Major changes are under way aimed at simplifying Customs procedures for shippers, carriers and 3PLs, in an increased electronic environment. The European Commission (EC), World Customs Organisation (WCO), and a number of national Customs authorities in Europe, notably in the UK, are spearheading initiatives aimed at creating a paperless e-Customs regime. Chris Thorby (Containerisation International) investigates.

Shippers, carriers and 3PLs have all benefited from the replacement of paper-based procedures by an electronic environment in the shipping and banking industries over the past few years. Key advantages for the shipping industry are the facilitation and streamlining of international trading processes.

Examples include the facility to print B/L and other shipping documents remotely, electronic letters of credit (L/C), and of course the ocean carrier portals (INTTRA, GT Nexus and CargoSmart). Furthermore, the application of electronic documents has been widened, over the last two years, through a change in European legislation allowing more extensive use of electronic signatures.

The EC Commission (EC) and World Customs Organisation (WCO), as well as national Customs authorities, are taking full advantage of the electronic developments in the shipping industry to simplify Customs procedures.

With respect to initiatives undertaken by Her Majesty's Customs and Excise (HMCE) in the UK, Mike Dixon, managing director of Langdon Systems (Europe) Ltd, one of the UK's leading providers of import/export software solutions, based in Wigan, explained: 'This technology has been around for some time, and other industries have embraced it. There are financial considerations, which are in Customs' interest, to take advantage of the technology. But it's also in the interest of the industry at large. It's all part of an evolutionary technological process that HMCE has embraced, significantly ahead of other European member states.

Although the EC has yet to have its blueprint proposal approved by the European Parliament and Council (see the panel), the Commission is pushing on with its objective of developing, as far as possible, a paperless, electronic Customs system within the EU (in its soon to be enlarged form) by 2007.

The EC has pioneered the Single European Authorisation (SEA), whereby companies importing goods into more than one EU member state can centralise their Customs reporting through a single authority, rather than to each individual country. This includes centralising the payments of import duty, although VAT or statistics remain de-centralised. The SEA system has been implemented by a number of major shippers.

Another EC project is the New Community Transit System (NCTS), due to be implemented later this year. NCTS is an electronic version of the current paper-based Community Transit regime, which controls the movement of goods within the EU which are not in free circulation (import duties and taxes not paid). NCTS expands the regime to 22 countries, ie the EU plus the Baltic States, the Czech Republic, Hungary, Poland and Slovakia.

Meanwhile, the so-called G7 Initiative is by definition more global in nature than the SEA and NCTS projects. Furthermore, it has recently come under the auspices of the World Customs Organisation (WCO), the goal being expand it to all 161 member countries. The project is being piloted by the Canadian and UK Customs authorities, on behalf of the G7 countries (which also include Japan, US, France, Germany and Italy).

The G7 Initiative aims to greatly simplify import and export procedures worldwide, through an electronic messaging system between Customs authorities. The intention is, where possible, for the same data to be used for both the export and import declarations, thus simplifying import procedures substantially. Internationally agreed uniform data sets will be transmitted using standard electronic messages based on the UN-EDIFACT (United Nations Electronic Data Interchange for Administration Commerce and Transport) structure.

National Customs authorities, particularly in Europe and North America, are also spearheading electronic initiatives to simplify and standardise procedures for the trading community, as well as improve their anti-fraud and compliance activities. In the US, Customs' new export and import system, the Automated Commercial Environment (ACE), is currently being developed to achieve these goals (see 'US customs are changing', [pi]CI[px], February 2001, pp36-39).

A number of European Customs authorities, notably in the UK, have introduced simplified export and import procedures in an electronic environment. In 1997 Her Majesty's Customs and Excise (HMCE) published its Long Term Freight Policy document, superceded in 2001 by a new blueprint (see the panel), outlining a number of far-reaching procedural changes. Among its key objectives, the 'Blueprint for the Future Customs Environment' promotes an increased partnership approach between UK business and Customs, where compliant traders benefit from simplified procedures. It also states the aim of HMCE, together with other UK Government departments, to make all its services available electronically by 2005.

