Category Archives: Featured

Security at Sea: meeting looks at strengthening measures to protect sea carriers, maritime supply chain

By Kim Biggar

On June 19, members of the Customs Electronic Systems Action Committee (CESAC) met in Riverdale, Maryland with a full agenda.

Co-presenters from the Canadian Food Inspection Agency and the U.S. Department of Agriculture opened the meeting with a review of the North American Sea Container Initiative (NASCI).

The NASCI is a voluntary Canada-U.S. government-industry initiative. Its objectives are to:

  • Enhance understanding of challenges and opportunities for identifying and reducing pest risks in the sea container supply chain;
  • Enhance understanding of logistics of container movement in North America;
  • Conduct outreach and education to stakeholders, industries and organizations;
  • Collect data to measure risk of pathway and effectiveness of outreach; and
  • Encourage global adoption of similar, voluntary programs through the International Plant Protection Convention and other relevant international and regional forums.

Information is available on both the USDA-APHIS and CFIA websites.

The speakers closed their presentation with a video, “Preventing the Spread of Invasive Pests,” from the North American Plant Protection Organization.

Next up was a presentation from U.S. Customs and Border Protection on the CTPAT sea carrier minimum security criteria (MSC), which were recently significantly revised and strengthened and will take effect in 2020.

Two sections—Security Vision and Responsibility, and Agricultural Security—were added to the MSC and the IT Security section was renamed Cybersecurity and expanded to cover the growing threat to businesses based on their interconnectivity through the internet. Some former recommendations were changed to requirements, and implementation guidance was added to help clarify expectations.

The final version of the new MSC for sea carriers has been uploaded to the portal.

A discussion of CBP’s Forms Automation Initiative followed. CBP is working on automation of the arrival and clearance of vessels, with tests ongoing at several ports. Information will be accessed through its own portal, separate from the ACE Portal.

House bill release functionality was noted as a priority for which funding is not currently available. Its development is tied to rehosting of the new ACE process platform. CBP is looking to build a full multimodal manifest platform.

Regarding the in-bond rule, CBP is moving toward the last round of automation. Updated in-bond policy guidelines were to be issued soon after the meeting date. At that time, it was also anticipated that an operations guidance document for export manifest filing would be released in July 2019 for ocean, air and rail.

It was also reported that the automated export manifest is expected to be implemented at the end of 2020.

Other agenda items looked at changes to reporting requirements for intangible technology in the Automated Export System (AES), as well as some changes made to the Automated Export System Trade Interface Requirements (AESTIR); wrongly issued Import Security Filing (ISF) penalties; and Air Cargo Advance Screening (ACAS) compliance and enforcement issues.

DHL Reports New Technology That Will Significantly Change Supply Chains

By Kim Biggar

DHL Group recently launched a report, Digital Twins in Logistics, which looks at the potential impacts on the logistics industry of “digital twins.”

The report authors, Matthias Heutger, Senior Vice President and Global Head of Innovation & Commercial Development at DHL, and Markus Kueckelhaus, Vice President, Innovation & Trend Research for the company, set out to answer three questions:

  • What is a digital twin and what does it mean for my organization?
  • What best-practice examples from other industries can be applied to logistics?
  • How will my supply chain change because of digital twins?

A digital twin is essentially an advanced mathematical model of a particular physical object, created to simulate “both the physical state and behaviour” of that object. As an object ages and is affected by wear or is modified with replacement parts, for example, sensors on the object record its changes. The changes are transmitted to the model, which then updates itself, enabling an exact digital copy to remain over time. This copy provides value by allowing visualization, analysis, prediction and optimization.

The key enabling technologies of digital twins are the internet of things, cloud computing, APIs and open standards, artificial intelligence, and digital reality technologies.

According to Heutger and Kueckelhaus, “widespread adoption [of digital twins] is likely in the near future.” They cite industry researcher expectations of annual growth of the digital twins market of 38 percent over the next few years.

