Proceedings of the Standing Senate Committee on
National Security and Defence

Issue 6 - Evidence, November 6, 2006

OTTAWA, Monday, November 6, 2006

The Standing Committee on National Security and Defence met this day at 11:35 p.m. to examine and report on the national security policy of Canada.

Senator Colin Kenny (Chairman) in the chair.


The Chairman: Before we begin, I would like to introduce briefly the members of the committee.

On my immediate right is Senator Meighen, the deputy chair of the committee. He is a lawyer and a member of the bars of Ontario and Quebec. He is chancellor of the University of King's College and past chair of the Stratford Festival. He is chair of the Subcommittee on Veterans Affairs of the Standing Senate Committee on National Security and Defence. He is also a member of the Standing Senate Committee on Banking, Trade and Commerce and Standing Senate Committee on Fisheries and Oceans.

To his right is Senator Atkins from Ontario. He came to the Senate with 27 years of experience in the field of communications. He served as a federal advisor to Robert Stanfield, Premier William Davis of Ontario and to Prime Minister Brian Mulroney.

On his right is Senator Moore from Halifax. He is a lawyer and has served for ten years on the board of governors of St. Mary's University. He sits on Standing Senate Committee on Banking, Trade and Commerce and the Standing Joint Committee of the Senate and the House of Commons for the Scrutiny of Regulations.

On the far right is Senator Zimmer from Winnipeg. He has had a long career in business and philanthropy and has volunteered for services for countless charitable organizations. He sits on the Standing Senate Committee on Legal and Constitutional Affairs and the Standing Senate Committee on Transport and Communications.

On my left is Senator Banks from Alberta. He was called to the Senate following a 50-year career in the entertainment industry. He is chair of the Standing Senate Committee on Energy, the Environment, and Natural Resources.

On his left is Senator Day from New Brunswick. He is chair of the Standing Senate Committee on National Finance. He is a member of the bar of New Brunswick, Ontario and Quebec and a Fellow of the Intellectual Property Institute of Canada. He is also a former president and CEO of the New Brunswick Forest Products Association.

We have before us today Gary Gilbert. He is senior vice-president and chairman of Hutchinson Port Holdings security committee. Hutchinson Port Holdings is the world's leading container port owner, operator and developer, managing 43 ports globally.

Their global throughput in 2005 was 51.8 million containers. The majority of his career was served in the United States ocean carrier, Sea-Land Service, from 1986 to 1999 in various capacities including: president, Sea-Land logistics; vice-president and general manager, Latin America; vice-president and general manage, Asia; chairman, Asian terminals limited; and, director, North American operations. Prior to Hutchinson Port Holdings, Mr. Gilbert was president and CEO of FedEx Logistics from 1999 to 2001.

Mr. Gilbert, we are pleased to have you here before the committee. I have spoken to the committee about the outstanding presentation you made at the conference in Esquimalt, British Columbia. We look forward to your presentation with considerable anticipation. Please proceed.

Gary D. Gilbert, Senior Vice-President — Americas, Hutchison Port Holdings: Chairman and distinguished members of the Standing Senate Committee on National Security and Defence, thank you for inviting me to come before you. As the chairman said, I was fortunate enough to speak at the Department of National Defence seminar on Maritime Security Challenges in lovely Victoria, B.C. It was my first visit to Victoria and it was enlightening to listen to the other speakers. I was pleased to talk about the important subject that is before us today.

Hutchinson Port Holdings, HPH, was founded in 1866 under the name, Whampoa Dock Company and it has been in the maritime business for 140 years. It is publicly traded and was the first company to be incorporated in Hong Kong, which is our flagship facility, Hongkong International Terminals, HIT. Hutchison Port Holdings is the global leader in container terminal operations, handling 51.8 million containers in 2005. HPH operations are spread globally in 43 ports and 20 countries.

Approximately 40 per cent of what comes to North America comes through one of our ports, either directly loaded or transshipped. HPH is located in some of the ports that you would be familiar with. HPH owns all of Felixstowe, Harwich and Thamesport, which were purchased when the government of former Prime Minister Margaret Thatcher privatized the ports. Most of our work is through acquisitions through privatizations or stock sales.

Currently, HPH has no ports in Canada or the United States. In the United States, ports are state- or municipality- owned and in Canada we have not found the right price yet, but that is not to say that we will not find it. Canada's semi-privatization in the mid-1990s will allow that and a number of people have taken that position. HPH was outbid in a couple of ports but it is likely that we will continue to try.

HPH has four ports in Mexico, three of which we own outright and operate, and one we own in partnership. We are looking to build a major port in the Baja region, potentially to alleviate West Coast volume.

Why are we so interested in having ports in the U.S. and Canada? First, we were all outraged by the effects of 9/11 on the world. Second, the terrorist attack on the supply chain in North America would have devastating effects on the global economy.

Generally, it goes unobserved by North Americans that ships with 7,000 containers arrive on North American shores 365 days per year with cargos equalling a retail load of $70,000 with freight rates of about $2,500 as they come in. This year marks the 50th year of containerization and this industrial revolution has marched forward quietly. Hundreds of millions of dollars are in the supply chain at any one time.

Transportation has been the vehicle and the mode for terrorists, whether airplane, car bomb or truck bomb. We have had assaults on ships, such as the U.S.S. Cole, and we have had containers used in the delivery of terror. At Ashdod Port, Israel, on March 14, 2004, three days after the bombings in Madrid, two containers were smuggled into the country by terrorists intent on blowing up a chemical plant.

We hear frequently how many times illegal aliens are found in container yards wandering around, or still in containers and dead on arrival. One container found in the Mediterranean was completely outfitted for a terrorist trying to enter North America around September 11.

We see disruption all the time by nature: hurricanes, typhoons and tsunamis. We have recovery for it because we have drilled in it. I take you to one of our key facilities. We own most of the Hong Kong operation, where we have 14 berths. We move about 8 million containers, 3 million of which are shipped to these shores. Each of the ships, 14 per berth at times, has three to five cranes making 35 moves per hour. Approximately 10,000 trucks per day arrive at Hongkong International Terminals. If we have a two- to four-hour disruption, we back trucks up all the way to the border of China. If we have a typhoon and find ourselves shut down for 96 hours because of winds and safety reasons, we have containers backed into China for 100 miles.

The labour disruption on the West Coast of the United States in 2002, which lasted ten days, backed up ships significantly. Robert Parry, President of the Federal Reserve Bank in San Francisco, stated that in the first five of those ten days, $1 billion was lost from the economy and in the subsequent five days, $2 billion was lost from the economy as a result of that disruption.

We have an issue of just-in-time. A revolution has allowed us to have low-cost transportation. We have not seen freight rates rise above $3,000 per 40-foot container for the last ten years. However, it is a question of time, in my opinion, that a container will deliver either a dirty bomb or the goods to help terrorists. To cross these oceans to our shores takes a big ship because no small ships make the crossing for economic reasons. Many people say the best delivery system for a dirty bomb might be a truck or a small boat but to go it across the ocean, it must be in a container.

In Victoria, I gave this scenario, which I believe to be relatively accurate. Let us consider this hypothetical scenario. Three dirty bombs go off at one time in three different locations: one on the West Coast of Canada, one in Midwest U.S.A. and one in Southeast United States. That would likely result in 3,000 to 10,000 deaths, and a 30-block radius in each of the three locations would be contaminated for ten years. The issue is that we will not know where it came from because we do not have the tracking system for cargo that we have for many other things with monitoring of location and tamper evidence.

