of shipping companies on necessity to comply and the effectiveness of the ISPS Code

Shipping companies were also asked a simple yes/no question on the necessity to comply and the effectiveness of the ISPS Code. They were also asked to provide reasons for their answers. 83 per cent of respondent shipping companies agreed that it is necessary to comply with the Code, while the remaining 17 per cent of them disagreed. Reasons given by those that disagreed are that their ships are trading in safe areas; their ships do not trade internationally; and that piracy is the only security threat that their ships are facing.

On the question of effectiveness of the Code to ensure ship security, 63 per cent of the respondents agreed while the remaining 37 per cent of them disagreed. Those that disagreed are of the opinion that security level in Malaysia has always been adequate and that there have never been any terrorist attacks. On top of that, the respondents alleged that ships tend not to follow the Ship Security Plan (SSP) and that the SSP is only established to obtain the International Ship Security Certificate (ISSC) in order to avoid arrest or detention by port state control measures which will hamper their operations.

Table 8: Implementation cost for shipping companies

Conclusion

As each ship and port facility is required to carry out different tasks in complying with the Code, different costs apply. The findings of this survey indicate that each major port spent an average of RM1,798,218.75 in complying with the Code. As for the minor ports, it has been found that each of them spent an average of RM82,266.32 to comply with the Code.

In order to determine the total estimated cost of compliance by all Malaysian ports, the total average cost (for major and minor ports) was multiplied (respectively) by the total number of major ports and minor ports. The results are given in Table 10. The total cost of compliance with the ISPS Code for the 78 identified Malaysian ports is estimated to be RM81,512,487.54.

To derive a total estimated figure for shipping companies is not as straight-forward as for ports. For shipping companies, the cost incurred will be based primarily on the number of ships under their control. A press statement by the Minister of Transport Malaysia dated 5 July 2004, indicates that all 341 Malaysian ships that are required to comply with the Code have done so. Using the average cost figure reported in Table 9, the estimated cost per ship for establishing the SSO, SSA and SSP and the estimated cost for establishing a CSO for a shipping company is multiplied with the number of ships and shipping companies. The results are reported in Table 12.

For global comparison, USD1= RM3.80. This study points to the fact that Malaysia’s efforts to comply with the ISPS Code cost her ports USD21.5 million (RM81,512,487.54) and shipping companies USD2.8 million (RM10,590,815.35). The results of this survey suggest that ports need to spend more in providing the CCTV and monitoring/ surveillance system to meet the physical needs of the Code compared to shipping companies which spend more on training.

Table 9: Average Cost for Shipping Companies

Table 10: Total estimated cost for Malaysian Ports in complying with the ISPS Code.

Table 12: Total Cost for Malaysia Shipping Companies

Note that the figures provided by this survey are indicative only due to various limitations experienced in collecting data for analysis. These would include very low response rate from both ports and shipping companies and lack of in-depth information i.e. size of port, number of terminal, type of ships, size of ships etc.

BIBLIOGRAPHY

Grool, R, ‘Ship and Cargoes: Terrorist Tools?’ Seaways, The International Journal of the Nautical Institute, London, February 2004.

International Maritime Organization, International Ship & Port Facility Security Code and Solas Amendment 2002, International Maritime Organization, London, 2003.

International Maritime Organization, DNV Guideline to International Ship Security Certificate, Workshop Information Pack, Maritime Security Workshop, International Maritime Organization, London, January 2003.

International Maritime Organization, ISPS CODE Part A & B. Manual for Participants, Maritime Security Workshop, International Maritime Organization, London, January 2003..

Jones, S, ‘Commercial Consequences of the ISPS Code’, Seaways, The International Journal of the Nautical Institute, London, August 2004.

Ministry of Transport, Transport Statistics Malaysia 2001, Ministry of Transport, Kuala Lumpur, 2001.

Noor Apandi Osnin, Human Resource Development for Malaysian Seafarers: Issues and Challenges, Research report, Maritime Institute of Malaysia, Kuala Lumpur, 2003.

Noor Apandi Osnin, Information Paper: Implication of the ISPS Code, Board Paper no. 37/2003, Maritime Institute of Malaysia, Kuala Lumpur, 2003.

Portsworld, The Structure of the Malaysia Port Industry. http://www.portsworld.com

(accessed 20 December 2004).

Raymond, CZ, The Structure of the Malaysian Port Industry. http://www.portworld.com

(accessed 20 December 2004).

[1] Research Fellow, Centre for Ocean Law and Policy, Maritime Institute of Malaysia