The Security Loophole under Regulated Agent Regime in Hong Kong

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Abstract

To safeguard aircrafts against acts of unlawful interference, the Transport Security Administration (TSA) of the United States has intensified the cargo screening of passenger aircrafts. In accordance with the security standard of the International Civil Aviation Organization, Known Shipper Program was first introduced in U.S. that prohibit air carriers from accepting cargo from shipping agents that do not register with the government and meet its security requirements. This security measure is also adopted globally in European countries like Germany and also Asian areas, for instance, Japan and Hong Kong.

In Hong Kong, Known Shipper Program is named as Regulated Agent Regime (RAR) and is implemented since March 2000. Other countries like Japan also adopted this regime in June 2005. Successful implementation of this security measure is essential to aviation security of a country. However, our survey found some security loopholes in the Regulated Agent Regime when it is involved in coloading, the practice of combining small and medium sized shipments in order to obtain volume discounts from carriers. This loophole would inevitably be the weakest part of the security system that becomes vulnerable to terrorist attack. It is hoping that this report would reflect some of the issues in implementing Regulated Agent Regime and that other countries could better their security system.

Introduction

To safeguard aircrafts against acts of unlawful interference, the Transport Security Administration (TSA) of the United States has intensified the cargo screening of passenger aircraft. In accordance with the security standard of the International Civil Aviation Organization, Known Shipper Program was first introduced in U.S. that prohibit air carriers from accepting cargo from shipping agents that do not register with the government and meet its security requirements. Apart from U.S, this security measure is also adopted globally in European countries like Germany and also Asian areas, for instance, Japan and Hong Kong.

In Hong Kong, the Known Shipper Program is called as Regulated Agent Regime (RAR), which is implemented under the control of Civil Aviation Department (CAD) since March 2000. Its objective is the same as that of US, which is to enhance the security of air cargo and prevent any unauthorized explosive or incendiary device from being carried on board passenger aircraft. Regulated Agent (RA) or airline operator is required to apply security control measures on consignments of air cargo received from shipper who is not a known consignor unless the goods are exempted cargo (CAD, 2005). By June 2006, there are 1151 registered agents in Hong Kong (CAD, 2006).

Regulated Agent Regime is a system under which a cargo handling agent, freight forwarder or consignor of air cargo can be qualified as Regulated Agent (RA). Regulated Agent takes an important role in security control as the responsibility of gatekeeper is partially shifted from aircraft operator to Regulated Agent. Under quality control programme of the regime, Regulated Agents are required to conduct random checks by x-ray on a minimum of 0.5% (in weight) of cargo from known consignors which are booked to be carried on passenger aircrafts (CAD, 2004a). For known consignment from a regulated agent, physical security check is not required and can be checked¡Vin aircraft operator directly. But for unknown consignment from non-regulated agents, aircraft operators have to conduct physically check by x-ray scanning, hand search or other appropriate means that may slow down the processes of cargo and cause delay (CAD, 2001).Therefore, shippers most likely would identify themselves as known consignors and tender their cargo to regulated agents. For becoming known consignors, Known Consignor Security Declaration is required to be signed by shippers declaring that the consignment does not contain any unauthorized explosive or incendiary device from being carried on board passenger aircraft.

However, according to our study, we identified some security loopholes in the Regulated Agent Regime when it is involved in coloading, which is the practice of operating common carriers, or consolidators, combining small and medium sized shipments in order to obtain volume discounts from carriers (NITL, 1994). Coloading is getting more common when increasing number of consignors tendering their cargo to regulated agents in Hong Kong. It is an industry norm that a handling agent would be involved in consolidating the cargoes tendered by different consignors for the sake of increasing coloading efficiency.