For another example, consider what happened with the outbreak of mad cow disease and everyone pointed fingers at who owned the cow. Europe has a tagging system that allows cows to be tracked. The Canadian Forces, U.S. forces and other NATO forces know where their containers are because they have electronic location and tamper evidence monitoring tags. That system came about after the first conflict in the early 1990s when about 45,000 containers were sent into the theatre. The containers were pre-positioned and became lost. They did not know whether the containers contained boots, buckets or bullets because the containers were pre-positioned, so they had to open the containers to find out.

In the banking industry and in telecommunications we have excellent ways of tracking things. However, the location of each container in the system is unknown through a number of movements.

In this scenario where three bombs went off, now all the mayors of the port cities and other cities and their constituents are nervous about letting another container ship in because we do not know what is in the 7,000 containers on each one of those ships.

On the West Coast, between 10 and 20 ships arrive a day. On the East Coast, between 10 and 15 ships arrive a day. Multiply that by 7,000. Once you have taken that in mentally, remember it takes 14 days to come across the Pacific and nine or 10 days across the Atlantic. Day two out, we have another 15 to 20 ships for the Pacific; day two out, we have another 10 to 15 ships for the Atlantic, and you can start multiplying it, because most ships are at sea and not in port. Two-thirds of the fleet are at sea.

Now we have all these ships at sea and no way to bring them in and triage them because the mayors are concerned, labour is concerned and everybody is concerned because how do we triage the vessel?

Presently, there is some security. Let me lay out what we have now. We have the International Ship and Port Facility Security, ISPS, Code developed by the International Maritime Organization, which is a binding body that grew out of the Tory Canyon incident that broke up on the coast of Normandy, and then we had the Exxon Valdez after that.

Basically, this code was developed for safety of life at sea. In 2004, we were able to put through a number of things that made our facilities go from beyond citadels to fortresses. We now have better access and egress, with worker identification. We have 2.9-metre fences, closed circuit TVs, a ports facility plan and different levels we go up to.

I believe the ports have been able to make themselves truly stronger. Here we have a misnomer of port security versus supply chain security. I do not believe we have a major issue with port security, but we have a major issue with supply chain security.

The next layer to look at is the manifest. In particular, U.S. Customs and Border Protection and other customs people say, give me the manifest 24 hours ahead of time. I will scour the manifest for data that I find suspect and then I will look into that container and inspect it.

The customs people take anomalies, such as first-time shippers they have never heard of, and they run things like a Dun and Bradstreet record on them to see if they are a valid company; or if they find things that do not typically move from one place to another, such as coconuts from Norway, resins from Jamaica or something out of the ordinary. They check to see if what people say is in the box is truly in the box.

In fact, they end up having a low-load figure of less than 1 per cent. We hear how many boxes are inspected, and we have terminology of ``inspected'' versus ``screened.'' A manifest is screened 100 per cent. The boxes are inspected, they say, 5 per cent, with less than 1 per cent in the loading port and 4 per cent in the discharge port.

Customs have also put together an initiative called the container security initiative, CSI, which puts agents into loading ports. In the port of Hong Kong, which I mentioned to you, less than 5,000 containers were inspected last year in CSI. First, using the present methods, CSI is unmanageable. They are also the guests of the host countries. How much pressure do they put on the host countries to do more work? I think probably there will not be a significant amount more done than that 1 per cent.

What other layers are important? You heard testimony from Commander Stephen Flynn. Commander Flynn originally came to us as a student because he wanted to understand shipping. We have become his pupil and the roles have been reversed.

His position is, there is no silver bullet. We need layers of defence and security and if we have five layers of security at 60 per cent solution, mathematically we are at 99 per cent. Right now we have a trust-but-do-not-verify situation of the manifest. We feel, of all the 53 million containers running through our facility in 2006, each one was a Trojan horse. We do not know what was in that container. We can only trust what somebody said.

Our second layer, beyond the ISPS code and the manifest scouring, is location and tamper evidence. It is the same thing that Canadian Forces, the U.S. Department of Defence, Australian and New Zealand Army Corp forces and NATO forces use. We need a tracking device on the box that tells us if the box has been breached and where it is. That is no different than exists in toll roads today. On the East Coast of the United States, there is something called ``easy pass'' on toll roads — I am not sure what it is called in your jurisdiction. It is a device that tells when someone has gone through, and then they pay their bill and move on.

A lot of people say that detection devices are expensive. Yes, some of them are. Chemical, radiation and biological detection devices are expensive sensors that are difficult to build. However, light, shock, humidity and temperature are cheap as chips. They are in every one of our vehicles. They are so inexpensive that they are almost negligible in expense.

Layering that in, if you had a light sensor for tamper evidence, you would know if somebody cut a hole in the box and put something in it — or if it was out of the system for a long time. An intermodal load typically has 16 different moves. In each one of those moves, the load has the opportunity to be breached.

Let me take you to the fourth layer, which deals with radiation portals. We have many of them. We are getting better at them. We have deployed radiation portals in Felixstowe in the United Kingdom and in Rotterdam. We run most of Rotterdam in the Netherlands; we have it in Hong Kong and also in the Bahamas in Freeport. Those radiation portals are unique because they protect their country, with the exception of Freeport and Hong Kong.

In the Netherlands, everything is monitored as it goes into the facility but not necessarily the transshipment. In the U.K, everything that goes out of the system is monitored; so we protect the U.K. by U.K. Customs and Excise.

The fifth layer is scanning, a radiology picture of the box. A nuclear device or radiological material shielded by lead will not be picked up by a radiation portal monitor. We have to scan the box. Most boxes — whether it is a box of athletic footwear, knockdown furniture or any number of things — are generally full loads and are homogenously exactly the same inside. As we scan the box, we should be able to say, this box matches up with the manifest, it is for Canadian Tire and it is patio furniture for the spring. Each box of the same material will look the same and we can use, against that, a mapping of their boxes time after time with pattern recognition.

If there is a deep dark mass in it, we need to inspect it. That is why, by matching up radiation, location and tamper evidence, the ISPS code manifest and scanning, we have now reached a significantly high level of security.

As a company, along with the Hongkong Terminal Association, we realized that the present methods of scanning boxes were holding back the amount of containers we could process.

Heretofore, we laid the container at rest, ran a machine over it and then let the container go. We wanted to have an option whereby we could run into our gates at the same speed, which is an average of 16 kilometres, through a gauntlet and then spread out into the gates, the same way you would come down a highway and spread into tollgates. We wanted be able to do the image, the radiation scan, as well as the Radio Frequency Identification, RFID, read. We would then pass that information to authorities so they could match it with manifests, as well as with any other intelligence they might have.

We ended up showing that we could do it at normal speeds. Last year, with two gauntlets moving into about 12 gates, we inspected 1.4 million containers versus the 5,000 that were inspected by the U.S. Customs and Border Protection, USCBP. This initiative was private.

Where did that take us? Here we come to a coalition of the willing. We have only about four major terminal companies that handle almost 90 per cent of what comes into North America from Europe and Asia. We believe that we can get those four companies together, if there is the will to do it. I believe they are the coalition of the willing.

We recently saw the Security and Accountability for Every Port Act, SAFE Port, which was signed into law in the United States. Many people sighed in relief saying, ``Now we have port security.'' In fact, they codified what I believe was business as usual and the status quo. When we look to having a mandate for the supply of scanning and radiation portals in loading ports, we received one of the worst answers we ever heard. It was: ``Let's do another pilot.'' We are doing potentially three more pilots.

The uniqueness in my interpretation — and I could be wrong — is that the tricky words in the SAFE Port Act are that they want a pilot to do 100 per cent inspection. On the surface that sounds terrific. Obviously, they will not go to Hong Kong, where they should go, or Yantian in China, which handles the majority of the volume coming out of Asia. They will find three little ports on which they can do a study because they can reach 100 per cent and fulfill the mandate.

We have invested $200 million in this and security pilots. Our big question is: When will this inspection truly be a priority?