It is perhaps due to HMCE's progressive approach that the UK is representing Europe in the G7 Initiative pilot. Joe O'Connor, Senior Policy Specialist, Customs and International Trade, at HMCE, based in London, explained: 'The UK is at the forefront of developing and testing the G7 project. French Customs was supposed to become involved this year, but has not. The German Customs authority has said that, because of the costs and problems associated with its Atlas system, it will not be involved before 2005. Holland, Sweden and Finland are always open to new and innovative ideas which will improve how their traders will perform internationally, but we are not aware of any G7 pilots undertaken in these countries.

The Dutch Customs authority has also been active in some electronic projects, notably NCTS and SEA. One reason is that a large number of multinational companies have established European distribution centres in the Netherlands, particularly in the garments and high tech industries, plus the fact that English is widely spoken there.

However, Tim Cornell, National Manager, International Trade Development Liaison Team at HMCE's Business Services and Taxes division, based in Redhill, explained: 'The UK has led Europe in electronic initiatives since 1987, notably with the introduction of HMCE's Customs Handling of Import and Export Freight (CHIEF) computer system. Most EU member states do not have a fully electronic imports system. Holland has one for imports via Rotterdam and Schiphol airport, called Sagitta, but not for the whole country. Neither France, Germany nor Belgium have electronic systems. There are simplified procedures available in other countries, but they're paper-based. So there is a developmental time lag between the member states. We have tended to find that the further south you go in the EU, the less elctronic procedures are involved, and the less progressive.'

As far as southern Europe is concerned, a notable exception is Spain, which has an electronic system, although the country is less progressive in participation of the EU's current pilot projects.

The first stage of the UK's blueprint to be implemented, in 1998, consisted of simplified import clearance procedures, called Customs Freight Simplified Procedures (CFSP). As detailed in [pi]CI[px] in November 2000 (see 'Clearing Customs', pp71-75), CFSP represents a milestone in electronic Customs procedures in Europe, as the paper-based import entry document (C88) is replaced by electronic messaging system between the importer and HMCE's CHIEF system.

With its high take-up by UK importers, HMCE justifiably views CFSP as a success. Cornell explained: 'Well over 50% of import declarations in the UK are now processed via CFSP. The high number of entries takes into account the fact that the integrators largely use CFSP, who make up a large proportion of the import entries.

The export equivalent of CFSP, the New Exports System (NES), went live in 2002, and is also expected to be successful, despite the fact that its benefits to shippers are less visible than those provided by CFSP. Dixon, of Langdon Systems, expanded: 'We've had a lot of interest in NES. It is a benefit to 3PLs, as they can generate exports much more quickly than they can faced with documentation. We were piloting NES with three companies in 2001, including Brother Industries and Polaroid. But because it may be of less interest to exporters, we'll offer NES on our website, rather than install it as a stand-alone system, or as an add-on to other systems, such as Customs warehousing.

The NES system works in a similar way to CFSP, but in reverse. An electronic message is sent by the shipper to HMCE at the port of export prior to a shipment being despatched from his premises. The message contains details of the goods, their value, etc, as well as an alphanumeric Unique Consignment Reference (UCR) number. Provided HMCE is happy that the consignment can be shipped, it sends a release message back to the exporter. Clearly this will reduce the time export consignments spend at the ports substantially, and simplify procedures both for HMCE and the shipper. As with CFSP, the information required at the frontier is minimal, with the bulk of information (for statistical and control purposes) being provided later.

Both CFSP and NES fulfil HMCE's objective of moving Customs controls inland, ie away from the ports, one of the cornerstones of the Blueprint. Both regimes depend on a high level of trust, and a partnership approach, between the trader and HMCE.

To use these procedures, traders have to be authorised by HMCE, and have a good record of trade compliance. CFSP and NES replace the traditional system of frontier controls by HMCE at the time goods are exported or imported by periodic audits (of documentation, IT systems etc).

This concept has been developed further in Sweden, with the introduction of Stairway, a sophisticated simplified procedures system. Stairway was devised by Swedish Customs in collaboration with Swedish Trade and Industry and other Government departments. Users, including the major retailer Ikea, can choose from five levels of service and simplification, each one being a metaphorical step on the stairway. The greater responsibility the operator agrees to accept in their Customs management, the more opportunities there are for simplification.

The implementation of CFSP and NES is also helping HMCE target the small percentage of fraudulent traders more efficiently. According to Cornell, because of the lack of a full electronic export system, anti-fraud controls have been patchy until now. He also explained that there has not been a good tie-in with the VAT system, with no capacity to track movements properly.