As valuable as digital twins can be, however, there are obstacles to adopting them. They require “considerable investment,” good data, new skills and employee motivation, and present IP protection and cyber security challenges.

While many current applications involve “the modeling of products and their manufacturing processes,” digital twins are increasingly being used to model “complete production lines, factories, and facilities.” They are “now used throughout the full product lifecycle, with a product’s twin emerging during the development process and evolving to support different business needs as a product progresses through design, manufacturing, launch, distribution, operation, servicing, and decommissioning.”

Digital twin applications in logistics are still limited, although the key enabling technologies are in use in logistics functions. “Bringing these and other technologies together into a full digital twin implementation is a complex and challenging endeavour, however.” The authors suggest that, “The cost-sensitive nature of many logistics activities may explain why few companies have so far been willing to make the necessary investments.”

Potential uses discussed in the report for digital twins in logistics, especially as “costs fall and confidence in technology grows,” are:

  1. Packaging and container digital twins: “The application of material digital twins could aid the development of stronger, lighter, more environmentally friendly packaging materials.” It could also help in the management of container fleets, “allowing the automated identification of potential problems” in recycled containers.
  2. Digital twins of shipments: Incorporating the contents of a package or container into its digital twin “could help companies improve efficiency, for example by automating packaging selection and container packing strategies to optimize utilization and product protection.”
  3. Digital twins of warehouses and distribution centres: Digital twins could be used in facility design, and in optimizing space utilization, the performance of automation systems and the productivity of warehouse personnel.
  4. Digital twins of logistics infrastructure: At major logistics hubs, such as cargo airports and container ports, digital twins could improve efficiency by improving the exchange of information among stakeholders.
  5. Digital twins of global logistics networks: “In logistics, the ultimate digital twin would be a model of an entire network, including not just logistics assets but also oceans, railway lines, highways, streets, and customer homes and workplaces. The idea of such an all-encompassing twin … is largely an aspiration for the logistics industry for now.”

Implications of Implementing Digital Twins

Realizing the benefits of digital twins will only be possible through significant change to supply chains, say the report’s authors.

  • Inbound to manufacturing: Companies will have to deal with increased complexity and work more closely than ever with their suppliers.
  • In-plant logistics: Companies will have to work with shorter lead times and, again, more complexity, as well as precise data management requirements.
  • Aftermarket logistics: “To build and operate high-performing aftermarket logistics and support capabilities, companies will need to understand exactly where their customers are, which products they are using and how they operate those products.”
  • Orchestrating the supply chain: Using digital twins “will allow companies to take a more holistic, end-to-end approach to the management of [their] products.” Full supply chain visibility will gain importance, as will supply chain configurations that support high service levels.

At this point in time, Heutger and Kueckelhaus suggest, because of the challenges related to adopting digital twins, logistics professionals might want to be planning in the near term “not how to leverage digital twins for direct orchestration of supply chain operations, assets, and facilities but rather how to evolve the supply chain” to be ready for adoption. That translates to exploring challenges and opportunities, and readying people and processes for change.

Read Digital Twins in Logistics.

CBSA Addresses E-Commerce Complexities and Challenges

In March of this year, the Office of the Auditor General of Canada issued a series of reports, including Taxation of E-Commerce. That report looks at the results of an audit of the Canada Border Services Agency—on which this article will focus—the Canada Revenue Agency and the Department of Finance Canada intended to ensure that the sales tax system for e-commerce is neutral (“treats all vendors equally with regard to the GST/HST”) and that the GST/HST tax base (“everything that is taxable”) is protected.

As the report notes, current legislative obligations related to the collection of GST/HST on e-commerce sales are complex and challenging. The ever-increasing volume of e-commerce shipments both exacerbates the challenges and increases the need for effective tax management. “The Canadian sales tax system must keep pace with e-commerce and adapt to the challenges and opportunities it presents,” says the report. Further, “the Government of Canada must ensure that everyone who should remit sales taxes does so and that the taxes are collected fairly and effectively.”

