The Power of Artificial Intelligence: Impact on Customs Operations
May 24, 2023
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Webinar Started:
iCustoms is a revolutionary trade compliance platform for every business.
As the global head of trade and customs consulting in A.P Möller-Maersk, an ocean shipping company with over 100 years of history, I welcome all of you to this timely webinar.
We are living in interesting times where events like these are crucial for sharing ideas and taking action. Our company is currently undergoing a significant transformation, shifting from being an ocean container shipper to an integrator of end-to-end trade solutions across all transport modes through digitalization.
This transformation is necessary, given the current state of trade wars, conflicts, and trade barriers raised in the post-pandemic world. Despite these challenges, trade remains a key driver for development, growth, and poverty reduction.
The good news is that there has been an acceleration of digitalization in international trade, not only in digitising paper documents but also in changing processing and supporting international supply and value chains with data pipelining.
However, the bad news is that the pace of change is too slow. As a part of the industry driving international trade, we must accelerate this change. I look forward to this discussion.
I started my career with Swedish customs in 1984, which was my first and only job that I applied for.
I worked on digitalization, where we introduced the first electronic signatures, EDI, and the 99 paperless system, which led to the development of other concepts such as authorised economic operator programs, the single trade window, and the first-in-the-world mark.
Through my career, I have been involved in around 25 single trade window projects worldwide, and it culminated with me serving as a Director at the World Customs Organization for six years.
Regarding the three most important things to address, I believe that standardisation is crucial. Having worked at the World Customs Organization, I know that standardising customs and borders is a slow and lengthy process.
As I often say, I have been married to the same woman for 34 years, and I have spent more time on standardisation than with my wife.
Good afternoon, my name is Walter Vandermeer and I work for UBS. I also work for United Parcel Service, a company that has been in existence for 116 years and provides integrated services where customs clearance is key to our success. Without very integrated IT systems, customs clearance would not be possible today.
My work involves being active within the European Union, specifically working with the European Commission and Digi Taxes on customs legislation.
I am responsible for trading compliance within UPS and also serve as the chairperson of the Amgen EU committee, as well as being a part of the European Express Association.
Through these roles, I am exposed to many new and current IT projects that deploy technology to make customs legislation work. It is a very exciting time, as we are living in transformative times.
I have been in the business since 1984 and witnessed the first technological disruption in customs brokerage, which was the replacement of the Telex by the fax machine. Now, we are talking about predictive service artificial intelligence, which is crucial to tackle the challenges we face today.
As Lars mentioned, there are more restrictions, and we need earlier and better data availability, which is only possible with today’s and tomorrow’s technology. I will provide examples of this later in the webinar. Without it, we risk failing and ending up with a competitive disadvantage.
Adnan, it’s great to be here. My background is quite different from Lars’s. I have 20 years of experience in banking, mainly in corporate and investment banking, as well as payments.
However, I was looking for a change in perspective and a focus on technology when I joined HM Revenue and Customs (HMRC) at the end of 2019. It was a challenging time as we had to deal with a massive transformation project, which started within three months of my joining, and then the Brexit process. Fortunately, we managed to deliver successfully.
Since then, I have been working as an IT business advisor for several small companies. My experience in leading the HMRC Brexit readiness effort has given me a thorough understanding of trade policy and compliance at the border and its limitations. This has enabled me to think about the technical requirements needed to support the technology currently being deployed.
Additionally, I was responsible for the single trade window for the government a month before I left HMRC, which I’m sure will be part of our discussion today.
It may or may not be true that standardisation with the European Commission is more effective than with an individual, but the process is lengthy.
To address this, we should reconsider and innovate the standardisation process by using more agile framework agreements. Industry should then take responsibility for implementing these agreements and determining the systems used.
The second element involves greater integration between governments, international institutions, and the private sector. We need to work together in new arenas to create an ecosystem of trust, and pilot projects are currently being evaluated.
The third element involves developing “killer applications” that demonstrate the benefits of compliance and risk management processes at borders.
Governments should incentivize compliance by providing benefits to companies who submit relevant data, such as supply chain data.
Ultimately, the goal is to make trade compliance more efficient, predictable, and sustainable at borders. Scaling up and testing electronic/digital bills is another important step that requires cooperation between all parties involved.
Thank you for the question. I believe it highlights the points made by Lars earlier. The challenges we face in implementing legislation in the European Union are significant.
With 27 member states and 27 IT systems, it is complicated to put new regulations into action. For instance, the Union Customs Code was adopted in 2013 but only fully implemented in 2016.