Mr. Chairman, I thank you for letting us speak to you on this subject. We believe it is a priority. We would like any support for a truly trust-and-verify situation.

We dealt with the issue of nuclear armament when the U.S.S.R. was in business. To find those nukes, we had a trust- and-verify policy. Here, in the supply chain, we are again in a situation of trust-but-do-not-verify. I dare say, I would trust the former Soviets more than I trust the terrorists.

Here we are again today with a trust-but-do-not-verify situation, and I believe it should be a global priority.

The Chairman: Thank you, Mr. Gilbert. Would it be fair to say that the data integration folder you presented to us gives a quick summary of the organization of the data that you believe should be collected, and that data allows you in Hong Kong to increase rapidly your level of confidence that what is in the container matches what is in the manifest?

Mr. Gilbert: Yes, Mr. Chairman. The picture in front of you depicts a small ship that holds between 3,000 and 3,500 containers. If we are at MARSEC 1 when the ship fails —

The Chairman: Can you explain what that is?

Mr. Gilbert: MARSEC 1 is the lowest level of security under the International Maritime Organization. If we had an incident, we would go to MARSEC 3. It is similar to the colour codes, for example, from green to red.

The Chairman: The difference between MARSEC 1 and MARSEC 3 on a port is what?

Mr. Gilbert: MARSEC 1 is a green. MARSEC 3 is a red.

The Chairman: Is the port shut down under MARSEC 3?

Mr. Gilbert: We turn our ports over to government control at MARSEC 3. At the moment, Felixstowe is under MARSEC 2 because of Transport Security and Contingencies, TRANSEC, in the U.K. We have a heightened level of alert there, but we are not at MARSEC 3.

As you look at that, each corner deals with the bay plan. There are bay plans for all ships at sea because we need to know the size of the box and voyage destination, et cetera. At MARSEC 3, the information concerning all those ships could be triaged to let us know exactly what is in the box. That would provide us with a way to let them into port. If we trust the manifest information — and how many people lie on customs forms around the world right now — you could scan the box and look at each box individually in minute detail, if you did not pick up something already through pattern recognition.

The Chairman: You feel that some of the critical information you are giving us has to do with the VACUS image, which is essentially an x-ray image that gives the customs officer a profile of the density and shape of what is being shipped. Then there is a radiation profile that would indicate whether something is radioactive.

Mr. Gilbert: That is correct.

The Chairman: The container OCR is what, sir?

Mr. Gilbert: It is a camera picture of the container number and the licence plate of the truck that brought the container into the facility.

The Chairman: That is the next thing below it. What do other technologies include?

Mr. Gilbert: RFID shows location and tamper evidence.

The Chairman: That technology shows whether someone had cut a hole in the box, whether the pressure had changed or whether there was light in the box; is that right?

Mr. Gilbert: It also shows if the box was unduly detained in some place. For instance, a factory load to a certain port should take a certain amount of time. If it took significantly more time, then it would be suspect as well.

The Chairman: You are arguing that if these five pieces of information are fused together and looked at by a customs targetter, together with what other intelligence the customs officer might have, we would then have a significantly higher level of confidence about what comes into and goes out of our ports.

Mr. Gilbert: That is correct. I would take it one step further, Mr. Chairman. It would also provide the ability for forensics if we had a problem. First, we would have a deterrent. Second, we would be able to act on intelligence. Third, we could isolate the situation. Fourth, we could have forensics go after the perpetrators.

The Chairman: In your view, should this inspection happen every time a container comes into a port and every time it leaves a port, or is one way sufficient?

Mr. Gilbert: You must remember that the ports are fortresses, as I said. I believe that an ISPS certified port is a secure port. If it has been sent from one ISPS port to another by ship, it is almost impossible to get into that container. Once it is outside the gates, it is as vulnerable as it could be.

My contention is that every box that comes into a port needs to be inspected using all these security levels. The manifest needs to be looked at. The box needs to have location and tamper evidence, a scan and a radiation monitor. Once the box has received those inspections and it moves on through a transhipment port, which is an ISPS port, then it is okay. Please remember that we have readers on all the cranes. Therefore we also know from the tamper evidence if it has been tampered with in the ISPS facility and whether it can go on to the next ship. The box really needs one shot at the loading port. If there is a problem with a box, it should be denied loading, so it does not go to sea. Because of the 24-hour rule, containers rest for 24 hours inside the terminal before they are loaded into the ship. There is a 24-hour window to have a no-load assignment given to them.

Senator Meighen: Why is there a 24-hour rule?

Mr. Gilbert: They need to provide the manifest 24 hours prior to loading.

The Chairman: The question was: Why not 23 or 26?

Mr. Gilbert: It was an arbitrary rule that came out from U.S. Customs and Border Protection.

Senator Moore: As an example, I want to run through what happens to one container. Is there a register for every container that is manufactured in the world? I think another witness told us there was. Can a container that does not bear an international registration number get into the system? You mentioned that the average container is moved 16 different times. I take it that means from loading onto the ship, to going across an ocean, landing, discharging into the port, being put on to a truck, then onto a railcar, then being moved out of the port facility into a transport system to another city and handled again.

How do we know that the people handling the container in all those links along the way are secure? Who verifies that? This security looks like something that is necessary in view of the examples you presented to us. Maybe you could answer some of those questions. Others may have further questions, but I want to understand what happens, going back to the beginning where every container is registered.

Mr. Gilbert: Senator Moore, the manufacturers follow the international standards organization specifications for a container. The standards specify how much the container can withstand. Basically, it carries 35 tonnes. The container must have strength in its corner castings and each box is assigned a number, either through the leasing fleet to which it belongs or through the ocean carrier to which it belongs.

Senator Moore: Where is that registration maintained? Is it in Paris? I believe we heard that from another witness a while back, but I may not be correct.

Mr. Gilbert: I do not have that information.

Senator Moore: Is there an international registry for each container as it is manufactured?

Mr. Gilbert: That is correct. I believe — I could be incorrect — it is from the International Organization for Standardization, ISO.

Senator Moore: Then what happens?

Mr. Gilbert: Your second question was: Can a non-internationally registered box enter the system? These boxes are painted all the time because they are scraped, banged and become old, and carriers want them to look spiffy because they are good advertising on the road. The same way you can steal a car and change its paint, a number can be changed as well. That is exceptionally easy because everyday maintenance is done to keep the containers in proper shape. The box would still be an ISO box and it would likely have an ISO number, but it would be like stealing a licence plate from someone else.

Your next question was about the 16 moves. As an example, Hudson's Bay Company wants to bring athletic footwear into Toronto, but they source it in Surabaya, Indonesia. From a factory in Surabaya, it goes by truck to the port of Surabaya.

Senator Moore: What happened to it before it left the port?

Mr. Gilbert: It probably is picked up by an empty truck from the port and taken to the factory. The factory then loads it and a truck driver drives it back to the port.

You can imagine that the wages for truck drivers in Surabaya, which is one of the distant islands of Indonesia, is probably nominal. The truck driver could get a bribe to look the other way that could be far beyond his wildest expectations. We do not have any way to know if a company with the reputation of the Hudson's Bay Company bringing athletic footwear in has said: ``I believe it is athletic footwear: That is what I bought from the factory and my reputation is impeccable,'' which it is.

However, someone could have paid the driver from the factory to Surabaya. The container now is loaded onto a small feeder ship out of Surabaya and goes to Jakarta. It possibly goes from a small feeder vessel that is not in the major port of Jakarta to a small place, discharged by its own ship's gear, and again into the major port of Jakarta. Jakarta could get the bite of the apple right now by having radiation portals, the radiography scan and the RFID tag.

Senator Moore: They do that now?

Mr. Gilbert: No.

Senator Moore: Is that what you would like to see?