He commented: 'We have experienced multi-million pound export frauds, eg mobile phone frauds being diverted to the home market instead of being re-exported. NES is Customs gaining control of exports, as they're charged to under EC law.

Cornell continued: 'We've introduced paperless import entries across the UK, in a phased fashion, over the past 18 months. The next move in "electronification" is NES, which was developed for a variety of reasons. In addition to export controls, this includes standardising the gathering of statistics. At present one port does it one way and another port another way.

As far as HMCE is concerned, the introduction of NES is long overdue. The CHIEF system was designed to handle both exports and imports, but with most export entries being paper-based, CHIEF has been under-utilised.

HMCE is also continuing to keep frontier controls for some imports, as O'Connor explained: 'We apply contraband controls at the borders, which will remain. This applies to a narrow range of goods, because of their nature and potential danger to the environment, eg arms, explosives and nuclear waste for reprocessing. But for the bulk of imports our interest at the frontier will be admissibility, ie identifying those goods, at an early stage, which are free to move. They will be identified from the electronic cargo report [carrier's manifest], before the ship arrives.

O'Connor said that some ocean carriers are currently sending advance manifest information directly to HMCE electronically, by way of the so-called CUSCAR messaging format. This will be extended to include all goods, the principle being the same as is being applied to US imports via the Container Security Initiative (CSI).

It will replace the system of import data being transmitted to the UK port community inventory systems, which are linked to CHIEF. The software providers for these systems are currently concerned at the costs they may incur due to the revised import entry data sets in future (as per the G7 requirement).

A number of other e-commerce solutions available to shippers complement these systems, providing paperless export and import documentation. One major UK-based importer taking advantage of such facilities is Otto UK, part of the German mail order company Otto International, which imports about 5,000TEU of FMCG a year from China, Hong Kong and Taiwan to Southampton. A large range of products are imported, for the Freeman and Grattan mail order catalogues. The containers are on-carried by rail (Freightliner) to six warehouses in northern England.

Justin Gales, supply chain manager at Otto UK, based in Bradford, explained that the company's Asian suppliers produce paperless invoices, packing lists and ocean (P&O Nedlloyd) B/L, with a minimum of data input, by using the services of the IT provider boleroXML. Through a linkage between Otto UK's and its suppliers' ERP systems, boleroXML enables these documents to be created automatically using data from Otto UK's purchase orders, and printed remotely. boleroXML achieves this by providing a set of common standards, which it describes as 'facilitating business transactions across organisations.

Otto UK also benefits from an EDI facility provided by the UK Department of Trade and Industry (DTI) for electronic import licence applications. Gales said: 'We're one of only a few traders doing this. We process many licence applications because of the high volumes of garments we import.

However, a major change in European licensing regulations to be implemented at the end of 2004 is set to benefit companies such as Otto UK. O'Connor explained: 'Import licences for clothing, which comprise the bulk of licences in Europe, are disappearing, under the Multi Fibre Agreement (MFA). In the UK the DTI currently issues about a third of a million licences annually for these types of goods. In 2005 we will be left with goods that need controlling. For exports there will still be licences, eg for agricultural goods, but in the UK NES will deal with these electronically.

These latter goods include Common Agricultural Policy (CAP) goods, for which export refunds apply. In the UK the Royal Payments Agency (RPA) controls these refunds, and HMCE administers these exports (including examinations, refund authorisations, etc) on behalf of the Department of Environment, Food and Rural Affairs (DEFRA). In order to facilitate business between UK Government departments, including DEFRA, as well as facilitate the shipping community's and general public's dealings with the departments, HMCE is developing the 'Single Window', as part of its Blueprint. This will be an Internet portal, with linkages between separate departments, ie the VAT office, Inland Revenue, DTI, etc.

Meanwhile, implementation of the NCTS, G7 and SEA initiatives is progressing, although not always as quickly as the shipping community would like. NCTS is being piloted by Dutch Customs, but according to Dixon the electronic messaging on which the system relies is new to them. NCTS requires the shipper to send a pre-shipment advice to his local Customs office, advising them of their intended destination. The shipper then awaits confirmation of whether the goods need inspecting. Another electronic message is sent to the shipment's final destination.

The Transit Action Group (TAG), a grouping of Europe-wide associations representing key users of Europe's Customs transit systems, has recently expressed concern that NCTS is falling behind schedule. TAG's members include FEPORT (Federation of European Private Port Operators), FFE (Freight Forward Europe), FIATA/BIFA, EUROCOMMERCE, and other organisations.