   Current legislative obligations for the GST/HST in Canada are complex for vendors and consumers

     Source: Reports of the Auditor General of Canada to the Parliament of Canada, Report 3 – Taxation of E-Commerce, Spring 2019.

While the audit examined several types of e-commerce products—digital products and services purchased online, supplies purchased online that are part of the sharing economy, and physical products imported into Canada after being purchased online—it is the physical products purchased online by Canadian consumers from foreign vendors that we are addressing in this article.

Overall, the audit found that the Canadian sales tax system is not keeping up with the advancing digital marketplace; the federal government is not assessing and collecting all applicable sales taxes on e-commerce transactions. This, according to the report, is putting “Canadian businesses at an unfair disadvantage in relation to foreign vendors” and may be encouraging “domestic vendors to move their operations abroad.”

The audit also uncovered that the CBSA “was aware that some courier companies were likely not remitting all sales taxes on low-value shipments into Canada” and that it did not act to correct this problem. “The Agency relied on the good faith of courier companies to declare and remit the sales taxes they collected from consumers. Even though the Agency had indications that courier companies did not declare the full taxes owing to the government, officials did nothing to resolve the issue.”

Under the Courier Low Value Shipment Program (applicable to products valued between $20.01 and $2,500.00), the importer or broker is responsible for assessing and collecting the sales taxes owing, and remitting the funds to the CBSA. However, because the CBSA was inadequately managing the program data, according to the report—collecting only consolidated summary information about sales taxes paid—it could not “automatically trace, compare, and validate information to confirm the sales taxes owed and to ensure the courier companies remitted the sales taxes to the government.”

The auditors found, as well, that, although the CBSA had determined back in 2009 that it needed an automated system to handle the Courier Low Value Shipment Program requirements, it had not implemented such a system.

Even after conducting compliance exercises between 2014 and 2018 to randomly sample shipments in the program that revealed a high number of undervalued shipments, the CBSA took no action to remedy the problem. A large increase in the number of declared non-taxable shipments (i.e., valued at $20 or less) from 2016-17 to 2017-18 was not analyzed to determine if the increase was valid or fraudulent.

The final major issue discovered through the audit relates to the collection of provincial sales taxes by the CBSA. The agency was found to be unable to track and validate provincial sales taxes remitted by courier companies or to collect the PST for courier shipments destined for a province with the PST but imported through a province with the HST.

The report recommends that, “as soon as possible, the Canada Border Services Agency should review the Courier Low Value Shipment Program to improve the validation and collection of the GST, the HST, and the PST.”

The CBSA agreed with this assessment and to a review of processes within the Courier Low Value Shipment Program to improve the validation of taxes collected. Among its other commitments, the agency agreed to finalize its e-commerce strategy this year and a business plan with implementation timelines before the end of the 2019–20 fiscal year; seek authority and funding to regulate shipment data in advance and develop a reconciliation process by December 2019; renew its focus on compliance activities; and examine options to further automate the program.

In May, shortly after the Auditor General’s report was issued, the CBSA hosted a facilitated stakeholder-engagement workshop with participants from key industry associations, including CIFFA, major e-commerce players Amazon and Walmart, logistics and freight service providers, Canada Post, FedEx and UPS.

Asked “How might we facilitate trade as we keep up with the pace of e-commerce, while ensuring proper revenue collection, and the safety of Canadians?” the group focused on developing tactical ideas for the future. Three teams each generated a range of ideas, some of the most impactful of which were deemed to be:

  • The development of CBSA’s system capability for data analytics and data traceability
  • A single integrated CBSA solution
  • The use of AI to expedite the process
  • Preclearance
  • A trusted trader/recipient program
  • Clarity on the regulatory framework for liability and penalties
  • A paperless process, removal of manual steps
  • A warehouse fulfillment program
  • One set of requirements for all modes

Based on information gathered at the workshop, CBSA planned to immediately start to write a business case for a concept to expedite, simplify and secure e-commerce, using AI, preclearance and trusted traders; meet with the Department of Finance about funding; organize a meeting of the BCCC to talk about policy development; and identify risks and risk profiles.

