Speech to the AusInternodal Conference
09 October 2013
Michael Pezzullo
Chief Executive Officer, Australian Customs and Border Protection Service
E&OE
Thank you for that kind introduction and for the opportunity to speak with you today. It is events like these that build on the ties between industry and the public service and are invaluable to understanding both the similarities and the differences in the challenges we face and how we plan to tackle them.
Today I'd like to speak to you about the challenges of border management in the dynamic and rapidly changing trading environment we find ourselves working in.
Managing the security and integrity of the Australian border is essential for the protection and prosperity of the Australian community and economy. The border is a strategic national asset, and a very valuable one which should be actively managed and developed. Borders play an important economic role. How they are managed can foster or impede lawful trade and travel. Border control points, systems and processes sit astride supply chains and travel pathways. The very design of these points, systems and processes can add to economic competitiveness and productivity, by fostering rapid movement and border entry or exit. Conversely, they can detract from competitiveness and productivity by unnecessarily impeding movement, entry and exit, and diminishing the efficiency of our national infrastructure.
Our Role
Integral to our role of managing the border are the strong partnerships we develop with industry, because the work you do at, before and after the border directly links with our enforcement and trade role.
The work of the Australian Customs and Border Protection Service is of vital national interest. We have a long and proud history of protecting the border and serving the community, having existed in various guises since Federation, when the Department of Trade and Customs was established in 1901.
Our role at the border is multi-faceted, with work done across the continuum of facilitation, regulation and law enforcement as we support legitimate trade and travel, and target and intervene against those that attempt to breach our borders or circumvent our controls.
We do not just administer and enforce the Customs Act, we are also working on behalf of dozens of other agencies. We apply border controls for national security, law enforcement, economic prosperity and community protection purposes. The Australian Customs and Border Protection Service serves a growing number of federal, state, and territory authorities, as their trusted border agency.
In recent years we've made great strides in maximising the national value and benefit of our system of border control.
However we are alert to the fact there are challenges that we must face in seeking to maximise the value of this asset.
Australia has a productive, open and resilient economy. In 2012 alone our exports exceeded $300 billion, representing more than 20 per cent of gross domestic product.
The effect of a slowdown in border processing cannot be understated.
Delays in processing border movements puts pressure on airport and port infrastructure, with flow-on effects for integrated logistics and supply chains. The Australian Logistics Council estimates savings of $1.5 billion for the economy in associated costs for every one per cent increase in efficiency of transport and logistics supply chains.
Challenges
It is with this thought in mind I would like you to consider the increasing volumes of trade that we collectively face.
Ten years ago, we cleared 4.2 million air cargo consignments. In 2011-12, we cleared more than 18 million air cargo consignments. In 2000-2001, we processed around 18 million people through airports and seaports. Ten years on, this has risen to over 29 million passengers. The amount of duty collected has also nearly doubled in that time. Predictions about future growth indicate the trend is still rising.
By 2017 alone, we are facing an 85 per cent increase in air cargo, a 20 per cent increase in containerised sea cargo and a 25 per cent increase in international traveller numbers.
While we face increasing volumes, trade patterns will also continue to become less predictable as goods are sourced and delivered through more complex supply chains. Less predictable patterns mean we need new capabilities to assess and mitigate the risks to the border.
Protecting the border and the Australian community from a range of threats has always been a challenge.
The increasing complexities in trade mean that there is increased potential for organised crime groups to camouflage themselves as legitimate businesses.
Additionally, as the world grows richer and a new middle class emerges, particularly in Asia, we are seeing ports, airports and other infrastructure hubs being used in new and different ways.
We have seen the introduction of 'Capesize' Container Vessels which are too large to transit either the Panama or Suez Canal and the Ultra Large Container Vessels carrying in excess of 14,500 Twenty-foot Equivalent Units.
In addition supply chains are becoming more dynamic. These new and emerging complexities can obscure the true point of origin of goods, and make determining the intent behind cross-border movements a much more challenging task.
The true value of goods can also be more difficult to determine, posing both a risk to the competitiveness of Australian industry and government revenues.
The way Australians are doing business is also changing, with the internet continuing to drive growth and complexity in trade and travel. As a result, our client base will continue to expand—not only with more companies importing goods but also with consumers buying online from foreign suppliers.