Mr. Gilbert: We need to make everyone's boat float. If Jakarta does not do it and Kelang does, then Kelang says ``This is not worth it and I will not invest in this.''

It goes from Jakarta to Hong Kong or Singapore, which are safe ports, and U.S. Customs and Border Protection is the last port before it leaves for North America. It will then take the manifest. We do not know what happened in Surabaya port or Jakarta port. Certainly they are havens for al Qaeda in Indonesia. We have this whole supply chain as it hits Vancouver, or maybe Prince Rupert some day, and the container goes on the railroad across the country and it is delivered to a rail yard. The rail yard discharges it; a trucker pulls it up, and then they pull it into the yard. I do not know if that is 16 moves, but it is a pile of them.

Let us say it then exploded. Where in the supply chain do we have any forensics of where it was? We have a black box in an airplane, not to make it fly any better. The black box in the airplane is needed when the airplane goes down, telling us what happened and where it happened. Then we fix it and allow the public to have confidence to go back and fly. We have no confidence if those three devices went off, as I mentioned before, in how to restart the system.

Senator Moore: What is the key tracking mode? Is it the manifest? Who initiates that? Can that change along the way, using the example you just took us through? How can that tracking be tightened, if that is a big part of the problem? I think you are looking at each stop: the trucker, the smaller ship to a bigger ship, trucker and rail. They all look at a piece of paper, and say, ``Oh, yes that is container number 2 and it has so many boxes of athletic footwear in it.''

Who initiates that document and can it be changed along the way? How do we verify the authenticity of the documentation and the contents along the whole supply chain, as you call it?

Mr. Gilbert: There are two parts to that, Senator Moore. First, the tracking is done so that the ship line and the people who handle it know that it is coming into the facility. Their agents or their own personnel say, this box has gone from this point to this point to this point. As a terminal operator, we tell a ship line and give them that bay plan: we have loaded this ship as it is, and that number goes along with it.

Senator Moore: The container number goes along with it?

Mr. Gilbert: Yes: A loose confederation of different shipping lines moves boxes, and they find out when the box comes through the gates that this box has arrived. The tracking system is fairly loose. Information is keyed in from different points of information and delivered to the shipping company.

The tracking information is matched with the bill of lading manifest, which the shipper has. The shipper will say, ``This is the amount of goods that I have coming.'' A bill of lading may have more than one container. It may have 15 containers. The shipper knows this container comes into the shipper's inventory at some point in time but does not know totally where anything is.

However, if the box was, as you said, disguised, then one could beat the system because it might be somebody who did not know who it was supposed to be or they picked someone else out to come in.

The tracking system is by an accumulation of events that goes to equipment control managers of the shipping lines, while at the same time the importers use the bills of lading and purchase orders to verify the containers they bring in.

Let me go to your question regarding a situation if someone flips the manifest. Right now, I dare say that you have the same problem that most of the Midwest has, the scourge of methamphetamines. The drug enforcement agency is trying to find out how boxes coming out of legitimate chemical factories in India and China are making their way, re- manifested, into Mexico and moving up to a manufacturer of cocaine and the methamphetamine labs. It is a significant amount of traffic and it moves in containers.

If we had an Interpol of sorts for the supply chain, the same as we have for money laundering and telecommunications, this container would be a big item to track down. How did it get to Algeria and re-manifested into Manzanillo, Mexico?

Senator Moore: Somewhere along the way someone looked the other way and a new piece of paper was generated to permit this container with this illicit cargo to go forward.

Mr. Gilbert: That is correct. I will take it one step further. We run a big chunk of the port of Karachi. All this equipment should be in the port of Karachi because governments would want to know that, including rugs coming out of Karachi, there are potentially armaments out of Iraq and Afghanistan, as well as drugs supporting terrorism. We do not have the equipment in Karachi.

That 1.5 million scans that I mentioned are sitting in a server, like in a shoebox. We gave 22,000 scans to U.S. Customs and Border Protection to analyze and we have not heard back.

Senator Moore: The average-size ship, you mentioned, carries 7,000 containers.

Mr. Gilbert: The largest on the water right now is 11,000.

Senator Moore: Let us use the average of 7,000. When that ship comes into port, does someone pass to the port authority a piece of paper saying this ship has 7,000 containers on board to be offloaded near a port, and have those 7,000 containers been verified? Could there be 7,020 and we do not know where the extra 20 came from?

Is there some control mechanism as to the quantity of containers on a ship so that as the receiving port, I will not find an extra 50, or 50 less? Is there some kind of verification or an international system whereby a receiving port can know that the list of containers is complete? Is there any type of management or protocol that would handle that sort of situation?

Mr. Gilbert: If I could draw your attention to the page that has this multicoloured box, the terminal operator operating that port will know exactly what boxes are to be taken on and off the ship, to the exact box. There will not be one more or one less. On that diagram is what we call a bay plan. If you slice a ship by each one of its bays, that diagram will show vessel, voyage, destination, weight, if it is a hazardous container and a number of things.

The Chairman: That is on this system. Is this system in place in every port in the world?

Mr. Gilbert: Every terminal operator receives it electronically from the previous terminal operator to tell the terminal operator what they will receive.

We will know every container that is to be received. The point is: Is the container a Trojan Horse?

Senator Moore: The problem is not the quantity; it is the contents.

Mr. Gilbert: Has Hudson's Bay or Canadian Tire been duped? We know every box in every port because we need to know it is going in the right direction. We load a ship by weight. Just as in a canoe, you do not put too much weight on one side so the ship flips or too much on the ends so the middle breaks.

The issue is: Is the container a Trojan Horse where it was initially believed to be a legitimate shipment that has been compromised in the supply chain?

The Chairman: The reason we ask this question, Mr. Gilbert, is that we have received testimony that it is possible at the customs level to have containers come into a port without customs being aware of it. If 1,000 containers were unloaded, theoretically there could be 1,005 containers come ashore and customs officials would not be aware of the last five. Can you conceive of such a situation?

Mr. Gilbert: In the 53 million containers we move around the world, potentially once in .00000 times we transpose a number: Instead of picking up 1,244 containers we picked up 1,245, but it is rare.

The Chairman: You are saying it would be an accident. The testimony we received was it could happen if someone was trying to beat the system.

Mr. Gilbert: I do not believe that to be true.

Senator Banks: What you say is reassuring. Looking at this diagram, if it says there are 6,842 containers on this ship, can no one put container 6,843 someplace in this ship to be offloaded by someone at another port? That is not possible or likely in your view?

Mr. Gilbert: Senator Banks, I would say that is virtually impossible.

Senator Banks: That is good to know.

Mr. Gilbert: We load some of these ships with three to five cranes, and we have industrially engineered what box goes into what slot. An outsider could not even get into the system to allocate a box that is coming out of a major stack, get it onto a chassis with a driver to take it in sequence to five different cranes working over a ship and to put one into the system. It does not happen.

Senator Banks: If an insider tried to engineer this, someone would say, wait a minute there is something screwy here?

Mr. Gilbert: It is virtually impossible.

The Chairman: Does what you say apply in Karachi? You just gave us Karachi as an example of a port that does not appear to be as well-organized.

Mr. Gilbert: I believe Karachi is well organized. I do not know what happens outside the gate.

We load ships by individual bays, which are illustrated by the coloured boxes on that diagram. Each box contains a significant amount of information for the stability of the ship and its voyage and destination. If we are told that a shipment contains rugs, we do not know if it contains rugs plus a dirty bomb.

Senator Banks: It is nice to hear from you. You may be unique as a concerned operator of a commercial business. I admire your initiative and congratulate you on being as concerned as you are about security. Your concern makes it clear to us that the interests of the economy and the interests of security in every sense are inextricably bound together.

