International trade may be particularly vulnerable to year 2000 problems, said two experts testifying before Government committees on January 20, 1999.
"Ocean shipping and foreign ports have both been flagged as among the least prepared sectors" for Year 2000 computer processing difficulties, said Lawrence K. Gershwin of the National Intelligence Council, a group of government and private-sector experts that reports to the CIA, in testimony before a House subcommittee.
"Lack of progress on the international front may lead to failures that could affect the United States, especially in areas that rely upon cross-border networks such as transportation," reported John A. Koskinen, Chairman of the President's Council on Year 2000 Conversion. "We are very concerned about the lack of information and coordination in the area of maritime shipping."
Many Y2K concerns are common to nearly all businesses: Will suppliers be able to provide services or goods on a timely basis? Can my company be sued because we were delayed in fulfilling a contract, even when it was not our fault? Will our insurance cover problems tied to Y2K failures by us or others?
But last week's testimony, and other reports, indicate some areas that may be of special concern to international traders and those relying on shipping:
7 "We are concerned about the shipping of oil products," said Gershwin. Venezuela, Saudi Arabia, Mexico, Nigeria, Angola and Gabon lag in Y2K compliance efforts. Embedded microprocessors in oil drilling, pumping, processing and refining may expose suppliers to special difficulties.
7 Russia and the Ukraine seem especially vulnerable, said Gershwin, and may suffer serious power outages. "While the Russian government initiated centralized guidance to ministries and agencies in May of 1998, the State Committee responsible for initiating overall guidance has stated that there is not enough time or money to resolve the Y2K problem. We think they're right," Gershwin said.
7 "The Asian economic crisis has hampered the Y2K remediation efforts of all of the Asia-Pacific countries except Australia," Gershwin reported. Koskinen noted that "Most countries are significantly behind the United States in efforts to prepare critical systems."
7 Y2K warranties in charter agreements are being used when vessels are chartered for service into 2000, said reports in the fall of 1998. But the value of a warranty depends on the financial strength of the company giving it, and the prolonged depression in the shipping market is undercutting companies previously considered financially strong.
7 Embedded chip problems in ship systems have been a continuing concern. Various groups have reported that many vessels have well over 100 computer chips embedded in engine room control and monitoring, navigation, communications and cargo management systems. One report indicated that ships built between 1987 and 1993 were those most likely to have problems.
7 Among foreign ports, Singapore, for example, has announced that it will hold shipowners and masters responsible for Y2K problems.
What steps, beyond the usual ones directed to solving Y2K problems, might be taken in response to these concerns? Frequent suggestions include the following:
1. Give special attention to critical foreign suppliers and partners. Many companies have traded "form letters" assuring each other that they are working on solving Y2K problems. But most form letters fall short of providing details. Special communications, and even joint testing, may be advisable with companies whose Y2K failures could have a critical impact.
2. Develop a contingency plan. The SEC now requires that public companies "must describe [in their SEC filings] how they are preparing to handle the most reasonably likely worst case scenarios" caused by Y2K problems. The reasons for contingency planning in case of failures by suppliers or shippers apply generally, even when no SEC filing is required.
3. Consider whether to designate your Y2K statements as "Year 2000 Readiness Disclosures" under the recent "Year 2000 Information and Readiness Disclosure Act." The Act became law October 19, 1998, and provides some protection from liability for your company's Year 2000 statements in a number of situations. But some of the protections require special designation—has your company taken full advantage of the Act?
This memorandum is for general informational purposes only and should not be considered our legal advice as to any particular set of facts, which may present special circumstances.