These small shipments, usually through the air and mail stream, cover a wide variety of goods, and are becoming increasingly important to society. The growth in online sales is causing traditionally efficient import streams like express air cargo to bottleneck, where the time a consignment becomes physically available for delivery has increased from 19 hours in 2010, to 29.5 hours in 2011 and to 71.7 hours in 2012 (Time Release Study 2012).
Reform – the need for change
With these challenges in mind, I can say to you that the way we all currently operate will not be enough to manage and protect the border in the future. The increasing volume of trade and traveller movements, the complexity of supply chains and travel routes, the threat of sophisticated criminal activities, all contribute to the clear need for a comprehensive programme of reform of the way we work together. This is a shared problem which requires a shared solution.
Incremental changes and tinkering at the edges will not cut it – we need to undertake a complete transformation; an all-consuming reform of the way we operate and the way we do business. Earlier this year, I launched the Australian Customs and Border Protection Service Blueprint for Reform 2013-2018, which is a five year blueprint that provides the roadmap for our root-and-branch reform.
Now it is my contention that the Service does a good job today, but I believe that we can do better. Indeed, we must do better given the challenges ahead and the world I just described.
The realities that we are already facing at the border mean that we must continue to take the initiative in developing innovative systems and tools, as well as the skills and professional competencies of our officers.
We cannot hope to meet the challenges of the future by simply scaling operations to meet demand; that is not a financially viable solution. We need to develop innovative ways of meeting future challenges.
To best support traders, our future border systems and processes will need to be highly efficient and sophisticated. Our Reform Programme is about modernising these systems and processes, and providing tools and e-service options for travellers and industry.
We are focussed on creating a more seamless, free-flowing experience for legitimate travellers and traders, and focussing our interventions where they are required.
What we are going to do about it – together
As trade volumes rise, fostering legitimate trade is a key focus for the Service and we rely on industry support to ensure we don't impede Australia's economic growth – it's a partnership.
The Service assesses our facilitation performance through the World Customs Organization endorsed Time Release Study (TRS).
The TRS assesses a country's trade facilitation performance by measuring the average time from the arrival of goods at the border until permission is given for the goods to enter the domestic market.
What the TRS has consistently shown is that the border agencies are not a major impediment to the facilitation of trade.
Moreover and importantly, the TRS has highlighted the visible and direct link between early reporting of goods, and subsequent timely clearance of those goods.
Where documents such as the cargo report and import declaration are lodged early by industry, the border agencies are often able to complete risk assessment before the goods arrive at an Australian port.
Early clearance of goods provides traders with predictability and time to pre-arrange collection of cargo and inland transport.
Industry has benefited from its investment in earlier reporting. The results of the 2012 TRS show that today, documents are lodged, on average, four days before arrival. Consequently, the majority of goods are now cleared within a few hours of arrival, an improvement of more than one and a half days from 2007.
To assist industry in dealing with the challenges presented by exponential growth in online sales, the Service is striving to develop innovative mechanisms and processes in partnership with industry to meet current and future demand in the postal and express air cargo environments.
To ensure the success of these mechanisms, early and direct engagement with our industry partners will ensure that they too can keep abreast of our progress, and leverage the maximum possible benefit for their own operations from these new innovative programmes.
As part of Reform we will be looking at trusted technologies, which I will go into detail about shortly. We see trusted technology as key to the success of meeting these challenges, but so too are our industry partners.
Without the active support and engagement of our industry partners in the development and implementation of these new mechanisms, without a shared responsibility for supply chain security management, we will be hard pressed to meet the demands of the information age.
Facilitating trusted trade
By fostering legitimate trade and travel we directly support the economic success and competitiveness of Australia. We are committed to transforming the border experience for legitimate traders across the air and maritime domains. Delivering this outcome will require a partnership approach and shared responsibility.
Our aim is for legitimate traders to partner with us to experience an easily understood and simplified border clearance process in which the number and speed of border checks is reduced based on enhanced intelligence.
We want the trader experience to be fast and seamless, making business easier and contributing to greater economic growth. We will work with industry to provide trusted traders with expedited border clearance, where they have strong security and integrity practices and a history of compliance.