Your company has invested $200 million in making your operations secure. I know there is a certain amount of altruism in that investment, but it is also good business, I presume. Is it reasonable for the world to expect that it is such good business that the operators of terminals and ports will invest all the money necessary to put into place the kind of system you have described, the six layers that will provide 99-per-cent certainty?

Mr. Gilbert: Altruism aside, we are the leader in our industry by far. As well, we are as outraged as anyone by terrorist activity.

The IMO, under which we are bound by international law, required us to do this. Once we had the requirement and the mandate, we did the work, and we charge for it. We levy a security charge on each container that comes through the gate. In many places, such as China, the charge is approved by the ministry of communications. The charge is currently 20 to 30 renminbi, which equates to approximately $2 to $3.

In the U.K., because we do radiation inspection, we charge five pounds inbound and 10 pounds outbound. That is our highest charge.

If the mandate were to require more than an ISPS code in the manifest and three more layers of information — a scan, a radiation portal monitoring and tamper evidence from a tracking device, as well as having the customer verifying contents in order to enter our shores — a further charge would be added. This information would require us to install expensive equipment, and the charge would be in the area of, but no more than, $20.

The average value of goods is $65,000 to $70,000 and security would cost $25. The freight rate for 30 tonnes, in boxes, is 3,000 containers. That makes a postage stamp look pretty expensive. This is de minimis.

Senator Banks: It is less than 1 per cent. There is no monetary impediment to doing this?

Mr. Gilbert: We only want to recover our costs. We make money putting boxes on and off ships.

Our difficulty is that the World Customs Organization is a non-binding organization. We need a mandate to obtain the necessary information before goods can get into the country. We want that information as a deterrent. We want it if we are at MARSEC 3, to triage ships to let them in. We want it so that we can use human intelligence to track it down, and we want to use it for forensics. We do not have any of that now.

Senator Banks: I assume it is your view that the only way that could be done effectively is by the respective governments, since there are shippers who do not belong to any organization at all, and these organizations have no teeth. Is that fair?

Mr. Gilbert: Yes, and that is why we are frustrated with the SAFE Port Act. It asks for certain information because that has been seen to work in the private sector. It requires three more pilots.

I am concerned about public-private partnership, because it is just not there.

Senator Banks: We are used to that in this country, too. When there is a big problem, we study it repeatedly, which I guess is what we are doing now.

You mentioned that the very safe ports in the world include Hong Kong and Singapore. Do you regard any North American ports as very safe ports in that category?

Mr. Gilbert: I did not mean to malign Indonesia, but it does have al Qaeda cells.

Senator Banks: I am asking about North America.

Mr. Gilbert: I believe there are safe ports because they follow the ISPS Code. Their vulnerability is not their perimeters, their personnel or their security regimes. Their vulnerability is the supply chain, the same as ours. It is the Trojan Horses, the 14 million containers that enter North America every year.

Senator Meighen: Mr. Gilbert, your presentation was excellent.

If you will help me with my math for a moment, the chairman and I both thought that 20 was 1 per cent of 2,000.

Mr. Gilbert: That is the freight rate. I was speaking of the value of the goods.

The Chairman: It is roughly a 1 per cent increase in the shipping cost to the shipper.

Mr. Gilbert: To the shipper, but the value of the global supply chain going down, I was equating it to the —

Senator Meighen: My math is always suspect. Forgive me for asking.

Following on from Senator Banks' questions, a bad guy would presumably pick a port other than Hong Kong to carry out illicit deeds, and would pick a port unlike Long Beach to enter.

Your company has invested $200 million so far. Perhaps you could describe the state of the industry. You are the largest. Are there two or three other major players and a lot of minor players?

My point is that there are still a lot of places to go where surveillance is much less, I presume. I would like your comment on that.

Are there a lot of complaints from companies such as Hudson's Bay and Canadian Tire about added delays due to security measures? Is there a growing incentive for companies to choose a port where there is less security so that their goods can come in more quickly and at less cost?

Mr. Gilbert: There are certainly river rat ports in Miami where they bring small coasters up out of Curacao and those types of places. When we take a port network, the issue is that we are not looking for the needle in the haystack as much as taking the hay off the haystack. If we can take all the containers out of Yantian because they forgot a screen — Yantian is the second biggest port out of China now — and add those to Hong Kong, in that whole area there are 40 million containers shipped globally out of those two ports. If you can say, ``I am taking all the hay off that haystack and I have that recorded,'' you can say: ``I feel good; that is good.'' You can then add that up with both Rotterdam and Felixstowe. We feel we run our port in Tanzania very well. However, if we had that in Tanzania, we could take that off the haystack. You can say that we are getting close to 85 per cent inspection of all containers before they leave port for their destination.

Senator Meighen: That is where we are now?

Mr. Gilbert: No, we are at less than 1 per cent. However, we can reach 85 per cent if we then say —

Senator Meighen: Inspect at the big ports.

Mr. Gilbert: Then you say to the small ports that do not handle inspection, and cannot afford equipment for containers coming out of, say, Trinidad, ``We will do our inspection of that container on the shore.'' We can target those containers more because they have not provided inspection information.

Proliferation is a global thing. We have been fortunate in North America, but hotels in Egypt have not been fortunate; Bali has not been fortunate; and in Madrid, rail has not been fortunate. They have not been able to get the information to us, but they have been trying.

Without a mandate, the retailers will say, ``I moved 250,000 boxes because I am Home Depot. I moved 400,000 boxes because I am Wal-Mart. If you add another $25 on to that amount — I still have to compete against Target stores and Canadian Tire. If you do not mandate it and consider it as imperative, I am not taking the added cost.''

The IMO said that we will make citadels into fortresses. They say, ``It is across the board.'' The Chinese government says that the charge of 20 renminbi and 30 renminbi is good; everybody's boat floats the same way. Until there is a mandate from government saying that this is what the government thinks is right, it will not happen. Remember that with the Hong Kong project, we made it an industrial engineering project. However, we did not slow down commerce. If we were to stop and put a machine over every box, it would not have happened.

Senator Meighen: You would have lost some customers.

Mr. Gilbert: We would have shut down all the ports we run, as well as everyone else. We now feed at the same speed, going through the easy passes and the toll roads to obtain this information. It is a question of mandate and will versus going through three more pilots.

Senator Meighen: Can you describe how the port operator system works now? There is your company and two or three other companies your size. Then, are there only a bunch of small operators locally?

Mr. Gilbert: We were 53 containers million in 2006. A.P. Moller Terminals is probably around 38 million; Dubai Ports World is probably in that range, as is the Port of Singapore Authority, PSA. I can give you the breakout after the top 20, but I did not bring it with me. It would then drop down to less than 10 million containers. That would be Eurogate and two or three ports in Italy. Everyone else breaks down below that.

New York is about 3.5 million containers and it is split among three major operators. It disperses quickly after that.

Senator Meighen: You are telling me, I think, that the major operators, either voluntarily or if mandated to act in a way similar to what you have described as your actions in Hong Kong, would cover quite a bit — pardon the pun — of the waterfront, would they not?

Mr. Gilbert: We have had this discussion. We have a coalition of the willing. We are looking for the mandate and we are ready to go.

The difficulty is that it is not taken as a priority or an imperative.

Senator Meighen: By some people in your business or government?

Mr. Gilbert: By government. We are waiting for this to be implemented.

The Chairman: If I understand the situation correctly, you have done a pilot project and demonstrated that it works. We are talking about the United States government at this point.

Mr. Gilbert: That is usually the good housekeeping seal of approval.

The Chairman: Correct. You are hoping that the United States will mandate the sort of facility you have put in place in Hong Kong for all of the US ports. Is that what you are saying?

