The COVID-19 crisis is fueling changein tradeat a blistering pace. An example wherethisacceleration isprovingpositiveis the catalyzing of digital transformation in countries and industriesthat have beenlateadopters. The circumstances of the crisis have led businessesand governments to adapt their products and service offeringsbyembracingdigital tools to face the new challengeslinked tothe virus.
Cargo clearance is one area in which digital tools such as arobustRiskManagementSystemcan significantly improve operations by reducing transactional costs to traders andminimizingriskatthe bordersboth in terms of cargoclearanceandexposure to physical contact with persons andsurfaces.Thisdigital systemgenerates theadded benefit ofpreservingthe health of all parties involved in the transaction, which is paramount during a crisis such as the COVID-19pandemic.
What are Risk Management Systems?
Risk Management is the systematic application of management procedures,practices,and technological toolsthatprovideCustomswith thecapacity to capture, process,and analyze different typesof datato address movements or consignments that present a risk.
Whether these are security risks posed by prohibited or restricted products such as guns or drugs and revenue risks, or both,such as undervaluation, misclassification or smuggling of goods such as alcohol and tobacco, robustRiskManagementSystems helpCustoms agenciesto determinewhich shipments should be inspected,in orderto minimize interference with trade flows. In addition,evidencedemonstrates that longer cargo processing times that result from physical inspections are particularly harmful to new trade relationships.
However, not all Customs agencies are applying modern risk management-oriented techniques.MexicoandBrazilemployadvancedtoolswithinLatin America and the Caribbean (LAC).Globally,only a fewothercountries,including the United States, Canada,Dubai,Republic ofKorea, Japan, Singapore,and New Zealand,arealreadyusingnascenttools such as Artificial Intelligence in their RiskManagementSystems.
Traditional risk management systemsemploytools such as random selectionin isolationorapply a basic level of deductive analysis to flag a shipment forexamination. For example, amatch between the importer recorded inaManifest(a shipping document listing the cargo, passengers, and crew of the ship)and ahistorical,non-compliant importer list.Thisapproachdoes not provide a holistic view of theshipment’srisk profile,andthese listsare usuallyupdated too infrequentlywithout automated toolsto be effective.On the other hand, random selectionused in isolationreduces control to a sort of Russian roulette.
As such,theserudimentarytechniquesaretypicallyassociated withhigh inspection ratesandlowlevels ofaccuracy.Theyrepresent an inefficient and ineffective allocation of humanand technicalresources, andcompromises thehealthof officers,contradictingtheefforts to preserve lifeduring times of crisis.
On the other hand,sophisticatedsolutions use multiple levels of analysis consistently across the range of supply-chain data,thereby providing a more effective assessment of risk.A robust set of business rules utilizing updated algorithms can help by directing assessment efforts to shipments, industry sectors, importers, exporters,carriers,and brokers of concern.MachineLearning and ArtificialIntelligence canalsodevelop predictive models that automatically adjust the risk scenarios within the system to “self-learn.”
Coupled with Natural Language Processing and Data Analytics tools, thismodernapproach facilitates legitimate trade. Itshifts low-risk transactions tobeexaminedafter the goodshaveclearedthe port(post-clearance audit),reducing unnecessary delays. Thisapproachalso allowsminimal humanresources at the borderto focuson high-risk shipments that pose realCustomsthreats.
How does a modern Risk Management System operate?
Usingthe exampleprovidedearlier, the initial risk score maybehigh due to a previousminorcontravention by the importer.However,whenthe systemruns various levels of analysis on the data utilizing multiple tools,the risk score is adjusteddownwards. Thecombinedoverallscore may conclude that theshipment posesno real threat to revenue, security,or safety.
Thissystemwouldeliminatean ineffectivefull physicalinspectionat the portof entry or perhaps wouldlead to arerouteofthe shipment to a non-intrusive inspection instead, depending on the adjusted risk score and the type of commodity.
A modern Risk ManagementSystemallows border agencies to minimizemanualinspections and increaseinterdictions.In other words, it increases assertiveness.Intelligently combined withnon-intrusive inspection equipmentandmonitoringsystems, thesetoolscontribute to reducingthe number of personsrequiredto be presentat theports ofentrywhile maintaining security at the borders.These tools also complement othertrade modernization initiatives such assmart ports, for which the IDB has developed atoolkitto measure a port’s level ofevolution.
Supporting Risk Management System inLatin America
Such tools are even more critical at a time when the safety and security of acountryaredependent on curtailing contactwithpeople and surfaces.InTrinidad and Tobago, The Bahamas,Argentina,Peru, Nicaragua, Costa Rica,andPanamatheIntegration andTradeSectorof the IDBis working closely with CustomsagenciesandvariousMinistries to support investments in risk management systems, consistent withthemandate to reduce the time and cost of clearing goods and ensure the security of operations at ports of entry.
Digital transformation is at the core of these interventions. Paperless processes, risk management, cargo traceability, non-intrusive inspection technologies,and systems interoperability are examples of activities the IDB is helping finance and implement in ports of entry in LAC countries.Advancingsuch efforts would go a long waytowardimprovingthepreparednesslevelin each customs administrationto operate incrisisevents, like a pandemic,in the future.