Domain: Global supply chains

Towards Trusted Trade-lanes

Joris Hulstijn (1), Wout Hofman (2), Gerwin Zomer (2), Yao-Hua Tan (1) 1. Delft University of Technology, Tilburg University since 1st of June 2016, [email protected] 2. TNO

EGOV 2016 Guimarães

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Domain: Global supply chains • Example: cut flowers from Kenya to FloraHolland auction, Aalsmeer

• Characteristics • complex heterogeneous networks, facilitating many parallel trade-lanes • some larger players use EDI, IOS, XML …, but many smaller players still use paper, text, fax and telephone (Steinfield et al 2011) • huge economies of scale of container transport lead to lack of visibility • “Unit of trade, no longer mirrors unit of transport” (Albert Veenstra)


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Improving Supply Chain Visibility • Supply Chain Visibility: “the identity, location and status of entities transiting the supply chain, captured in timely messages about events, along with the planned and actual dates/times for these events” (Francis 2008; p 182) • Hesketh, Heijmann: vision of a data pipeline (Klievink et al 2013), a platform for parties to share commercially available trade data Purchase order

Invoice

Customs Declaration

regulator Bill of lading

Insurance

? consigner

freight forwarder

shipping company

distributor

consignee

• CORE project: research on architectures, governance, business models, … EGOV 2016 Guimarães

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Task: Customs supervision • Task: regulatory supervision across borders • customs (1) stop function: protect market from undesired products (2) collecting duties: value; tariff; HS code (3) facilitating trade: reduce delays, costs, efforts • Increasingly look at safety and security (supply chain resilience) • Need to coordinate inspection efforts by customs, border police; antiterrorism agencies; harbour authorities; airport controls; food and health authorities; phytosanitary agencies; … • Observation: data quality of entry summary declaration (ENS) is poor! • Question: suppose we do have a data pipeline. How would that affect customs supervision?


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nformation and knowledge is gathered about commodities, traders and supply chains based on istory, knowledge of goods, other (partner) government agencies and business data such as hipment information. The gathered information is used for risk analysis.

Vision on Customs Supervision Customs NL (2014): https://www.youtube.com/watch?v=oAB31WPW4Xs


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urce: Heijmann/Hesketh 2014

ased on all the gathered information, the logistic supply chains are divided in 3 colours, Green, ellow and Blue. The green traders are the so-called Trusted Traders. Traders are classified to the Green lane based on the risk analysis and the knowledge about those traders. These traders are nown to the Customs organisation and are AEO Certified. Traders in the Yellow lane are trusted raders just like the Green traders but they form a chain of trusted traders in a whole supply chain or ead the whole global supply chain. They take a pro-active approach towards compliance by leading r support various research projects (supply chain visibility, high quality data exchange etc.), and they • RQ. What makes a group of trading companies trustworthy, both ctively work together with government agencies or invest in technological solutions for datato commercial partners and to the regulator? xchange. The Blue traders are the so-called “Unknown Traders”. These unknown traders are not EO certified, don’t have a known pro-active approach to compliance and/or are in that sense nknown to government agencies. This enforcement vision enables Customs to focus more on the oods and traders that have a higher risk of incompliance.

Characterizing “trusted trade-lanes”

he proportion of physical checks and verification of document based on the risk analysis is much ower for the yellow lane; the green lane is next and finally the blue lane traders. Also the ntervention in logistics is different, as physical inspections in the green lane are not only less than in he blue lane, but also carried out at more logical moments and places, preferably at destinations, in he supply chain. In the yellow lane the compliance is assured at point of loading.