The CBSA has also been involved in the drafting this year of the World Customs Organization’s Framework of Standards on Cross-Border E-Commerce, which establishes global guidelines for cross-border e-commerce.

Another initiative that will impact this area is being addressed through Bill C-100, “An Act to implement the Agreement between Canada, the United States of America and the United Mexican States.” The agreement proposes increasing the de minimus threshold from $20 to $40, raising the LVS threshold from $2,500 to $3,300, and improving the clearance option to include all modes of transit, not just the courier program.

Activity on many fronts has the CBSA now focused on streamlining processes, investing in infrastructure, undertaking proof of concept projects, seeking new authority through legislative and regulatory changes, and reviewing data and release requirements.

A concerted effort, involving key stakeholders, is under way to improve the efficiency and tax-revenue collection of Canada’s e-commerce market. Watch for updates in CIFFA’s daily eBulletins.

Blockchain Technology Defined

“How many of you have a good understanding of blockchain?” Few people indicated that they do.

So, although blockchain is a much-discussed topic in the media, it appears to remain somewhat a mystery, even to a freight forwarding crowd. First speaker Rui Fernandes, a partner at law firm Fernandes Hearn LLP, noted that this session was thus intended to be a “Blockchain 101” lesson.

Trying to make sense of blockchain as a “distributed ledger” doesn’t clear up the confusion for newbies, said Fernandes. He suggested an analogy with banking, in which the bank is like blockchain’s central server and the customer’s bank book a ledger. Multiple decentralized platforms—multiple computers—are used to verify a transaction, then the record of the transaction is distributed in a network, explained Fernandes. “Someone would have to hack at least 51 percent of the computers in the network to break the blockchain’s security,” he noted.

Blockchain also enables “smart contracts,” which, as Fernandes translated, are self-executing agreements for which information is automatically updated as steps are completed. Each party to the contract has access to always up-to-date information on the transaction status. If lawyers drafting smart contracts don’t understand the industry’s processes, though, warns Fernandes, the self-executing contracts could be full of errors.

Fernandes revealed that legal issues to be considered in the use of blockchain technology relate to taxation, privacy, liability, intellectual property, data ownership, and the lack of flexibility in smart contracts. He believes that early adoption of the technology would be a mistake.

Don Miller, VP of Global Sales and Marketing for Globe Tracker, a provider of supply chain visibility solutions, said that, although several blockchain initiatives for the supply chain are in place, “the program that will be widely adopted has not even been created yet.” He suggested that freight forwarders need their own blockchain.

The merits of blockchain, according to Miller, include prevention of theft, counterfeit and fraud, and potential decreases in insurance costs; applications cover proof of delivery, compliance monitoring, and transfer of risk and payment.

Alison Clafin, Director of Network Development, Maersk -TradeLens Inc., believes the supply chain industry is “ripe for change and innovation.” Noting that some shipments involve up to 200 people—and thus loads of room for errors and delays-Clafin emphasized “the immutability from end to end” of documents in a blockchain. Immutable records, she said, provide proof of transactions that enable trust.

The TradeLens platform, designed and developed by IBM and Maersk, is “available to all,” said Clafin. She underlined that freight forwarders, who deal with questions all day long from customers about the status of their containers, can avoid such queries by joining a digital platform like TradeLens, allowing employees to use their time instead to boost offerings and sales.

Fernandes was concerned that “driving customer expectations through the roof” involves a lot of risk. He also noted that “garbage in, garbage out” does not cease when blockchain technology is used to track a shipment. Clafin agreed: Blockchain use “can’t guarantee or help ensure that lettuce arrives fresh”; it just allows supply chain partners to “see where it is in the system.”

The three speakers agreed that there is still much to be sorted out in the world of blockchain, but the opportunities for supply chain efficiencies that it presents are immense.