In 2005, some of the staff from Regulated Agents companies expressed their concern over security loopholes when dealing with coloading with non-Regulated Agent: Regulated Agents sometimes received Known Consignor (KC) Aviation Security Declaration signed by their non-Regulated Agent coloading agents whom are not the actual consignors annotated on the Air Way Bill (AWB) in the shipping document. This situation implied that the agents would be the middlemen between the consignors and Regulated Agent. However, little information like the identity of the consignor is given to the Regulated Agents. Reasons would be illustrated later. Thus, Regulated Agents also may have difficulty in contacting actual consignors who may be outside the boundary of Hong Kong. Therefore, with little information provided about the actual shippers, the risk assessment of air cargo would be more difficult to be carried out. However, the security controls applied on cargo tendered by handling agents is not as strict as cargo come from unknown consignors. This may expose some security loopholes that cargo tendered by coloading agents, which may come from unknown consignors, was not applied with appropriate security measure like hand-search that would adversely affect the aviation security in Hong Kong. Therefore, it is time to address the above security loophole and think of an appropriate way to improve aviation security of coloading. 

Apart from Hong Kong, in other countries, there is also security concern over the effectiveness of the Regulated Agent Regime. In US, Known Shipper Program is a primary method in prescreening air cargo that goes on passenger carriers and relies on those carriers to volunteer their databases of shippers. However, there are about 1.5 million known shippers in the U.S. while Transportation Security Administration (TSA) lists about 400,000 shippers only that 89 air carriers have offered. Government Accountability Office (GAO) questioned database information reliability and questioned how the agency used the information to identify shippers that may pose a risk (Marois, 2005). The exemptions of cargo from inspection may create potential security weakness that little cargo is actually screened (Marois, 2005). Pam Hamilton, TSA's director of air cargo, did acknowledge the system's failings that Known Shipper uses a limiting "binary system" that divides cargo into known and unknown shipper categories (Kim, 2005). Several aviation groups and members of Congress urged TSA to reduce reliance on the Known Shipper program, that registered shippers are simply trusted not to load hazardous cargo (¡§On U.S.¡¨, 2005). To deal with the situation, TSA would improve its Known Shipper database with a Request for Information (RFI) to the cargo industry for recommendations on better identifying and isolating high-risk cargo (Kim, 2004). The RFI follows one of the four main goals for cargo security outlined in the agency's Air Cargo Strategic Plan: setting up a cargo pre-screening system and ensuring 100% inspection; launch of major research and development programs and partnerships with stakeholders to implement additional measures such as enhanced background checks on people with access to cargo and new procedures for securing aircraft between flights (Kim, 2004).

Till now, Regulated Agent Regime is still one of the major security measures in safeguarding aviation security in most countries. Therefore, it is of the essence to plug the loopholes in this regime. In this research paper, there are two objectives:

l           To address the security loopholes in coloading under Regulated Agent Regime in Hong Kong

l           To recommend ways in improving aviation security

Methodology

A telephone interview with structured questions was conducted in September 2005. Target respondents are the staff working in companies registered under the Regulated Agent Regime and have passed successfully the Regulated Agent Regime Security Training Course organized by Alliance Management Consulting Ltd. By Sept 2005, this consulting company has provided formal training to 13.4% of overall population of Regulated Agents (146 out of 1089) that would help reflect the situation of Regulated Agent Regime in Hong Kong. In total of 146 companies that have delegated staff to receive the training in 2005, 86 regulated agents are considered as valid respondents. The criterion is that staff who are currently working in the Regulated Agent companies would be counted as valid respondents and be included in the survey. For response rate, 74 out of 86 staff from registered Regulated Agent companies were interviewed successfully.

Reasons for interviewing with these staff from Regulated Agent companies are that they have background knowledge about Regulated Agent Regime after receiving the formal training. Secondly, they are more likely to come across the issue related to Regulated Agent Regime when working in Regulated Agent companies.  

During the interview, the staff of Regulated Agent companies who successfully passed the training course were contacted directly. If they cannot be reached, no further questions will be asked for that particular company. This is to ensure that the respondents have thorough understanding of the procedure of Regulated Agent regime after receiving formal training. Since the information was collected in company basis, there is no duplication of the respondents from the same company. Due to limited time for telephone survey, seven straight forward questions were raised about the scenario that the respondents received a Known Consignor Aviation Security Declaration signed by their non-Regulated Agent coloading agents but not the actual consignor annotated on the shipping document and their corresponding security measures toward these consignments. The set of interview questions is attached in Appendix.