Network Trade Compliance


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December 2014

System-based approach • Unlike the transaction-based approach, it takes the entire system of controls into account that guard the process of how transactions are generated: • the business model and the way companies collaborate • business processes and logistics operations Transaction-based • information systems and • security devices System-based • Related to self regulation (Rees 1988), responsive regulation (Ayres and Braithwaite 1992) and risk-based regulation (Black and Baldwin 2010) • Regulatory supervision largely based on compliance efforts of business itself; type of regulatory intervention depends on behavior, and risk for society. • Related to open texture of the law: application depends on specific context (Dworkin 1977; Burgemeestre et al 2009) EGOV 2016 Guimarães

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Current “trusted traders” • Individual companies are certified by customs, to become Authorised Economic Operator (AEO). Through self-assessment and subsequent audits, they must demonstrate to be ‘in control’ regarding (i) solvency, (ii) reliable administration, (iii) safety and security. • EU: AEO initiative • in 2014 AEO operators were involved in 54% of imports, 68% of exports and in 54% of transits (EU statistics)

• US: CTPAT, • elsewhere similar initiatives; mutual recognition. • Mostly administrative checks, even bureaucratic. Re-viewed every 5 years. • No data on individual shipments. • Complaints about administrative burden (ESC); no legal certainty. EGOV 2016 Guimarães

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Audits and inspections • How can a group of companies demonstrate to the regulator and to commercial parties, that they are trustworthy? • Demonstrate adequacy of design of controls to meet objectives, e.g. • Situation awareness tools to identify possible threats • Risk assessment methods to assess current risks • Control frameworks to mitigate these risks • Physical security to guarantee integrity of goods (no theft; no smuggle) • Demonstrate implementation and operating effectiveness • Continuous monitoring; e.g. from container security devices • Transaction data • Being in control: monitoring shows that incidents are identified, solved and lessons learned (Plan-do-check-act) EGOV 2016 Guimarães

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Towards TTL: governance • Trustworthiness of TTL depends on viability and stability of collaboration • business model: redistribute costs, rewards over partners and time • risk management: distribute risks and related controls over partners • Legal representative • secretarial duties • Power or influence structure: e.g.

a. hierarchical

b. peer to peer

c. membership


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Towards TTL: data sharing • Requires an platform for data sharing, that deals with • Interoperability: syntax; semantics; procedures; linking and leaving • Information security: access only to what parties need based on role • Updates: real-time events; tracking and tracing; event semantics • Business model: investments and maintenance effort • Wout Hofman (TNO): explores various specific architectures • event-driven; data can ‘pulled’ when needed

2. 1. consignee forwarder case


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Towards TTL: physical security • Gates, fences, doors, locks, keys, procedures, passes, CSDs, RFID, … • Integrity of the goods: actual goods correspond to documentation • “who packed the box”: bill of lading • No manipulation • E.g. cut flowers from Kenya at -1˚ C • no incentive to open door • temperature sensor also detects opening of the door • physical security at ‘stack’ and cross-loading • procedures at unloading


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Propose: TTL Control Objectives • For a trade lane to be trusted, the following control objectives apply (1) Members are known and individually trustworthy. (2) There is long-term and stable collaboration among members, motivated by a viable business proposition, and coordinated by a governance structure that provides a legal representative. (3) There is an adequately designed, well implemented and operationally effective system of control measures to ensure (a) physical integrity of the goods, and (b) reliable trade data, to be made available to the authorities. • Source: extrapolation from current AEO practices to entire trade-lane. • Status: proposal based on literature review; evaluated with experts from CORE project, and customs officers, but no official endorsement. EGOV 2016 Guimarães

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Evaluation Workshop • Workshop in CORE project (December 2015) with 20 participants from businesses, branch organizations, research institutes and customs • Two questions: (i) how do you define a TTL? Mention 5 characteristics. (ii) how can you contribute? (i) Confirmed the control objectives (all were mentioned and only these) (ii) Discussion suggested various issues and comments: • • • • •

Issue Issue Issue Issue Issue

1. 2. 3. 4. 5.

What trade facilitation is offered? None, should be viable by itself. Common understanding of risk in supply chain domain needed. Guidance needed. No, too early for guidance. First pilots. Really need legal representative? Yes, but not liable for members. TTL should reduce variability, this will also be a driver for success.


