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  • 25 Oct 2019
  • Canada
  • Japan
  • Mexico
  • Panama
  • Singapore
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  • All Other Countries
  • Risk Management
  • e-Commerce
  • Trade Facilitation
  • #Customs

E-commerce on the Application of Risk Management for Customs Agencies

By Eiichi Leong Wing Yat

25 October 2019

The recent rise of Electronic commerce - better known as E-commerce  or the trading of goods online, has had a massive impact on traditional models across numerous industries. The logistics and trade compliance sectors have been particularly affected, with Customs agencies being tasked with an increasingly large number of shipments that need to be analysed for potential risks and their subsequent follow-on actions.

Prior to the surge in E-commerce shipments, Customs agencies were able to apply risk management using a largely rule-based approach. The vast majority of trade comprised of large shipping companies and agencies which were well known to Customs shipping huge volumes in bulk. To further facilitate this, the Authorised Economic Operator Program (AEO) was included by the World Customs Organisation (WCO) in 2005 as part of the SAFE Framework of standards to secure and facilitate global trade. The program rewards traders who are able to demonstrate compliance with Customs requirements with lower risk profiles, leading to fewer inspections and subsequent delays at the point of import or export.

This all changed relatively recently. The global E-commerce market was valued at 27.7 trillion USD in 2016, an almost 50% increase on 19.3 trillion USD in 2012, with this figure expected to continue growing exponentially. The vast majority of E-commerce traders are smaller enterprises or individuals who send and receive shipments much more sporadically. Also becoming more prevalent are individual resellers, who buy goods either online or from physical stores, and then resell them via social media platforms such as Facebook and WeChat or dedicated online marketplace websites or applications. The majority are people who are not familiar with the import/export processes, and as such declaration data such as documentation, product descriptions and declared values may not be accurate.

These factors make it difficult for Customs agencies to build up a profile on a specific trader and apply traditional rule-based risk assessments. Programs that were previously designed to facilitate traders such as AEO are not highly relevant to the majority of Ecommerce shippers, as the qualification criteria includes financial and security requirements that are likely to be out of reach of SMEs and individuals.

There are a number of options that Customs agencies can consider:

  • Increasing the de minimis threshold. This will reduce the need for SMEs to pay clearance fees for low value shipments, but will also mean that Customs will collect less revenue as a result. However, the International Chamber of Commerce (ICC) has previously investigated this option, with studies showing that government agencies will benefit overall, by freeing up resources to refocus on more efficient revenue sources.
  • Work with government to create rules or regulations specifically regarding the declaration of E-commerce goods. This has already occurred in China, where new laws place the responsibility of declaration on the E-commerce site or platform operator, who will be required to collect data on sellers and transactions and declare these directly to Customs.
  • Implement an electronic AI-driven Risk Management system. The introduction of a risk management system that is able to handle big data – or amounts of data so large that it is not possible for a human risk officer to perform a manual analysis – would benefit Customs greatly. There are now products available which use Artificial Intelligence (AI) and Machine Learning (ML) to analyse the incoming trade data and detect patterns and anomalies. This will allow the efficient processing of large amounts of shipments electronically, with minimal manual intervention. Customs and other agencies can then allocate resources solely for inspections of the shipments with the highest risk scores.

The introduction of an AI powered RMS is likely to be the best solution, as it does not require regulatory or legal changes which will be time-consuming and difficult to achieve. While there will be an initial outlay on the implementation as well as ongoing maintenance for the period that the application is in use, the data collected can also be used by Customs to analyse and constantly finetune their risk algorithms, or in other ways unrelated to risk, such as the generation of data reports. This can be implemented as part of a Customs Management System (CMS). Alternatively, standalone products are also available on the market which integrate seamlessly with an existing CMS to output a risk score from which the inspection lane can be determined.

About the Author

eiichi

Eiichi provides technical consultancy services to Customs and relevant Government authorities worldwide. He has more than 10 years of IT experience involving analysis of RFIs and RFPs, and designing technical solutions that encompass all aspects including, but not limited to software, infrastructure, networking, change management, operations and maintenance. His deep domain knowledge in risk management is coupled with extensive experience in solutioning for a diverse range of countries like Jamaica, Kenya, Saint Lucia, Namibia, Saint Kitts and Nevis, Philippines, and Trinidad and Tobago.

Eiichi Leong Wing Yat

Senior Lead Presales Consultant, GeTS (Global eTrade Services, subsidiary of CrimsonLogic Pte Ltd)