Sample demographic

In the study, 78% of the respondents come from small companies whereas 22% are from medium companies. ¡§Small¡¨ companies refers to companies with less than or equal to 20 staff, while ¡§medium¡¨ companies are with more than 20 staff.

Concerning the position of the respondents held in the company, 70% are in managerial position, which is shown in Exhibit 1.

Exhibit 1 The table showing the profile of respondents

Survey findings

a. How often respondents come across the scenario that the Known Consignor (KC) Aviation Security Declarations signed by the coloading agents

50% of the respondents (37 out of 74) have encountered the scenario that they received the Known Consigner (KC) Aviation Security Declarations which were signed by the non-Regulated Agent coloading agents, rather than the actual consignor annotated on the shipping document.

b. Types of coloading agents involved 

Concerning the coloading agents were involved in signing the KC Aviation Security Declaration, it shows that handling agents in China (91.2%), followed by air freight forwarders (5.4%) are involved (Exhibit 2). Closer economic activities with Chinese business partners may contribute to this figure.

Exhibit 2: The figure showing the parties involved in the scenario

c. Difficulty in finding the actual consignor to sign KC Aviation Security Declaration

The major reason that the regulated agents could not receive signed Known Consignor Aviation Security Declarations from actual consignors is due to business confidentiality (Exhibit 3). Some coloading agents were unwilling to provide information of their intermediate like handling agents (64.9%). It is claimed that no company information of the intermediate is to be disclosed. Also, about 24% of the respondents suggested that they could not contact the actual consignors.

This result showed that Regulated Agents may not able to verify the status of actual consignors as little information of the consignor provided by the agents though Regulated Agents may also did not have sufficient manpower or resources to do the checking.

Exhibit 3: The table showing the difficulties of receiving the Known Consignor Security Declaration from the actual consignor

d. How the respondents deal with the cargo tendered by coloading agents

Though the respondents failed to find the actual consignor, about 50% of the respondents still accepted the Known Consignor Aviation Security Declaration signed by the coloading agents and recognized them as ¡§Known Consignor¡¨.

50% of the respondents claimed that they tried to annotate ¡§Carrier of¡¨ (C/O) or ¡§On behalf of¡¨ (O/B) on the shipment document (i.e. the actual consignor C/O the agents, or agents O/B the actual consignor).

e. Security measures taken over this kind of cargo tendered by coloading agents

Only 29.7% of the respondents have applied security controls (e.g. x-ray screening) over the cargo tendered. This indicates that the security awareness over this kind of cargo is not high, considering that they had difficulty in identifying as if the shipment is from known consignor. This presented a potential risk of coloading as that cargo tendered by agents may come from unknown shippers but then they would be treated as ¡¥known cargo¡¦. This would inevitably elevate the risk of air cargo.

f. Percentage of cargo tendered by coloading agents in total shipment 

In term of weight, 13.5% of the respondents (10 out of 74) suggested that over 10 % of the shipment encountered this above scenario. In term of shipment, 12.1% of the respondents (9 out of 74) claimed that over 10 % of the shipment encountered this scenario.

From the above statistics, this is estimated that about 1.35% (calculated by 13.5% x 10%) of the cargo tendered by air from Hong Kong (by weight) faced the scenario that cargo tendered agents come from unknown shippers, but treated as ¡§known cargo¡¨.

In weight, 1.35 % of ¡§known cargo¡¨ is higher than the requirements of random screening of 0.5% by x-ray of the cargo received from their Known Consignors which is booked to be carried on board passenger aircraft. This showed that there is high probability that cargo consigned by unknown consignor, which is tendered by coloading agents, would be less likely to be screened under this random screening.

From the above findings, aviation security of board passenger flights may be threatened when the cargo is from ¡§Unknown Consignor¡¨ but treat as ¡§Known Cargo¡¨ and consequently is applied with relatively looser security control over them.

Recommendations

To deal with the situation, we recommend the following ways that would strengthen aviation security and work in accordance with the objectives of Regulated Agent Regime in Hong Kong.

