Shipping traffic outside the Port of Singapore

AEO Benefits Revealed for Breakbulk

By Thomas Timlen

Authorized Economic Operator (AEO) – A party involved in the international movement of goods, vetted by a national Customs administration as complying with World Customs Organization or equivalent supply chain security standards. AEOs can include manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses and distributors.

Source: WCO SAFE Framework of Standards

 

Are transporters of breakbulk cargoes reaping any of the benefits that can be gained from participation in supply chain security programs and related trade facilitation initiatives?

What about companies involved with project and heavy-lift transport?

Some are, more should be.

There are some breakbulk, project and heavy-lift carriers that have signed up with various supply chain security programs, but many others are not yet fully aware of the available benefits these programs provide. The reason for this can be traced back to the global perception, or misperception, that supply chain security initiatives are primarily focused on companies involved with containerized cargo and small express delivery parcels.

The history of supply chain security makes this misperception understandable. During the 1980s, efforts to suppress drug smuggling gave birth to the concept of supply chain security and related initiatives, industry-driven and government-driven alike, all aimed at the protection of the integrity of the supply chain.

After the al-Qaeda attacks against the U.S. in 2001, the focus quickly shifted from drug smuggling to terrorism. By 2004, the International Maritime Organization had rolled out the International Ship and Port Facility Security Code. U.S. Customs and Border Protection had already developed and launched its Customs-Trade Partnership Against Terrorism. As C-TPAT was rolled out, the World Shipping Council committed all its membership – exclusively operators of containerships – to register as C-TPAT participants.

By this time, the concept of Authorized Economic Operator, or AEO, had become well understood, and there was a movement to establish Mutual Recognition Agreements, or MRAs, between customs administrations that had established supply chain security programs. The World Customs Organization, or WCO, played an important role in the global effort to protect the supply chain.

Yet, despite such progress, the mistaken perception that such programs are focused on the transport of containerized cargoes persists. However, as older programs are enhanced and new initiatives come on stream, benefits available to all sectors are gaining well-deserved attention.

 

Supply Chain Security Developments

The global spread of supply chain security initiatives did not take place in a vacuum. This development was accelerated to a large degree by WCO efforts, internationally and specifically related to Southeast Asia.

The WCO found that global terrorism posed a variety of challenges, not only to the security and safety of people, but also to economic development and political stability, making it imperative for Customs administrations to further strengthen their efforts to secure borders and protect the international supply chain.

“Our new Customs counter-terrorism initiative for Southeast Asia demonstrates the collective determination of the Customs community to effectively fight global terrorism and its negative impact on international trade,” said WCO Secretary General Kunio Mikuriya. “This initiative enables us to actively support Customs administrations and other relevant stakeholders in the region to implement all necessary measures to further secure the supply chain and combat terrorism,” he added.

AEOs are an integral part of the WCO Framework of Standards to Secure and facilitate Global Trade, or SAFE Framework. Under the AEO concept, if a company complies with the requirements, it can be considered as a potential member of such a program, even though Customs administrations have the final say on which operators they will allow to join their national programs.

However, benefits differ according to the characteristics of each AEO. These benefits will be commensurate with the risk factors and the role the operators play in the supply chain. Breakbulk handlers/transporters generally represent higher risks because they are consolidating goods from different consignors and for many consignees. This makes the verification of each consignment more difficult, hence the risks are also higher.

One way to mitigate these risks would be for regular operators to be recognized as compliant under an AEO Program. Successful Customs-to-business partnerships rely on several critical factors, accompanied by mutual respect for each other’s roles and responsibilities in this regard.

WCO Secretary General Kunio Mikuriya
WCO Secretary General Kunio Mikuriya

Driver For Wide Benefits

The SAFE Framework’s AEO program is widely acknowledged as a key driver for:

  • A solid Customs-business partnership.
  • A secure, transparent and predictable trading environment.
  • In a wider context, enhanced economic prosperity.

The number of AEO mutual recognition agreements/arrangements signed and being negotiated have considerably increased, and these positive dynamics demonstrate an increased engagement among all relevant stakeholders, while providing a useful basis for a harmonized approach.

In the integrated Customs control chain, Customs control and risk assessment for security purposes is an ongoing and shared process commencing at the time when goods are being prepared for export by the exporter and through ongoing verification of a consignment’s integrity, thereby avoiding unnecessary duplications of controls.

To enable such mutual recognition of controls, Customs should:

  • Agree on consistent controls and risk management standards.
  • Share intelligence and risk profiles.
  • Exchange Customs data, taking into account work that has been carried out within the context of the WCO Global Information and Intelligence Strategy.

One of the main tenets of the WCO SAFE Framework is to create one set of international standards, and establish uniformity and predictability. It also creates the conditions for securing, facilitating and promoting international trade. This encourages and makes it easier for buyers and sellers to move goods across borders. It also reduces multiple and complex reporting requirements. These processes ensure that operators who are members of official AEO programs see tangible benefits to their investments in good security systems and practices, including reduced risk-targeting assessments and inspections, and expedited processing of their goods.

Of Southeast Asia’s 11 nations, only Myanmar is not yet a member of the WCO. With that one exception, the region is well represented, augmented by a constructive dialogue established between the WCO and the ASEAN Brussels Committee, which comprises the Brussels-based ambassadors and senior officials of the 10 members of the Association of Southeast Asian Nations, or ASEAN.

While dialog and participation is good, to have a tangible effect on supply chain security, implementation is better. On that front, Southeast Asian nations have made progress in applying the concepts promoted in the WCO SAFE Framework of Standards to Secure and Facilitate Global Trade, with Singapore serving as an example of how this has been achieved in practice.