Mr. Gilbert: If someone were to say for Vancouver, this all must be done, people would move all their goods to Seattle. It must be across the board.

The Chairman: If the United States moves, other countries will move with it?

Mr. Gilbert: Absolutely: That is where the volume is.

Senator Meighen: You probably answered this. I appreciate there are some ports without facilities to deal with shipping today, but are you saying that it is realistic, if government waved their wand and said, ``This is now mandated,'' to cover all ports of significance in both the United States and Canada?

Mr. Gilbert: I will take it back to where I started. It takes a big ship to cross the Pacific. The ship to Jakarta could make it across the Pacific as a shipping boat or a yacht would, but big ships go to big ports. These are Felixstowe, Rotterdam, Le Havre and the big Shanghai. Shantou feeds into Hong Kong. With Jakarta, that ship does not cross the ocean; it feeds into Singapore or Hong Kong. Those ports feed into these transhipment ports. Therefore, you would see very few flowing up, with the exception of the Caribbean or Mexico. That would be the minimum.

Senator Meighen: Can you speculate as to why there is reluctance by government to do this type of mandating?

Mr. Gilbert: This is my own personal view, and not the view of the company. It is fairly harsh. I think if someone has the information and does not act upon it and something happens, then they are liable for it and take the blame. That is part of the problem.

The other part is that the amount of data is significant. The resources available to manage this information, and how it is managed in a timely fashion, are important.

Let us say we did manage it but we ended up with a MARSEC 3 situation with explosives. We can at least triage ships to let them in. We can then put a lot of manpower on it as a result of the reaction. Saying that we do not want the information because we are nervous about it is a travesty.

Second, I think governments like to talk to governments. They feel in their comfort zone with bilateral agreements, and foreign affairs wants to talk to foreign affairs. We are tripped up here because we do not know how to be good public-private partners. It may be an extension of the Cold War, where it was such a big problem that the public said, ``We will let the government take care of it because we know we cannot take care of it.'' The private companies let them take care of nuclear holocausts. We are in Neighbourhood Watches for terrorists. I do not think we are out of the Cold War. That is my own personal opinion. Did that answer your question?

Senator Meighen: Yes.

The Chairman: Before we go to Senator Zimmer and Senator Atkins, you used the word, renminbi. To what does that relate?

Mr. Gilbert: That is the currency of the People's Republic of China.

Senator Zimmer: Mr. Gilbert, thank you for your presentation. It was interesting but also sobering.

One element is the system's infrastructure and technology. I want to look at the other part of the equation, the human element side.

Organized crime, security clearance and the presence of organized crime operating at any port of entry poses a challenge for nations. What initiatives are in place by your company to defer nefarious or criminal activity? What precautions and systems do you have in place to deter that?

Mr. Gilbert: We have been in the business a long time for the interdiction of drugs, as well as theft of valued goods in our industry. This activity has always been an issue for us. If we lose a container now and then from an inside deal, we can track it usually with all our equipment. We also can track it down by law enforcement and turn it over to their protocols.

In virtually all our facilities, we also have worker background checks, with documentation and worker ID cards, and some have biometrics. We are moving more to biometrics.

The issue is making our citadels more like fortresses by putting in different fencing. With regard to organized crime, we do not have much at all for the facilities. Some places are different from others. I will not mention any but with some customs authorities there are small briberies. We understand those. Those are not actual thefts or major terrorist activities.

Senator Zimmer: When a shipper or trucker compromises the integrity of the system and violates it, are they marked forever? Do you keep track of them?

Mr. Gilbert: The truckers certainly are kept track of. We do not track the shipper the same way because it goes back to the Trojan Horse thing. If they put something in a box and they say it is footwear and we see it is footwear, we do not question it. However, if it is leaking and the weight is not 1,800 pounds but 2,700 pounds, it is obviously suspect and we turn the box over to local law enforcement.

If hazardous material was leaking, we would have the fire brigade look at it. Usually it is their jurisdictions to take on the shipper.

Truckers are usually put on a blacklist because they are reckless and damage equipment. If they have ever stolen from us, they would not enter our port. That information passes through to other ports as well.

Senator Zimmer: Do the port workers in the ports managed by your company receive security clearances? If so, who conducts these checks and how often are these checks conducted?

Mr. Gilbert: I cannot say there is a security check for classified information. It is more of a background check for a criminal record. It is done at varying degrees based on our 43 locations. Some locations are significantly more strict than others. In some of the less developed countries versus developed countries, we see a different value.

Having said that, we have highly skilled jobs that are well sought after. We can ask more questions for these highly skilled jobs than for other jobs. These jobs include crane operators, machine operators, equipment control and stowage planners.

Senator Zimmer: What strategies has your company employed to deal with unionized port workers that are resistant to these measures such as background checks? Of course, the element of the invasion of human rights creeps in. What measures have been taken in that area?

Mr. Gilbert: As I said, each country is different. We operate in Myanmar and I would say that security is the tightest we can imagine with our workers, because of who runs the show there.

TRANSEC in the U.K. have given us guidelines and we incorporate them into our security plans and they have high biometrics. The U.K. is very unionized and they have accepted it.

We have not seen the resistance we have seen in other places because it is not a political issue in certain areas.

Senator Zimmer: Do you receive ongoing information from the RCMP, Interpol or the FBI as far as individuals or companies that are a security risk?

Mr. Gilbert: No, we do not.

Senator Atkins: I have two or three general questions, Mr. Gilbert. Are you in Singapore?

Mr. Gilbert: Is our company in Singapore? Me personally or our company?

Senator Atkins: Your company.

Mr. Gilbert: No: The Singapore Port Authority owns all that.

Senator Atkins: It is a big operation.

Mr. Gilbert: It is: Hong Kong and Singapore are always vying as to who is the biggest dog in the hood.

Senator Atkins: I have been there. It is impressive. Did you bid for the six ports in the United States?

Mr. Gilbert: It is not the six ports. P&O Ports was a large global. Yes, we were in the bid initially for P&O Ports when they came on the market. We wanted their Indian and Australian assets the most. The U.S. assets, in my opinion, were not good ones compared to the other assets. It ended up getting, in my opinion, well out of hand between PSA and DP World. DP World prevailed.

Senator Atkins: Does your company own any ships?

Mr. Gilbert: No sir, we own no ships.

Senator Atkins: Do you own containers?

Mr. Gilbert: No, we own no containers.

Senator Atkins: Who owns the containers?

Mr. Gilbert: Leasing companies own them and lease them, or international shipping companies own them. Companies such as GE Capital own a large number of containers and they lease them. There are a number of different tax things they do in their lease fleets.

We looked at it. It was not our core business so we did not enter into it. Shipping companies, having been in the industry for a long time, are always attracted to volume because they keep building bigger ships. That is good for the shipper because they drive each other's rates down. We do not see it as good business compared to owning land and operating on the land.

Senator Atkins: I want to touch on the manifest. We all know that at the moment there is a 24-hour period before a ship can come to port.

Are you satisfied that the manifests are effective? When you describe the layers of ships that are in the ocean, who surveys these manifests to ensure they are appropriate? I know U.S. Customs and Border Protection does. Do they have the bureaucracy to handle this kind of input provided from manifests?

Mr. Gilbert: For clarification, senator, it is 24 hours prior to the vessel leaving the loading port. If it is in Shanghai, the information on the manifest is delivered to, in this case U.S. Customs and Border Protection, 24 hours prior to the vessel leaving the port so that U.S.CBP has the option to request a no-load of a certain cargo.

The information they receive is no different than the information for a customs declaration when coming into the country: what it is, where it was manufactured and the price of the goods, et cetera.

The declaration is run through different algorithms in Reston, Virginia, for North America. They re-issue back to the load port if they find an exception they want to look at. They look at manifests but only for anomalies in the declared goods, not necessarily for what is actually in the container.