1. Review the definition of Known Consignor

Under present handling procedures laid down by Civil Aviation Department, Known Consignor is required to open an account with the Regulated Agent or Airline and enter into the business contract of Known Consignor Aviation Security Declaration (CAD, 2004b). However, this definition may become inappropriate when this is involved with coloading that when the actual shippers do not surrender their information to the regulated agents, let alone open an account with Regulated Agents. Therefore, it is suggested to review the definition of Known Consignor. More discussion is needed on how the term should be changed.

2. Improvement in authorization procedures laid down by Civil Aviation Department

As required by Civil Aviation Department, the Known Consignor Aviation Security should be signed by consignor. But in reality, the Known Consignor Aviation Security Declaration is signed by handling agent. In view of this, authorization letter should be set up that clarify the liability held by the coloading agents when signing the Known Consignor Aviation Security Declaration.

3.       Implementation of Risk Assessment Management

Risk assessment management on the Known Consignors is recommended to strengthen the Regulated Agent Regime.

It is recommended that a mechanism or procedure which suggests RA to identify the ¡§high-risk¡¨ consignors and use risk management approach to determine the corresponding security measures on the cargo would balance the operation efficiency and its security level applied.

4.       Regular review of current practice

Procedures laid down by CAD should be regularly reviewed to identify the threat and vulnerability in process of consignment of cargo. In this way, the scenario discussed in this study would be handled with appropriate measures.

5. Establishment of security handling procedures with PRC

It is recommended that to prevent any undesired incident, a clearer guideline is required for agents for establishing a well-recognized procedure between Hong Kong and PRC air cargo agents/Hong Kong ocean agents, which aims to minimize the impact to the industry, cargo checking or handling.

For the longer-term, a united RAR program should be implemented among PRC sites to clear all uncertainties.  It is believed that a simplified and holistic supply chain security system will definitely be beneficial in boosting the global competitiveness of the PRC¡¦s supply chain industry.

Conclusion

Regulated Agent Regime is used to enhance aviation security of air cargo on board passenger aircraft and protect aircrafts from unlawful interference of terrorist attack. Security issues become more complicated when more business parties are involved, like the case of coloading----coloading agents are involved in Hong Kong. From the Regulated Agent Regime in Hong Kong, security loopholes of coloading exposed that that cargo come from unknown shippers, may be considered as known when Regulated Agents could not fully verify their status. This loophole may become the weakest part of the security system that make aviation security vulnerable to terrorist attack. Apart from Hong Kong, other countries like Japan also adopted this regime. It is hoping that this report would reflect some of the issues in implementing Regulated Agent Regime and that other countries could better their security regime.

Bibliography

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Civil Aviation Department. (2004a, Aug 24). Quality Control Programme Random Screening of Cargo from Known Consignors. Retrieved June 15, 2006 from http://www.cad.gov.hk/application/RAR-%20Notice%20Issue%2005-04e.pdf

Civil Aviation Department. (2004b). Updated Handling Procedures for Regulated Agent Regime (RAR)-Six Edition. Retrieved June 15, 2006, from http://www.cad.gov.hk/application/RAR-%20Handling%20Procedures(E).pdf

Civil Aviation Department. (2005). Retrieved June 20, 2006, from http://www.cad.gov.hk/english/rar.html

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Appendix

Set of questions for telephone interview

Part A

1.       Have you ever come across the scenario that you receive a Known Consignor (KC) Aviation Security Declaration signed by their Non-RA co-loading agents whom are not the actual consignor annotated on the AWB?

2.       In the above scenario, which type of companies would be involved in signing the KC Aviation Security Declaration?

3.       What would be your constraints for finding the actual consignor to sign the KC Aviation Security Declaration?

4.       When your company came across the above scenario, would security measures like x-ray be applied to those air cargoes?

5.       In terms of weight, what is the proportion of that kind of air cargoes in your overall delivery? 

6.       In term of number of shipment, how often do you come across the above scenario?

7.       In that scenario, will the company solve the problem by writing C/O or O/B in the AWB Shipper in KC Aviation Security Declaration?

Part B

8.       How many workers do your company have?

How many workers are there in Air Forwarding Department? What is your position held in the company?

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Sources form www.scsasecurity.org