We will also increase our work ahead of the border, focussing on Mutual Recognition Agreements with trading partners to acknowledge authorised economic operator and trusted trade schemes that reduce risk to our border. This will allow the Service and partner agencies to redirect resources to areas of high risk.
The trusted trade programme will focus on border risks, leveraging information and complementing programmes focussed on air cargo security risks. The trusted trade programme will also take into account existing global standards such as the World Customs Organization's SAFE Framework of Standards to Secure and Facilitate Global Trade.
The Service is not wedded to the classic AEO formula – we are focussed on how to create trusted relationships with traders and with operators in the supply chain – where the only override would be intelligence led alerts. At the heart of this approach is a paradigm shift, where our relationship with traders is not simply governed by control-based regulation and we begin to move to a differentiated, trust-based regulatory framework.
Outcomes for trusted, compliant traders may include expedited clearance, priority service and reduced intervention as well as increased certainty, enabling better supply chain management and cost savings. Trusted traders may be able to access international recognition of trusted status and improved international market access including a reduction in the need for multiple assessments by other Customs administrations.
The Service is currently assessing the value of a range of trusted trade arrangements, including arrangements utilising trusted technologies. The range of approaches under assessment includes Public-to-Private (P2P) partnership approaches based on trust, clear accountabilities, shared responsibilities and, where appropriate, supported by trusted technology.
Trusted technologies under consideration include 'track and trace' technologies, which could provide significant benefits to consumers, business, the economy and government.
These trusted trade approaches could apply across all import streams (air, sea and international mail) and would need to be supported by regulatory and business process reform.
Connected cargo systems
We will work with industry to examine earlier reporting and more effective data sharing. This will include how we can integrate with trusted trader's logistics systems to enable direct access as the sharing of intelligence and other information will enable closer partnering with traders to better facilitate trade and combat illicit activity in the supply chain.
eServices: digital by default
We will also be working towards enabling full digital interaction for stakeholders to conduct their border-related activities. This will mean that all forms, application processes and related decisions will be available online.
Again partnerships will be important here, we will work with Australia Post and other stakeholders to implement this approach as currently border processing in the international mail environment, including revenue collection, is largely manual.
Our approach will link to our new enterprise case management solution to automate workflows, provide single entity views and manage queries. Our system options to achieve this will be scalable to handle the expected increases in trade.
To improve trade assistance technologies and tools we will work with our industry partners to improve compliance. This will include developing intuitive, user-friendly portals and other interactive tools, such as mobile applications. These self-service tools will help small to medium traders manage their own clearance arrangements.
We will also use social media to help individuals and infrequent traders understand their obligations.
This approach will simplify the path to trading internationally, while enhanced information systems will allow our officers to provide advice on complex matters through online mediums. As part of this approach we will also help businesses lower the burden of compliance by moving to a 'tell us once' approach to providing us with information.
Improving trade assistance technologies and tools
We will improve trade assistance processes and technologies to make interactions between the Service and all stakeholders seamless and integrated. Stakeholders trying to move goods (such as importers, exporters, customs brokers, freight forwarders, carriers and port authorities) will have a single window to manage all of their transactions that is simple, intuitive and can be accessed through a wide variety of fixed and mobile technology platforms. Stakeholders trying to manage trade (The Service, foreign customs,
trade partners, government agencies, trade bureaus, banks and insurers) contribute to a shared information environment that increases the visibility of trade patterns, allows better access to targeted information about trade in a structured way and enhances communications and alliance capabilities. In particular, for the Service, internal processes will be streamlined and supported by an information and knowledge management system that draws on the experiences and knowledge of our teams to inform future process.
A stronger and smarter compliance approach
To address the significant effect that non-compliant trading can have on the economy and the safety of the community, we will build on recent efforts and take a tougher stance by increasing our use of sanctions and targeting weaknesses in the border control framework.
To support this, we will provide our officers with the right powers, sanctions, technology and other tools to effectively identify and treat non-compliance and to encourage lasting behavioural change.
We will also work smarter, building stronger international and cross-agency connections to support our operational activities, including pursuing trade data exchanges with key trading partners.
We will seek out opportunities to work more collaboratively with Australian industry stakeholders to respond to border threats.