Senator Atkins: Do they let you know if there is any significant information in those manifests that would suggest to your company that you should not ship it?

Mr. Gilbert: They do not tell us, but you raise a unique situation. We give information on the physical box: its number, what it looks like and whether it matches what it is supposed to be. The manifest has a significant amount of commercial information that is not something we should have because we then would have commercially sensitive information that could match off what Canadian Tire Corporation does, versus Hudson's Bay versus Wal-Mart. We believe that information should be for government only. The box is fine if the contents are said to be athletic footwear therefore we have the general name of the commodity; if the scan looks like it is athletic footwear and not a shielded weapon; and if it has not given us a radiation signature. However, if it looks like it might contain a shielded weapon or if it gives us a radiation signature, then we take it to a secondary position to take a closer look with an isotope reader to find out what it contains. We would then turn it over to law enforcement. It is not within our purview to analyze it or to have jurisdiction over it. We simply want to be the agents to provide the information for those layers, and then let the governments deal with it.

Senator Atkins: We have been told that at certain times when a container is moved from several ports before it arrives at its destination, that movement signals the potential for closer investigation of the container. Is that true?

Mr. Gilbert: I agree with that. Drugs for methamphetamines that I mentioned earlier are sometimes shipped that way so movement would signal drug enforcement agencies to take a closer look. Smugglers would bring the drugs from one place to another and re-manifest the shipment. You could look at the normal supply chains and find that such a shipment would be a random movement to disguise the location. We are working with U.K. Revenue and Customs to give them some of the terminal information that we have so that they can begin to put the dots together globally of shipments moving from one place to another. The point you have raised is critical, but inspection is not there right now.

Senator Atkins: We have been told that containers have disappeared, for example, in the Port of Montreal. Senator Moore indicated that when a container disappears there is a way of tracking it. Is that true?

Mr. Gilbert: I said that a container can be tracked on a vessel and at a port. If the container were lost in the hinterlands of Quebec, the RCMP would need to track it down, in the same way that the RCMP would track a regular truck and its driver.

Senator Atkins: Is that if a container were dumped over a fence onto a truck and driven away from a port?

Mr. Gilbert: That is close to impossible physically because such a big piece of machinery is needed to move a container. The required machinery could not straddle a fence or be set up near a fence. It would need to be taken out by an illegitimate driver, posing as a legitimate driver, either carrying improper documentation or having someone on the inside to allow the container to be loaded on the truck and released.

Senator Atkins: Since 9/11, how have you improved the protection of your port operations?

Mr. Gilbert: Protection has improved mainly with the International Maritime Organization's International Ship and Port Facility Security Code, ISPS Code, which was specific. We needed to have a security plan on each vessel, and the port operator needed to provide information to each ship. Thus, we know if it comes from a MARSEC 1, MARSEC 2 or MARSEC 3 port. There is dialogue between ship and port. We have different protocols within the levels of MARSEC 1, 2 and 3, with MARSEC 3 being the highest and when we would turn our facilities over to government. Drills are required on a periodic basis in most countries. We have site visits by local authorities who examine various things within our facilities. Other than physical inspection, we have background checks and worker IDs. In many places, we have extended background checks and IDs to the drivers who go outside our facilities as well.

Senator Day: Mr. Gilbert, if I take the airport route from the new Hong Kong airport onto the island, do I pass Hongkong International Terminals at Kwai Chung on my right side? Is that your facility?

Mr. Gilbert: Yes, you would go right through the middle of it, senator.

Senator Day: I have marvelled at that facility on numerous occasions. The chairman and this committee have a standing invitation to visit that facility. I am sure we could find a good hotel in the area. That facility can handle 14 ships at one time.

Mr. Gilbert: Yes.

Senator Day: I had a couple of points of clarification. Approximately 1 per cent of containers are given a no-load order overseas at the facility before they are loaded.

Mr. Gilbert: I believe that I said less than 1 per cent.

Senator Day: Your notes provided to the committee state ``approximately 1 per cent of containers are given a `No Load' order overseas'' at the facility before they are loaded.

However, the point is, customs is concerned about only 20 per cent of all U.S.-bound containers. If they are concerned about five times that number — 5 per cent — and they have a no-load for 1 per cent, why would they not have a no-load for 5 per cent? Then, they would look at all the ones they are concerned about.

Mr. Gilbert: I believe it is a capability issue because they are inspecting them by themselves.

Senator Day: I understood that they had customs officers at the loading area so there are customs officers doing this work at that location and they are unable to inspect all the ones they are interested in?

Mr. Gilbert: That is my opinion.

Senator Day: You talked about the U.S. Department of Defense radio-frequency identification, RFID, as being known technology. Was that used on the smart box experiment and by your company?

Mr. Gilbert: The one done on the smart box was a single-source product by U.S. CBP and not the one used by DOD.

Senator Day: Do they use high frequency?

Mr. Gilbert: They use a 2.4 megahertz, MHz, frequency on the CBP. The DOD uses a 4.33 gigahertz, GHz, frequency.

Senator Day: You have implemented the Department of Defence high-frequency system; has it worked well for you?

Mr. Gilbert: We took it commercially off the shelf right after 9/11 and said if it is good enough for DOD, ANSEC and NATO, we would use it. We deployed it in a number of our facilities because we felt it would happen. We never found the mandate so we put a hold on putting it into more ports.

Senator Day: Did you, at any time, have problems with licensing? We have had a bit of history here with respect to licensing and emitting of high-frequency sound waves. Was that one reasons you did not proceed with that?

Mr. Gilbert: Actually, the ISO standard now for tags, which should come out by the end of this year or the first part of next year, is putting a dual frequency at 2.4 MHz and 4.33 GHz because those frequencies are the two accepted ones globally. We said fine; we want to use 4.33 GHz because of that very facility you drove past in Kwai Chung; it is difficult to have a read that does not have that kind of frequency of 4.33 GHz; 2.4 MHz only has a few metres and we need 100 metres. Also, with all the machinery we have there, it was more adaptable.

Senator Day: We have looked into the smart box concept, not only on the shipping lanes on the marine side. We also heard that once the box is at the dock and put on rail or a truck, by using global positioning, GPS, that box can be traced wherever it might go until it arrives at its destination.

Mr. Gilbert: Our opinion is that GPS is an expensive method versus RFID, which is the type used in the toll roads. If we had a box that had an RFID reader and it was put in every way station in North America — which is not a lot in comparison, because it is relatively inexpensive equipment — you would have a good grid of where containers are, and that could be domestic trucks as well as marine.

The difference with GPS is, in particular, if you have a fleet that is a closed fleet; let us say you are Schneider International trucking, you might want to use GPS because you could then do a lot more routing. That system is closed. FedEx has a closed system, as well. They know where all their goods are because a FedEx employee does the scan; therefore, the closed system is very accurate.

In the marine industry, we have a very open system; boxes are traded all the time. Consortiums of ships would have a box from one company, from another company and then from a leasing company. Boxes might have been in Shanghai one day and then somewhere else the next day. A container changes its good about six times a year. It could be in Spain or South Africa — all these boxes move around. A GPS on them would be difficult to maintain, and expensive.

Senator Day: That would be the case if the GPS system was permanently attached to the box; however, if it was part of the seal, and then shown in the manifest and it had its own number, you would avoid that problem.

Mr. Gilbert: Reading back from satellites is a lot more expensive.

Senator Day: Yes, I appreciate that.

Mr. Gilbert: It is a lot more expensive than reading as you go past a reader in a way station on the road.

Senator Day: I agree with you. My final question is a point of clarification. You said that beginning in 2005, every truck entering the main gates in Hongkong International Terminals and Modern Terminals has passed through portal screening technologies. When you talk about portal screening, are you talking about the screening by radio-frequency identification, X-raying and detection for radiation? Are all those types included in the term ``portal screening''?

