Speech to the Customs Brokers and Forwarders Council of Australia national conference
25 October 2013
Michael Pezzullo
Chief Executive Officer, Australian Customs and Border Protection Service
E&OE
History is really important. You can be stuck in the past, though or you can use history to build a future.
In the Australian Customs and Border Protection Service, we intend to continue setting the international pace for customs and trade related border functions as we face competitive challenges globally in the 21st century.
Throughout our history we have been working with you and your predecessors in terms of the profession that you represent and the professionals that you are - in terms of working together to manage the border through partnership arrangements with industry.
We're not frightened of partnership arrangements – we revel in them.
The work that we do together - before and after the border - directly links with our dual roles of both protecting the Australian community and fostering legitimate trade and travel for the benefit of our society and our economy.
The digital age, a strong and stable economy and changing expectations of society are just some of the competitive challenges that we all face.
Now as we know, we live this both together.
The huge growth of international trade of goods and services has underpinned Australia's prosperity over the past three decades.
In 2012 our exports exceeded for the first time 300 billion dollars of value, representing more than 20 per cent of gross domestic product.
I think as we would all agree, our open economy, with limited tariff and import restrictions on most of our traded goods sector has increased our productivity, accelerating economic growth and made our economy more dynamic and also more resilient in times of stress and shock.
Now - while we have taken steps to build our future capability, within our service, we must recognise - and we do recognise that we have to further modernise and innovative to meet future challenges.
To take one example that is relevant to the theme of this conference: Australia has seven free trade agreements in place with countries including the United States, Singapore and as a group the ASEAN Nations which accounting for 28 per cent of Australia's total trade.
We are currently engaged with our colleagues in Foreign Affairs and Trade in nine other FTA negotiations which would account, should they be successfully concluded, for another 45 per cent of Australia's trade.
So - 28 per cent currently in the bag; another 45 per cent currently being negotiated – Almost three quarters of Australia's traded goods sector.
The Prime Minister has already signalled his intention in the first few weeks of the job to finalise an Australia – China FTA. Total bilateral trade with China alone is already worth 117 billion dollars to Australia's economy.
And - of course - opening up China's markets to Australia's businesses - as with other markets will help drive Australia's economy further forward – and we as a service need to prepare for this.
Now the effect of any slowdown in border processing and controls cannot of course be underestimated.
Borders play - as we all know - 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 our border points, our systems and our 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 or adding to the inefficiency of our national infrastructure – particularly of course, at our ports.
Delays in processing border movements puts pressure on those ports, with follow-on effects for integrated logistics and supply chains and the economy at large.
Now in recent years, working together with our partners, we've made great strides in maximising the national value and benefit of our system of border control - for the benefit and prosperity of our economy, and also for the protection of our community.
However we are alert to the fact there are challenges before us that we must face in seeking to maximise further the value of this very precious asset we have – the border system.
Our role
Behind Australia's ongoing economic success story of the future will be an unprecedented growth of trade we collectively face in Australia at large.
A decade ago, we cleared just over four million air cargo consignments.
In the financial year 11-12, we cleared more than 18 million air cargo consignments – more than a quadrupling.
But looking ahead, it's going to get busier and faster.
By 20-17 alone, which is only four years away, we are facing an 85 per cent increase in air cargo volume, around 20 per cent increase in containerised sea cargo and a 25 per cent increase in international traveller numbers.
And as cargo volumes increase, trade patterns become less predictable as goods are sourced and being delivered through more complex supply chains.
Those supply chains are becoming much more dynamic. New and emerging complexities are increasingly obscuring the true point of origin for goods and making the determination of intent behind cross-border movements a much more challenging task - even relative to the past.
These increasing complexities in trade means there is increased potential for organised crime groups to camouflage themselves within supply chains.
Further, the way Aussies are doing business – led largely by the internet at the household level – is also increasingly reshaping the face of trade and travel – although trade for today's purposes mainly.
The online world is expanding, of course, our direct customer base in the service with more companies and individuals at the family household level importing goods directly, and consumers, of course, buying online from foreign suppliers.