In fact, the plan is for NCTS to be rolled out across Europe this year. It is expected to become operational in the UK in the second quarter, and Langdon Systems recently delivered an NCTS solution to Trek Bikes, ready for the US-headquartered company's expansion into the Netherlands

Meanwhile, the G7 Initiative is finally being piloted this year, seven years after the formation of its ill-fated predecessor, the International Trade Prototype (ITP). Trials of ITP never got off the ground, due to Japan pulling out, followed by the US withdrawing funding.

In April 2003, trial shipments will begin between Canada and the UK, the first shipper participant being the major Canadian telecommunications company Nortel Networks. The company ships substantial volumes of equipment and spare parts by sea (in containers) and air, using a variety of ports and airports.

Nortel's Customs and logistics operations are outsourced to Vastera, for which the latter's global trade facilitation software is used, to manage all compliance issues and provide links to Canadian and UK Customs' systems.

O'Connor, who is managing the G7 project at HMCE, said that the electronic messaging between the two countries will be achieved with no re-formatting of the shipment data sets. However, the data will have to be changed in two respects: firstly the goods value (FOB at export and CIF for import into the EU), and secondly the commodity code, which is only harmonised at six digit level, whereas 10 digits are required.

G7 and some of the other Customs projects provide opportunities for trade compliance software providers. Interestingly, both Vastera and Langdon Systems include former Customs officers in their senior management, which the companies see as a competitive advantage.

According to O'Connor, other manufacturers, some of which use Vastera's managed (outsourced) services, are interested in participating in the pilot. He said that up to 20 companies are being sought, including 3PLs, although they will not all be in a position to start in April. They include technology companies, such as Motorola and Intel. O'Connor explained: 'Technology companies have taken a severe hit the past couple of years, and are looking at ways to better manage their businesses and cut costs.

Another incentive for participating companies is the potential for applying the principles of the Swedish (Stairway) model, described above. O'Connor suggested the possibility of the establishment of 'gold card' status, both for compliant traders and ocean carriers. For authorised importers and exporters, such a system would have similarities to CFSP and NES, but on a global (WCO) scale.

O'Connor has also been encouraged by the co-operation of a large number of UK-based freight forwarders, who have expressed their willingness to take responsibility for compliance issues on behalf of participating importers. Interestingly, four Japanese companies (including Hitachi and Matsushita) may also participate in the G7 pilot, which would extend it to Asia.

Meanwhile, the SEA initiative has already gone live in some EU member states, with Kimberly Clark, Philips and Toyota using it. They are dealing with a single Customs authority for the payment of duties and clearance for imports to several European countries.

Mike Wingate, finance operations director at Toyota in the UK, explained: 'We import cars from Japan into our warehouses in Belgium, Finland, France and the UK, as well as containerised car parts into several European countries. With the high volumes and import duty amounts for the cars, we benefit significantly from being able to centralise our operations in Belgium. Our system only needs to be accredited in Belgium, and we just deal with Belgian Customs. Audits are undertaken in each country, but Belgian Customs takes overall responsibility.

However, SEA has not been embraced by all EU countries. Based on Toyota's experiences, Wingate commented: 'The northern European Customs authorities, particularly those in the four countries we import cars to, have been more co-operative than some of the southern European authorities.

A major sticking point for some EU member states, causing this SEA fragmentation, has been the 25% of the value of import duty allocated to the Customs authority of the country in which it is collected, rather than where the goods are shipped. Called 'own resources' by HMCE, these monies are used to fund national Customs authorities, whereas the balance 75% goes to the EC in Brussels. This situation has recently been resolved through a general agreement between the participating countries.

Another problem, which still persists, is the lack of uniform Customs regulations across all member states. This has necessitated bilateral agreements (called Joint Understandings of Communication, or JUCs) being set up between national Customs authorities. According to Cornell, at present the whole SEA system revolves around these JUCs.

Resolving this is a large task for the EC, due to the member states' differing internal structures with respect to Customs, VAT, Intrastat, etc. Looking to the future, as Cornell pointed out, by 2013 import duty is expected to disappear in the EU for exports from GATT countries. Like the projects outlined here, this will pose challenges for the EU and Customs authorities alike, but can only be good news for traders.

This article was reproduced from Containerisation International with their kind permission