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Scenarios

a

b

c

• How will a group of companies organize into a TTL and demonstrate to regulator and commercial parties, that they are trustworthy? • Based on dimensions influence structure (a, b, c), choice between private and shared data standards, and business model we project various TTL development scenarios (c.f. Steinfield et al 2013): 1. dominant party scenario (private coordination hub) powerful party takes initiative; enforces standard; supports one TL 2. data driven scenario (shared coordination hub) develops bottom up; loosely coupled; supports various TL 3. cooperative scenario (shared, but only among members) develops bottom up; loosely coupled; supports several similar TL


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Observations from ‘Demonstrators’ • From a total of 9 demonstrator WPs in CORE, we selected three active demonstrators, with access to data. • These are ‘subsidized experiments’ • implementing a version of the ‘data pipeline’ vision, so applicable • business model not representative; • no physical security yet

• Purpose: illustrate applicability of TTL scenarios


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Observations from ‘Demonstrators’ • Case 1. SIP (Shipping Information Pipeline) • Maersk setting up generic infra-structure for event-based data exchange • Data about key events (small scope; large reach) • ‘common good’ infrastructure: costs shared by Maersk; long-term benefits • hierarchical structure • Case 2. FloraHolland: cut flowers Kenya to Aalsmeer (air and sea) • Customs dashboard to share trade data reduce uncertainty and delays • Pro-forma invoice; phytosanitary cert.; export declaration + event data • FH wants to offer long-term benefits to its members; pay per use • cooperative structure • Case 3. Felixstowe: various ‘data pipelines’ • trade-lane specific; based on port-community system (Destin8); no HMRC • Data set based on WCO and UNCEFACT standards; 4 waypoints • Commercial business case (reduction of errors, reduced uncertainty) • ad hoc structure EGOV 2016 Guimarães

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Conclusions • What characterizes a trusted-trade-lane? Based on extrapolation from AEO, we propose a set of TTL control objectives to ensure (1) members are trustworthy (2) governance structure (3) controls for (a) data sharing, (b) physical security. • Several scenarios are possible for developing TTLs • a. dominant party, b. data-driven, c. cooperative • Demonstrator projects show elements of these scenarios can be found. • Future research: • grounding of scenario dimensions in literature • in-depth analysis of cases (with Boriana Rukanova) • more about architecture for data sharing (with Wout Hofman) EGOV 2016 Guimarães

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References • I. Ayres and J. Braithwaite (1992), Responsive Regulation: Transcending the Deregulation Debate: Oxford University press. • J. Black and R. Baldwin (2010) Really Responsive Risk-based Regulation, Law and Policy (32): 181 – 213. • B. Burgemeestre, J. Hulstijn, and Y.-H. Tan (2009) Rule-based versus Principle-based Regulatory Compliance, Proceedings JURIX 2009, pp. 37-46. • COSO (1992) Internal Control - Integrated Framework, Committee of Sponsoring Organizations of the Treadway Commission. • Dworkin, R. (1977). Taking Rights Seriously: Duckworth, London. • R. C. Mayer, J. H. Davis, and F. D. Schoorman (1995) An integrative model of organizational trust, Academy of Management Review, (20):709-734. • B. Klievink, E. Van Stijn, D. Hesketh, H. Aldewereld, S. Overbeek, F. Heijmann, Y.H Tan. (2012) Enhancing Visibility in International Supply Chains: The Data Pipeline Concept. International Journal of Electronic Government Research, (8):14-33. • Rees, J., Self Regulation: an effective alternative to direct regulation by OSHA? Policy Studies Journal, 1988. 16(3): 602-614 • Steinfield, C., Markus, M. L., & Wigand, R. T. (2011). Through a Glass Clearly: Standards, Architecture, and Process Transparency in Global Supply Chains. Journal of Management Information Systems, 28(2), 75–107. • Veenstra, A., Hulstijn, J., Christiaanse, R., & Tan, Y.-H. (2013). Information Exchange in Global Logistics Chains: an application for Model-based Auditing. WCO PICARD Conference, St. Petersburg


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