But change is not limited to the Service. As you are aware, there are challenges for all parties involved in supply chain and border logistics and we are committed to working with you to face these challenges together.
One of our priorities in recent years has been strengthening the cargo supply chain against infiltration by serious and organised crime. I make no apologies for seeking to impose new controls or strengthen existing controls where it is necessary to protect the Australian community from demonstrable harm.
Recent legislative changes include:
- placing statutory obligations on cargo terminal operators and those that load and unload cargo, which are similar to those that the Customs Act imposes on holders of customs depot and warehouse licence holders
- creating new offences for using information from the Integrated Cargo System (ICS) to aid a criminal organisation;
- providing the CEO of Customs and Border Protection can consider the suspension, refusal or cancellation of an Aviation or Maritime Security Identification Card (ASIC or MSIC) when determining whether the person is fit and proper
- adjusting other controls and sanctions in the Custom Act, including increasing penalties for certain offences and improving the utility of the infringement notice scheme, and
- Amending the Auscheck Act to give Auscheck the capacity to suspend a person's ASIC or MSIC, if the person is charged with a serious offence, such as an offence involving conduct that poses a national security or organised crime risk.
The legislation complements a range of other measures, including the following.
- Strengthened customs depot, warehouse and broker licence conditions, which came into effect on 1 July 2012.
- Changes to the ICS on 9 May 2012, which limit access to specific cargo information to those in the private sector who have a direct and legitimate interest in the movement and clearance of specific consignments. Work is progressing on increasing the real-time auditing capabilities of the system to detect anomalies and gather intelligence.
- To build on the success of Joint Agency Task Force POLARIS in Sydney, the Commonwealth has established similar Task Forces in Melbourne and Brisbane. The Task Forces comprise representatives from the Australian Federal Police, the Australian Crime Commission, Customs and Border Protection and associated State police services.
- We have also increased targeted patrolling of the waterfront.
- Work continues to improve security and access to Container Examinations Facilities.
Working with industry
Proactive, whole of government engagement will help to ensure industry is able to meet its regulatory requirements and conduct fast and efficient business transactions.
The Service is dedicated to assisting industry in this pursuit and remains open to discuss new business models. It is by understanding your emerging environment that we can be in the best position to assist you.
An example where we have worked closely with industry to come up with an appropriate 'whole of Government' regulatory framework to support an emerging business model has been in relation to a proposal for a Floating Logistics Hub (or the FiSH) in northwest Western Australia to address the significant shortfall in port infrastructure.
The FiSH would support a $21 billion liquefied natural gas (LNG) project, transporting gas extracted from offshore platforms by pipeline to LNG plants for processing and export.
The FiSH was considered necessary to address significant shortfall existing port infrastructure facilities in the northwest of Western Australia. It is proposed that foreign ships will berth at the FiSH, and goods will be offloaded onto the FiSH. It is intended that goods will be cleared for home consumption at this point, and then subsequently loaded onto barges to be transported to land. The goods will predominately consist of materials for the LNG project, including both the gas plant and the off-shore extraction operations.
This new model tested the current legal framework. It was a challenge for our Service and other government agencies to ensure operational staff had legislative authority to perform their roles at the border unhindered by constraints in circumstances and locations not necessarily contemplated by the current regulatory framework.
We were the lead agency for this work, and set the direction for the relevant agencies, as there was no clear policy owner for this new model.
We had to consider a 'whole of Government regulatory framework' to support this project and ensure any decision made on the FiSH had minimal impact on the regulatory framework administered by all relevant Government agencies.
Our work resulted in consensus, from a whole-of-Government perspective, on the relevant legislative authority to govern the FiSH and its operations, which provided the owners of the FiSH the necessary certainty to finalise their contractual arrangements.
New ways of thinking about 'customs control'
As I outlined earlier, Australia is a nation dependent on trade, thus making Australia's international ports and airports integral to our prosperity.
Two of Australia's busiest ports are forecasting that their volumes are expected to double in the next ten to twelve years.
Given this forecast, it is generally accepted that there will be major efficiency implications if improvements are not made to our ports and related landside road and rail systems over the coming decades.
Increasing trade has seen the emergence of the intermodal model, which is intended to facilitate the rapid movement of containers of goods away from port precincts where space is at a premium and congestion is a major issue to less congested locations for further distribution.