With a few clicks, millions of Australians are ordering online goods. Businesses are directly re-stocking their shelves directly from overseas - and this is causing some traditionally very efficient streams such as air cargo already start bottlenecking - notwithstanding the significant increase in capacity that's been seen in that sector in recent years.
Further, as we face these increasing volumes and complexity of trade, we also recognise the potential for trade-related fraud and economic risk arising from that fraud, including revenue leakage.
Further, the way we do business with like-minded administrations is also changing.
The modern global customs and border protection function – and increasingly these agencies are indeed becoming agency and border protection agencies, not just customs services.
The way we are operating together is seeing us operating in an increasingly borderless, or rather should I say trans-governmental manner, at least among like-minded administrations.
We see this in the strengthened level of cross-border collaboration.
Trans-governmental networks of government agencies - and not just border agencies - are progressively increasingly exchanging information and collaborating, either in joint mission-specific task forces or strike forces or by way of more enduring arrangements- including increasingly in the area of sharing data.
The inter-connected and cross-border character of our work is especially evident in the area of global trade supply chain security and related areas of aviation and transport security.
Now, of course, our nation now relies on daily operation of an efficient sea cargo, air cargo international postal systems and international travel systems for all of the economic, commercial and private prosperity that we so pleasantly enjoy.
Our judgment is that we can not hope to meet the challenges of the future by simply doing what we do today and scaling up the operations to meet future demand.
Reform
From this perspective – and I have discussed this at length with the new Government – and we are of one mind with this - we have to significantly change the way we operate to deal with the increasing volume of trade and travel movements of which I've spoken.
The complexity of supply chains and travel routes, the increasing threat of very sophisticated criminal activities - all of these contribute to the clear need for a comprehensive routed branch programme of reform of the way in which we work - and therefore the way in which we work with you.
This is a shared national problem which requires a shared national solution.
To best support traders, our future border systems and processes need to be not just simply highly efficient and sophisticated – they need to be changed in their very nature.
As you will increasingly see, modernising and reforming the customs and border protection function is about giving our customers, including traders a highly efficient, intuitive and streamlined way in which to engage with our service.
We are currently embarked on a ground-up reform of the way in which we operate and the way in which we do business - this is based on extensive research, dialogue and - I was delighted earlier this year in June to receive a formal submission from your association - which I have really valued and cherished. And we are going to further work with the association in the coming months and years and I will be having discussions with the Chairman and the Director to that point.
Now our Reform programme is about modernising all our systems and processes, and providing easy-to-use tools including e-service options for travellers, industry at large, and in your sector, traders.
We are absolutely focussed and committed on creating a more seamless, free-flowing experience for legitimate traders.
Earlier this year, I launched the Australian Customs and Border Protection Service Blueprint for Reform 2013-2018.
I have discussed this blueprint with the Minister. He supports it.
We're of one mind. The Reform plans sketched out in that blueprint will happen. The discussion we are now having is the phasing and the funding.
The blueprint is a five year plan that provides a roadmap for our root-and-branch reform. We want to use this Reform process to provide the best possible support to traders as I have just said.
And this means our future systems will not only need to be highly efficient and sophisticated - they need to be geared to the reality of the modern global system.
Border clearance is just merely one of the functions we will be performing in the years ahead.
You will see us increasingly involved in - and talking about - supply chain management from the point of view of risk and the view of border clearance.
As you would expect, the minister has asked me to indicate the Government reserves the right to vary some elements of the margin of the Blueprint and, of course, as I've just said, the funding questions associated with it will be worked through the normal Government budget process, as you would expect.
To provide focus and leadership in the area most of direct interest to this group, I wish to advise I will soon establish, under the banner of Reform, with new leadership in place, a new Trade and Customs Division within the Service.
I will also seek to tap into the talent across a number of public policy areas to staff that leadership: Trade, customs administration, industry policy, revenue management, infrastructure, transport and logistics.
In parallel with this new division, I have also established a Specialised Reform Taskforce – specialised because it's one of the areas in which we're going to be focused but there are other areas that compliment this reform program that are of less interest to this forum today.