An article in the code required all IT systems, including centralised clearance, to be in place by December 31st, 2020. However, in 2019, the commission realised this was no longer realistic and extended the deadline to 2025.
This means that legislation created in 2005 or 2010 may take 10 to 15 years to implement. While the deadline has been extended, many member states are struggling to keep up with the timeline.
Therefore, it’s crucial that the European Commission reevaluates the situation and finds ways to use today’s technology to address the challenges facing us in business reality.
The question pertains to the current government policies and technology, specifically in the UK. The effort to implement these policies was enormous, with many stakeholders from both inside and outside the government involved.
The UK’s departure from the EU made the process all the more challenging, with the changing nature of negotiations resulting in constantly shifting requirements for compliance. HMRC had a significant role to play in this effort, but other government departments were involved as well.
Despite the work that went into it, the systems currently in place at the border are not up to par. They are outdated and not fit for purpose in the long term, which the government is aware of and is taking steps to address.
These steps include initiatives such as trusted trader schemes and the single trade window. It is important for the government to implement solutions that are more in line with current policies and technologies to ensure long-term compliance at the border.
The new generation of international trade is upon us, and it is characterised by integrated value chains that can cross borders multiple times during the production cycle.
This trend was exacerbated by the pandemic, which exposed issues around supply chain resilience, delays, and border controls. Studies show that bad customs planning was a key contributor to the delays experienced during the pandemic.
To address these issues, we need to use the vast amounts of data available in the supply chain, including structured data like standardised custom data, and connect industry systems with government systems.
This can be done by supporting integrated value chains and supply chains with digital pipelines, establishing trusted data exchanges and improving connectivity. We also need to focus on building trust in the supply chain by involving economic operators programs and standard setting organisations.
This would enable Customs Administration and Border agencies to monitor and secure the supply chain and mitigate risks associated with trade compliance.
The EU has recognized that the intended purpose of the Union Conference Code was not effective in increasing the efficiency of governments in terms of risk assessment and revenue collection.
As a result, they held a foresight exercise to determine how EU customs would look in 2040 and what needs to happen to become that in phases of five years. The EU Customs has to work with one voice, and the EU commission got a wise person’s group to see what changes need to happen in the Customs Union.
The wise persons group recommended a new data approach for customs data, where data needs to come from business systems, other data needs to be gathered from platforms and payment systems, and all the data will be integrated on common shared systems.
The EU commission has taken these recommendations and is preparing new custom legislation, which will replace the current legislation and be presented soon. This is considered to be the biggest change in European Union Customs legislation.
Walter and Lars refer to a new phase of trade, which they term “trade 2.0,” that will rely heavily on technology, data management, and intelligent applications.
However, this new approach will require a significant improvement in understanding how to handle data, particularly within the civil service UK government sphere.
There will be political obstacles, and people will need to be persuaded to face the demands of trade 2.0. Presently, many forwarders and traders struggle with the complexities of the system, which increases costs, creates a shortage of staff, and results in a considerable amount of bureaucracy.
It is essential to provide relief in the short to medium term by targeting measures that alleviate the burden of bureaucracy and costs.
This can be achieved by employing intelligent solutions such as document management, classification codes, and rule engines that deal with error messaging using AI and machine learning.
However, the current software providers are not focusing enough on the real needs of the freight forwarder and trade communities.
What I find interesting is that I’ve had around 125 meetings with traders and freight forwarders over the last few months. What’s consistent in all of them is the same message.
And that’s exactly what we’ve developed, from document management to automation, document automation to integration, a rules engine, and direct integration with customs. Our focus is on making life easier for everyone involved.
The importance of trade compliance cannot be overstated, particularly in light of the complex and ever-changing nature of global trade.
The challenges outlined by Mark serve as a reminder that many businesses struggle with compliance due to its complexity and the many changes that occur in global trade.
The next five years will see more changes than the last 15, making it all the more crucial for businesses to move away from transaction-based systems that are outdated and unable to handle the demands of modern trade.
The passport for trade in the future is trade compliance, which will be a necessary requirement for engagement in global trade.
There are many risks associated with non-compliance, including financial liabilities, tax and customs duties, and other regulatory issues.
Overpayment is a common problem, with studies showing that businesses often overpay by as much as five to six percent due to complications associated with compliance.
Moreover, free trade agreements, designed to facilitate trade, are underutilised, with only 60% of them being used by businesses.
To become trade compliant, businesses must have the right systems in place to manage their data, stakeholders, and customs plans.
This includes the use of digital tools and the proper management of the Global HS classification code, which is critical to ensuring compliance with regulations and sanctions at borders.