Mr. Gilbert: If I said ``all,'' I misspoke, because we had two gauntlets running. It was not all our gates, but it was a significant amount — I would say close to 40 or 50 per cent.

If I could take you to this information in the presentation again, maybe the clerk could help me.

Senator Day: This was your industrial engineering project to try to move them through quickly.

Mr. Gilbert: Correct.

Mr. Gilbert: If you look at the graph, that is a histogram of the speeds that we take a box through. Once we are over 20 kilometres per hour, a shutter opens as the head of the box goes past. The shutter opens and takes the scan; as it hits the back of the box, the shutter closes. That is there to protect the health and welfare of the driver so that no radiation is emitted on the driver.

Senator Day: Is this a Vacus-type machine?

Mr. Gilbert: Yes: That shutter is determined by speed. You can go to zero, but we do not want anyone to do that because we need people to move. We want the condition and behaviour around 16 kilometres — and that is where you see the peak there — or we shut it off and make them re-route. If you look at the next page, you can see how the gauntlet is set up. At one set, the Vacus is being read so they have a view of the box. At the same time, they have an optical character reader, OCR — they look at the container number.

Senator Day: That is like a camera?

Mr. Gilbert: It is a camera, but it is a recording camera that matches the number against software of the container number that is supposed to compare the number against another set of information — booking number and the driver number, et cetera.

Then the box goes to the next one, and then it has a radiation scan. If there is no radiation anomaly, it goes into the gate. It goes through that gauntlet and fans into gates. We have RFID readers in different places in the yard, but we would put them on there if that is where we are going. That gauntlet can feed a lot of boxes into a number of gates as they go in to finish off their registry.

Senator Day: I find it interesting that you were able to do all this with your own revenue, as opposed to looking for government revenue to do it.

Mr. Gilbert: This is actually the unique situation here. The U.S. government has spent over $1 billion in port security to help with port grants, and I am sure that you have seen that. We have not been paid one penny by one government because we are a private organization; we are not a municipal facility. What we do then is charge the shipper a nominal fee for entrance into our facilities. This is a net win for no appropriations from the government.

However, south of this border, it is a land of pork when it comes to port security, and we have not looked at the supply chain: That is the Trojan horse.

The Chairman: I want to close on two points. You touched on one right now with Senator Day. If I understand you correctly, you put in $200 million worth of equipment. With the charges that you have, if you pick Hong Kong, how long was the payback? How long did it take for you to recover your $200 million or when will you recover your $200 million with the charges on the containers going through?

Mr. Gilbert: It depends on the facility and it depends on the volume. Certain ones are different than the others. In our high-volume facilities, it is quicker than in the low-volume ones. We operate half of Gdynia-Gdansk and we have only 300,000 containers. We have millions in Hong Kong. We spread the cost on an enterprise-wide basis and we do not break it out to that degree.

The Chairman: The first thing that is clear to us is that this is not something that you go to one port and say: Okay, you folks do it. It needs to be implemented throughout the system. I think you made it clear that if one port raises the barrier, the competition will go elsewhere. A port operator needs to be confident that competing ports will face the same sort of barriers.

To put the case well, is it possible for us to obtain from you roughly how long it takes a port to recover? Perhaps you could give us a high, low, and medium estimate.

Mr. Gilbert: We would look to recover most investments of capital expenditure, other than major ones such as cranes because of wear and tear, within five years. Five years is probably a long period of time for technology as well. We would need different technology and upgrades as well.

We are concerned. We have a unique situation where we provide pre-clearance. We own and operate only one airport. It is in Freeport, Bahamas. We obtained it because we had to take it with the lot in privatization. The transportation security administration has changed four times in a period of two years as to what they want. We put one piece of kit there and then they want another thing for another piece of kit. We would like to have at least five years and then we would change the kit.

That would probably be the best way to answer your question, Mr. Chairman.

The Chairman: If I understand you correctly, security has to be system-wide. In North America, for example, Canada could not be expected to do it if the United States did not do it at the same time. It would not be a competitive or reasonable situation, and vice versa. If the United States was required to do it, they would need to be confident that Canada and Mexico would proceed at the same time, or those other countries would have an advantage. That is the first point.

Mr. Gilbert: If Canada did it and the U.S. did not, then that situation would be difficult for Canadian companies. If the U.S. did it and Canada did not, I think in short order Canada would say it is the right thing to do, but the U.S. could probably carry it on their own because of the volumes they have.

The Chairman: You said the payback is somewhere around a five-year range, depending on the volume going through the port.

Mr. Gilbert: Yes.

The Chairman: That leads us then to the question of the capacity of the different governments and the different customs organizations or border services agencies to process the data and to staff for it. You did not give a company opinion but a personal opinion that there was a reluctance to take the responsibility. Then, there was the fact that the people were not there in sufficient numbers to make proper use of the data so that it could be analyzed. Do I understand you correctly?

Mr. Gilbert: Mr. Chairman, I believe that is most of what I meant to say. That was for a real-time analysis. If we had an incident, however, and we then went to MARSEC 3, we could have the data available, even though it was not used to stop the initial incursion. We could keep the supply chain in shape because we could then take the information and truly triage every one of those little boxes in the bay plan.

The Chairman: You are not advocating that, are you? You are saying, Let us protect the country first and get it right with enough customs people to do it in real-time.

Mr. Gilbert: There is a significant ability through technology to do pattern recognition. I submit to you that your briefcase or my briefcase going through the scanner at the airport is far more difficult to analyze than a homogeneous container load of athletic footwear.

The Chairman: What you are trying to identify and bring to the committee's attention is the capacity of various customs organizations to deal with the data once there is an undertaking to place equipment in each of the ports.

Mr. Gilbert: First, I believe the government should recognize that this security is valuable, which has not been spoken about overtly. We have had Secretary of Homeland Security, Michael Chertoff, in Kwai Chung, along with a number of different senators. They have all said they believe that this approach has large promise. However, we end up with the SAFE Ports Act and we have three more pilot projects. I really cannot explain that.

To answer your question: Is it because they do not have enough manpower to handle it? I cannot answer that because I believe that we can handle this.

The Chairman: If we look for someone who does not agree with this process, is it likely to be the major shippers? Is it likely to be shipping lines? Who is likely to be opposed to this? Are you aware of hearings that have taken place where people have said, ``No, this proposal is for the birds''?

Mr. Gilbert: I have not heard anyone who would publicly say it is for the birds. I think they will probably push back any mandate that would put any cost on to their businesses.

The Chairman: Even if it was recoverable within five years?

Mr. Gilbert: It is an ongoing charge to a shipper to maintain this type of information because they would pay a security charge at the gate as they entered.

The Chairman: What if it was a level playing field throughout the system?

Mr. Gilbert: It is no different than for an airplane ticket right now. We all pay a security charge for the plane ticket across the board.

The Chairman: I understand. Our calculations were that the cost was in the area of a 1 per cent increase on the existing shipping charge.

Mr. Gilbert: On the freight rate itself, that is correct.

The Chairman: On that note, I want to thank you for appearing before the committee. I believe I can say on behalf of the committee that we have found your testimony to be useful and helpful.

We want to be able to come back to you in the future and ask you to provide us with further information. We may well write to you asking for more detailed explanations of things that occur to us as we analyze your testimony.

Mr. Gilbert: Thank you very much for the opportunity.

The Chairman: For members of the public viewing the program, if you have any questions or comments, please visit our website at We post witness testimony, as well as confirmed hearing schedules. Otherwise, you may contact the clerk of the committee by calling 1-800-267-7362 for further information or assistance in contacting members of this committee.

The committee adjourned.