From a border management perspective the intermodal approach does not present issues for cleared goods.
The Time Release Study I mentioned earlier found that, on average, 70 per cent of all sea cargo is clear of any border agency interest by the time of discharge from a vessel (availability) and this figure grows higher by the time of gateout.
However, while the majority of sea cargo arriving into Australia is assessed as free from Customs and Border Protection interest before it leaves the designated customs controlled areas, there is a material proportion that is not. Under the current border risk management model, this cargo must be approved to move underbond from the customs controlled area to a licensed premise (depot or warehouse) to ensure customs legal control is maintained.
Our analysis of 2012 sea cargo movements shows that approximately 15.5% of sea cargo moved underbond. Within this population one fifth was LCL cargo of which approximately 26% had no border agency interest.
Under the current border management model most of our infrastructure for inspection, examination and treatment of uncleared cargo is situated at or in close proximity to existing seaport infrastructure.
Currently, a high proportion of licenced premises for storage and deconsolidation are also located geographically close to port precincts with some within the existing port or airport precincts and designated customs controlled areas.
However, it is becoming very clear that existing regulation, business models and port and land transport infrastructure (including border management infrastructure) will be insufficient to meet the challenges of the increases in trade anticipated.
Technological developments and innovation continue to create opportunities. With the advances in technology and more coordinated national and regional planning around ports and land freight strategy there must be a better way.
Are there new or existing technologies, which can meet the challenges that increasing trade presents for industry, government and the community?
If there are adequate means to secure modes of transport or transport corridors used for moving goods between a port and an intermodal hub, is there potential of 'extending' the traditional customs controlled area from the traditional port precinct to include the transport corridor and an area within the intermodal precinct? Would this reduce the regulatory burden and render underbond movement unnecessary? Could this also promote greater use of rail facilities to move goods?
These are issues worth exploring.
I am confident that we - industry and government - can find acceptable alternatives to the traditional model of maintaining 'control' of goods that have not been cleared for entry into home consumption, which will be mutually beneficial and will ultimately foster the economic prosperity of the nation.
Intermodal Hubs
Economic growth invariably flows through to increased demand for urban freight. Factors that are likely to ensure a continuing increase in the demand for freight capacity in Australian cities include:
- Greater reliance on 'just-in-time' freight delivery.
- The growth of large scale warehousing and distribution centres, which consolidate freight, and use state-of-the-art technologies to manage and track the movement of these goods nationally and internationally.
- Increasing trade – more imports are coming into our cities, which then have to be dispersed.
These are just some of the factors generating more freight movements and, which together with increases in passenger vehicle movements, places increasing pressure on urban transport networks and the ability of freight carriers to deliver goods quickly, reliably and cost-effectively. As urban congestion increases, particularly in Sydney and Melbourne, the demand for intermodal terminals (combining road and rail transport) located alongside key industrial/warehousing precincts is also increasing.
We have been working with industry and government stakeholders in evaluating inland terminals or 'intermodal hubs'. They present risks and opportunities for both industry and government and we will need to continue to work together with industry to ensure that our regulatory framework, policy settings, risk assessment and intervention activity are appropriate.
We recognise that intermodal hubs represent an innovative way of meeting future logistical challenges in both the air and sea environment. The Service will seek to support innovative ways of doing business (including intermodal hubs) as we see substantial benefit for Australia's economic prosperity. We will continue to engage with you to co-design solutions that will benefit industry and the community.
Conclusion
Effective border management is more than just about border clearance. In the years ahead, we will need to continue to balance our national security responsibilities while further fostering legitimate trade and travel.
We are focussed on supporting the economic competitiveness and success of Australia by fostering legitimate trade and travel, we aim to lower the burden on legitimate traders, while making it as difficult as possible for those who are unlawfully trying to breach our border. Both of these are essential to a strong, healthy economy where legitimate traders are not undermined by unlawful competition. But we cannot do it alone. The Service is committed to working with industry to meet their needs and assisting them to meet their regulatory requirements with a view to promoting international trade and Australia's economic prosperity.
Legitimate traders and travellers will be our partners as we work together to secure both our economic prosperity and our national security. Our ability to work in a trusted partnership with industry will form the cornerstone of future success.
