The Challenge of Transshipment and Strategic Trade Control Analysis
Transshipment and re-exporting are very common practices in international trade as cargo gets re-grouped and routed through the most efficient paths and ports to the final destination. The purpose is “routing goods in such a way that would decrease shipping costs, take advantage of economies of scale and improve the range of services or routes offered to customers” (see United States International Trade Commission, “Transshipment in the United States”). According to one study, “28% of world container throughput was represented by transshipment cargo in 2012” (Kavirathna et al, “ransshipment hub port selection criteria by shipping lines: the case of hub ports around the bay of Bengal). Another found that on average, a shipping container was handled 3.5 times between its initial loading and final destination (see Ducruet and Notteboom, “Developing Liner Service Networks in Container Shipping).
Transshipment and re-export services are big business for ports. The incentive for transshipment hubs is to prioritize cargo processing speed and ease of movement in order to attract business, not necessarily to implement onerous inspections for illicit trade or proliferation threats. Transshipment and re-exporting adds complexity to identifying strategic trade through multiple changes in possession of the goods and more layers of documentation. These practices present increased opportunities for bad actors to exploit vulnerabilities to illicitly traffic goods. Bad actors exploit countries with weak export controls and massive volumes of legitimate trade so that their illicit trade in strategic goods might slip through the cracks. Another tactic is for entities to declare that the transshipment or re-export country is the final destination, establishing front companies or warehouses to take the shipments then re-exporting them to their true destination later.
As transshipment and re-export volumes have increased over the years, so have the concerns of strategic goods being diverted to end-users of concern. The United States has published guidance to prevent illicit diversion through transshipment and expressed concerns about states like Iran and North Korea evading sanctions and export controls by exploiting transshipment vulnerabilities. The Wisconsin Project on Nuclear Arms Control has published chronologies for the United Arab Emirates and Turkey being used as transshipment points to support multiple WMD and weapons programs (see https://www.wisconsinproject.org/).
2. The Data Challenges
There is an important distinction between transshipment and re-export that has implications for data tracking and analysis:
• Transshipment is when goods are unloaded and then loaded into another conveyance for further travel. There is no local consignee at the point of transshipment.
• Re-export is when goods come into a country and there is a local consignee. After clearing local customs the goods are eventually exported again to another destination.
This distinction contributes to incomplete and inconsistent trade data collection on transshipment and re-exports.
Data on transshipment and re-exports is rarely available at the commodity or transaction-level. Transshipment is not tracked statistically by most countries because the cargo never comes in direct contact with customs officials, i.e. it does not actually enter the transshipment country for consumption or added value. The only consistent data source on this issue is for re-exports.
In this case, the goods enter the country and are tracked and reported to UN Comtrade at the HS level - but only by a few countries. UN Comtrade defines re-exports as:
“Re-exports are exports of foreign goods in the same state as previously imported; they are to be included in the country exports. They are also recommended to be recorded separately for analytical purposes, which may require the use of supplementary sources of information in order to determine the origin of re-exports, i.e., to determine that the goods in question are indeed re-exports rather than the export of goods that have acquired domestic origin through processing” (see https://comtrade.un.org/db/mr/rfGlossaryList.aspx?bw=R).
Note that this definition does not include transshipment as transshipped goods are not technically imported into the country. In 2019, only 41 countries provided re-export statistics to UN Comtrade.
Other Data Sources
Identification and analysis of strategic trade relies heavily on statistical data provided by HS code. We use the HS code to link to specific strategic goods and help identify trade flows on interest within the broader volume of international trade. The lack of this data in the area of transshipment and re-exporting makes strategic trade analysis a significant challenge. A 2013 workshop on transshipment data found that “transshipment data per port are rarely ever publicly available...and if figures are available, methodologies (e.g. aggregation of countries) might differ substantially” (see Notteboom, Parola, and Satta, “Partim Transshipent Volumes”).
In practice, most analyses of transshipment and re-exports are done based on a generalized, risk-identification basis. In the case of the United States, Customs and Border Protection first identifies countries that are commonly known as transshipment hubs and then targets their analysis on high volume exporters in that country (see https://www.gao.gov/products/gao-04-345). This initial country selection is very important and can be established through these open-source studies and other resources.
Below are some examples of ports identified by their high transshipment volume:
The United States International Trade Commission identified the following as “large-value transshippers”: the European Union, Hong Kong, United States, Singapore, United Arab Emirates, Taiwan, Australia, Saudi Arabia, and Japan (see https://www.usitc.gov/publications/332/ec200404b.pdf).
Partim transshipment volumes synthesizes multiple data sources to show prominent global transshipment ports (see https://ec.europa.eu/transport/sites/default/files/first_report_of_port_market_trends_transhipment_volumes_0.pdf).
Maritime News provides a ranking of major global container ports with some narrative details on transshipment (see https://maritime-news.com/major-container-ports-in-the-world/).
The weakness in these for the purpose of strategic trade analysis are two-fold:
The are based on container port traffic as provided in TEUs or units of 20 foot containers rather than on a commodity-specific basis.
Overall volume identifies the most popular global transshipment hubs, but the flow of strategic goods is more specific. With a limited amount of suppliers and interested parties, strategic goods will likely follow more specific trade patterns that may not match the global trade flows through transshipment ports. Bad actors also seek out weaknesses in export and transshipment control systems, which may involve avoiding more mature transshipment ports.
3. Work Arounds and Estimation Approaches
With these data challenges, how can we seek to identify transshipment and re-export of strategic goods that could pose an proliferation threat? At the Strategic Trade Control Research Group, we have investigated the following techniques. These approaches are risk- and estimation-based, but allow us to get closer to the goal.
I. Incorporate transshipment and re-export specific factors into transaction risk models.
Transactions can be flagged for further analysis based on some rules-based transaction evaluation measures. First, if the final listed destination for a product is a common transshipment hub, then it could be flagged for additional review. In addition, text-based analysis of transaction consignees could identify warning signs. For example, if the ultimate consignee appears to be a warehouse, freight forwarder, or transport company, that would be a flag.
II. Examine Import-Export Ratios
This approach uses statistical trade data at the HS level to identify where the amount of goods imported into a country is a close match to the amount of goods exported from the country. If we assume that the country in question does not produce the strategic good domestically, this would be a good indicator of the risk level of transshipment or re-export. This also relies on a close correlation between the HS code and the strategic good in question, which is not always the case. Again, this is merely an estimate. It relies on some major assumptions, but it does provide a data-driven way to get more specific with targeted transshipment and re-export risk analysis.
The table below shows an example for Singapore related to two strategic goods (source: UN Comtrade).
III. State-level Transshipment Estimation Methodology
We have also proposed a methodology that provides a more detailed quantitative estimate of transshipment of strategic goods that relies upon state-level licensing data. It uses the transaction data to identify the control rate for each HS code (i.e. the percentage of trade that is subject to export control regulations in practice) and applies these to global trade flows to evaluate the maximum/ceiling amount of transshipment of strategic goods from a country of origin through a transshipment country. More specific details on this methodology are available on request.
Transshipment and re-exporting are a major challenge in preventing illicit trade in strategic goods. The practice has been constantly exploited in the past by proliferators to avoid detection and secure goods to support production of weapons of mass destruction and weapons development. This challenge continues. The approaches briefly outlined here seek to work around the data difficulties on this issue. Perhaps the best way to improve these methodologies is for the international community to renew focus on this threat and increase focused data collection and monitoring in this area.