The key to achieving this is to move away from a transaction-based system and towards a trust-based system that emphasises compliance records, AEO certifications, and the voluntary submission of data.
The customs and border administrations also need to change their approach and move towards a trust-based system that relies on compliance records and the use of existing digital tools.
This will help to streamline processes and make border agencies more efficient. The private sector is ready to submit data voluntarily if there is a benefit to doing so and can share the investment that needs to be made to achieve this goal.
In short, trade compliance is the future, and all businesses must become compliant to gain a licence to play in global trade 2.0.
Lars highlighted the importance of trade compliance and collaboration between governments in our discussion. On May 17, the European Commission plans to introduce new legislation to the council and the parliament that includes concepts such as trust and check traders, AEO, and an EU Customs data hub.
While the legislation looks promising, we must ensure that it is adapted to current and future business realities and leverages the latest technology.
We, along with other trade associations in the EU, want to ensure that the new legislation meets the expectations and needs of a modern global customs environment for trade. This can only be achieved through an open exchange between political, administrative, and operational parties.
The lack of simplification and uniformity in customs rules, and the absence of a fully electronic environment for customs formalities in the EU remain challenges that the UCC aimed to address when it was adopted in 2013.
However, we cannot wait until 2038 for the legislation to be fully implemented. The business reality and technology will have changed by then.
As Lars wisely said, we need to bring together governments, authorities, and legitimate trade to develop enhanced solutions based on trust and technology that facilitate compliance with rules and facilitate trade.
For instance, during the pandemic, UPS delivered over a billion COVID vaccines efficiently by using its authorised economic operator status, technology, and the trust it has built with customs authorities. This is the past, present, and future of trade.
So what I mean is, if you listen to these two individuals who are right in the middle of this – working on 1970s policy and technology transaction by transaction – the model they’re using is completely non-fit for purpose. It’s a suspicion-based model that focuses on the fact that you won’t be compliant.
If we have to wait until 2038 for the next model of this, I agree with Walter that it’ll be dead in the water before it even arrives. The acceleration of technology and everything else will render it obsolete. Lars and Walter need to keep pushing governments and industries to adopt 12 2.0 type principles.
I think this is the only way we’ll truly see the trade volume orders that people want. In the medium term, we need more software providers to ease some of this bureaucracy and communication, which can reduce costs. It’s ironic that we talk about 1970 systems and then talk about machine learning, AI, and chatbots.
There has been an explosion of these technologies, and they’re becoming mainstream. They’re truly useful in alleviating bureaucracy and complications. Customs agencies are working on different solutions that have machine learning and AI at the heart of what they’re doing.
So, it’s not just a pie-in-the-sky experiment anymore. There are really easy solutions that can revolutionise and help reduce the cost and bureaucracy at the border, making people more compliant. These are my final thoughts. Thank you.
Lars Answered:
We are currently in the process of rebuilding our trade infrastructure to become fully integrated and digital. This will provide self-service options and seamless connections across multiple platforms, resulting in a more streamlined experience for clients.
Additionally, we will be collaborating with Walter and his team, as well as all stakeholders in the international supply chain, to enable interaction with governments around the world, including the UK government and their single trade window system, as well as other single trade windows.
Let me share some final thoughts as well. We don’t have to wait until 2038 for new legislation to take action.
There are already trust-based systems in place, such as authorised economic operators, that have been proven to save companies money and improve trade compliance. By increasing simplifications and possibilities, we could reduce costs and increase efficiency.
We could also use artificial intelligence and other profiling systems to audit online in real-time those who have proven they have compliant systems in place. There’s no reason to wait to take advantage of these opportunities.
I was fortunate enough to be part of the wise persons group and support these initiatives from the private sector. The Customs expert will be the superhero of the future, helping to navigate the complex landscape of trade compliance.
Customs agents will need to change as well, becoming more focused on trade compliance and helping customers organise their supply chains.
We can use tools like custom control towers to ensure that data and documentation are readily available for government audits. With these systems in place, we can take leaps forward in trade digitalization and AI. We don’t need to wait until tomorrow to start implementing these changes.
Mark Answered:
To start, I don’t believe that AI will replace Customs’ declarations in the short term. Rather, AI will augment compliance efforts and improve efficiency. It should be seen as complementary to existing processes.
However, the concept of Trade 2.0 as described by Lars will bring about a paradigm shift in compliance, which will require significant changes to policy and practices.
Customs’ role is becoming increasingly important and relevant, especially in the areas of the green agenda, deforestation, human rights, and digital trade.
Thus, Customs declares need not worry about being replaced by AI in the near future. They will continue to play a crucial role in the coming years.
Watch the full recording of the webinar here.