The Specialised Reform Taskforce of most interest will be focused on reforming in how we do business directly with our customers - and the channels through which we do business - hence the title Specialised Reform Taskforce on Customers and Channels.
Now we recognise that as trade volumes rise, fostering legitimate trade is a key focus and continues to be a key focus for the Service and we realise that the timely release of goods is an important element in achieving that outcome.
It's not the sole element.
I'll challenge the new leadership of this division to look beyond time release studies.
To look at other impediments that we are building into the system. Other complexities. Quantifying their major costs. The complexity of our forms. Our processes. Our Systems. How we run permit systems. How we run regulatory systems.
So yes - we will continue to employ research and programs around the metrics of physical time release. This continues to be important to us.
It is not the sole metric. And I'm increasingly challenging my staff to get the advice on other metrics.
Candidly I have to say this hasn't been easy. Sometimes history can trap you. Sometimes doing what you have always done, particularly if you have been doing it for five, 10, 15, 20, 25 years is the easy option.
Don't think this just applies to your industry. It applies to my workforce. They have got the message they know they have to change. Changes are happening now.
I want you to help me produce those changes. Because as you see - my staff interact with you differently.
I'd like all your feedback on how we are going. And I 'd like you to help me as we come into a more modern era on thinking about Customs and Border Protection work as a supply chain task. As a logistics task. And not a single point barrier clearance task.
We genuinely want the help of this association. The Chairman spoke earlier about this association being a ground-up organisation - and I think that's terrific.
We are doing reform in a ground-up way.
Some of the best input I'm getting for the Reform process isn't coming from fancy-pants consultants. Frankly it's not even coming from my esteemed leaders - although they are helping me put it all in place.
Some of the best ideas I'm getting are coming from my non-SES Officers who for various reasons have long wanted to make some of these changes.
They've been stymied, not supported, or in some cases the ideas have simply been too far ahead of their times.
I want to focus the rest of this presentation on the few minutes I have remaining on the specific area of trusted trade arrangements.
Facilitating trusted trade
Our aim is to formalise these new conditions and new approaches to trade by establishing - after we research, scoped and engaged with all stakeholders, a trusted trade program.
Not just a trusted program. But a trusted trader program.
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, focusing 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 focused 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.
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.
In other words, it's about changing our relationship from control to trust based regulation that could be applicable to all import streams.
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.
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.
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.
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.
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.
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.
While the Australian Government and industry is fast adopting full digital interaction, a successful example of this progress is the development of the e-tax portal by the Australian Tax Office.
Under the guidance of ex Tax commissioner and my predecessor Michael Carmody AO, E-tax has been adopted on a huge scale by the Australian public and industry as an important and often sole communication channel with the department.
E-tax made the best use of data provisioning capabilities and delivered substantial improvements in the service provided to tax payers and tax agents and lowered transaction and compliance costs.
Crucially, it saw the move from post-assessment income data matching to the pre-filing of electronic returns and achieving compliance by web-based services rather than post-assessment verification.
Forms are self-populated through secured links with other Government departments and the program is intuitive to flag potential errors and inconsistencies with data input.
Connected information environment – Big Data
With these increased volumes of cargo and increasing complexities will come an opportunity to use the increased volume of data we collect through our reforms, to gain insights to help us protect the community and to also better foster legitimate trade.
This data is not only essential for border protection; it is used to produce vital trade statistics, without which the Government would be missing a fundamental part of the evidence base it needs to steer the economy.
'Big data' will become increasingly relevant as trade patterns become less predictable as goods are sourced and delivered through the more complex supply chains, of which I have already spoken.
Less predictable patterns mean we need new capabilities to assess and mitigate the risks to trade. These new and emerging complexities can obscure, as I said earlier, 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 a risk to the competitiveness of Australian industry, and a risk to the revenue.
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.
Legislative changes in the past 18 months 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 with the power to 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.
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
Our Reform programme is a significant turning point for the organisation and demonstrates that we are serious about breaking new ground in what is a profession as historic as our nation.
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 focused 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.
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.
Getting our mutual border arrangements right for the times and fit for future purpose is what is energising and driving us in the Australian Customs and Border Protection Service.