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The Singapore Story

Singapore Customs has taken a multipronged approach to its supply chain security strategy, with enthusiastic support and participation among many sectors including logistics companies who have achieved AEO status, thereby reaping tangible commercial benefits.

Information provided by a Singapore Customs spokesman illustrates the scope of the city-state’s efforts and achievements in applying standards developed by the WCO.

“Singapore Customs’ Authorized Economic Operator program, the Secure Trade Partnership, or STP, is a voluntary certification program, which recognizes companies that offer a high degree of security in the supply chain. Developed in line with the WCO SAFE Framework of Standards to secure and facilitate global trade, the STP aims to strengthen and safeguard the security of supply chain operations and prevent disruptions to the flow of goods, by encouraging companies to adopt robust security measures using a risk-based approach in their trading operations. Companies under the STP program will be recognized as lower risks during customs clearance of their cargo.”

Benefits of STP participation go beyond Singapore’s borders, within and beyond Southeast Asia, as further explained by the spokesman: “Singapore Customs also has AEO Mutual Recognition Arrangements, or MRAs, with other customs administrations, including Canada, the People’s Republic of China, Hong Kong, Japan, the Republic of Korea, Taiwan and the U.S. With the MRAs, cargoes from the AEOs of the MRA partners would be recognized as low risks during cargo clearance by both MRA partners. Currently, there are 174 companies under the STP program.”

Singapore Customs has also taken steps to ensure that supply chain security does not leave out the important need to accommodate trade facilitation.

“Singapore Customs’ Trade Facilitation and Integration Risk-based System, or TradeFIRST, aims to provide a holistic and consistent approach to facilitating trade. By providing a single point of contact between Singapore Customs and the traders, and developing a single set of assessment criteria for all the schemes administered by Singapore Customs (including the STP), Singapore Customs can gain a better understanding of the operations and needs of traders. Using risk management principles, Singapore Customs is able to advise traders on the best practices to adopt and ways to enhance their compliance.”

 

Reaping Benefits

How do the breakbulk, project and heavy-lift sectors benefit from such programs?

The WCO recognized the higher risks faced with breakbulk cargoes consolidated from multiple shippers, and how these risks can be mitigated with AEO programs. Singapore Customs has further explained that its initiatives are catered for all industries, therefore despite the misperception that such programs are aimed only at transporters of containerized cargo, there are no impediments to participation for transporters of breakbulk, project and heavy-lift cargoes. To the contrary, such companies are welcome and encouraged to participate.

The assessment process required to achieve AEO status reveals any vulnerabilities to company security that must be corrected. Once such corrections have been made, the AEO will benefit from a lower risk of losses from theft and pilferage, as well as losses that can result from breaches of systems from which commercial data can be stolen. A lower rate of such incidents can also result in lower insurance premiums.

Another important commercial advantage identified are the cost savings from the consolidation of licenses made available to TradeFIRST participants. With fewer licenses required, there are fewer license fees to be paid.

In a world in which time is money, TradeFIRST participants save time on a regular basis due to the single-window approach for all customs to business trade facilitation needs, as well as faster clearance times for cargoes transported by AEO companies.

With TradeFIRST now a matured program, the advantages have become more familiar to traders, including those in the breakbulk, project and heavy-lift sectors.

A specific recent example, which remains anonymous as it relates to an open fixture, involved a large engineering, procurement and construction tender for goods entering Thailand. The fixture did not involve containerized cargo, yet a request for AEO status was nevertheless made, confirming that the benefits of AEO status are on the radar, and companies that can provide a Customs AEO identifier may have a competitive advantage in securing new business.

A company’s AEO status can also be advantageous when subject to vetting and other due diligence efforts. Outside of trading, one international logistics association considers whether applicants are certified AEOs during the membership vetting process. Those who are AEOs with one or more customs programs are seen in a more favorable light.

 

‘Much to Gain’ For Logistics Companies

One supply chain security expert who has researched related developments in Southeast Asia and farther north to China encourages logistics companies to attain AEO status. Associate Professor Rob Preece at the Charles Sturt University Center for Customs and Excise Studies, told Breakbulk that breakbulk, project and heavy-lift transport companies have much to gain.

“Under the general provisions,” Preece explained, “I would think that nothing excludes the sector from entering the programs, provided they meet the criteria around supply chain security. I think my biggest concern with AEO programs was in fact the lack of – and difficulty to obtain– mutual recognition between trading partners, and the gaps in the AEO programs between the requirements of developed economies and developing countries.”

While the MRA challenge rests with the customs authorities, seeking AEO status is something companies can pursue immediately. In an article Preece prepared for the Bangkok Post earlier this year, he pointed out that 69 countries have such programs in place.

And the number of AEOs and MRAs continues to grow. In Asia, China established its own AEO program in 2014, and has initiated efforts to establish MRAs in the region and globally. Other drivers that should lead to an increase in AEO programs and MRAs include the establishment of the long-awaited ASEAN Economic Community, or AEC, aimed at expediting intra-regional trade, and China’s push to develop and promote its infrastructural “project of the century,” the One Belt One Road initiative. OBOR will encompass 60 countries in Asia and Europe, in addition to linking with Oceania and East Africa. Both the AEC and OBOR projects will benefit from, if not require, the establishment of MRAs throughout their respective scopes to ensure smooth crossings at the many borders.

Without question, there is money to be saved and other commercial advantages to be gained from becoming an AEO, whether operating in Southeast Asia or other parts of the world. In this competitive market, where every dollar counts, stakeholders who have not done so already would be well advised to get started.

Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.

Photo credit: Shutterstock

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