This is Part One of a three-part interview
World Customs Organization Director of Compliance and Facilitation Ana Hinojosa brought 28 years of customs experience to the global body when elected to her post in 2015. The former U.S. Customs and Border Protection deputy assistant commissioner-international affairs also served as director of field operations for the El Paso Field Office from 2008 to 2013 and as area port director for Los Angeles International Airport and Dallas Fort Worth International from 2002 to 2008. Hinojosa talked with HSToday about threats to global supply chain security along with blockchain, compliance and risk management.
HSToday: You have been in your role for over two years now…tell us about what is taking most of your time in supply chain security. What have you found to be the top three concerns?
Hinojosa: I would say that one of my top concerns with regards to supply chain security is what I refer to as the “tsunami of small packages,” also known as E-Commerce. And to be clear, I am referring to cross-border E-Commerce related to transactions involving physical goods.
This may seem surprising to you, but let me put it into a bit of context.
Some of the great strides that we have made in the area of supply chain security, since the attacks of Sept. 11, 2001, were the establishment of the WCO SAFE Framework of Standards and the widespread commitment to implementation by over 160 countries, as well as industry buy-in for the principles espoused therein. Traditional trade processes have somewhat harmonized on a global perspective, as evidenced by the WTO Trade Facilitation Agreement, which entered into force in February 2017, which has captured the foundational elements of good cross-border traditional trade practices, many of which have already been formalized through the WCO’s Revised Kyoto Convention.
Of course, terrorist organizations continue to threaten various aspects of supply chain security, but we have come a long way in being able to identify, collaborate and mitigate many of those threats, in the global perspective. We have also had a number of great advancements in the area of aviation security in collaboration with partner international organizations, such as ICAO, and with the private sector, who has been a fully engaged and very interested stakeholder. Clearly, the private sector also has much to lose if the supply chain security is breached.
This brings me back to my concern over the tsunami of small packages. E-Commerce has been around for quite some time. However, the phenomenon of cross-border E-Commerce had not seen the exponential growth that we have seen over the course of the last three to four years. On average over the last few years, the growth has been somewhere in the realm of 20-30 percent growth year over year, but for some countries, the growth has been anywhere from 50 percent up to 1,000 percent growth from one year to another. This is a substantial impact to the customs and other border agency administrations around the world.
Aside from the very basic impact of volume of transactions, there are important dynamics of this new volume that cannot be overlooked. First of all, the actors in this type of supply chain are very different than the ones in the traditional supply chain that we, the international customs community, have spent well over a decade sensitizing to the importance of supply chain security and the global principles adopted. These new supply chain actors may not even know they are engaging in cross-border E-Commerce, much less whether the goods they are buying are compliant with all laws, rules and regulations associated with exportation from one country and importation into another country. More likely than not, regular consumers are accessing the internet and searching for a particular product they want to purchase. They find it on a particular e-retailer or online marketplace, they put it in their virtual shopping cart, and then proceed to the checkout process. They assume that the product is safe, legal and compliant; otherwise, many believe, these goods would not be marketed through legitimate vendors.
As such, we have a different view of who the importers are and who the exporters are, and many are people who have no experience in the cross-border trading process, especially as it relates to supply chain security.
So why does this worry me? Well, with such a huge boon in cross-border E-Commerce transactions, many new sellers and vendors are also participating in the transactions. Again, many of whom have no expertise in the regulatory requirements for goods crossing borders. Most of these new actors are unknown, and some of the intermediary supply chain actors, be it postal operators or couriers, do not have the necessary infrastructure to ensure that what the shipper is declaring is what is in the box, which will subsequently be loaded in a container, then onto a plane, a train or a truck.
With the exponential growth in the number of packages crossing borders, the customs administrations, and their partner border agencies, are being overwhelmed with the fast-moving nature of this industry and the limited amount of advanced data available for risk assessments on these incoming packages. The criminals are taking advantage of this dynamic to pepper the system with increasing numbers of illicit goods. Customs administrations around the world are finding record numbers of illicit drugs, counterfeit and falsified medicines, weapons and ammunition, intellectual property right violations, prohibited wildlife and even currency and other monetary instruments in these volumes of postal and express packages.
The border agencies are making efforts to respond to this phenomenon, but it is a huge challenge. At the WCO, we are currently working with our members and interested stakeholders to develop a Framework of Standards for Crossborder E-Commerce to try to help with some of the uncertainty in this arena.
Secondly, I worry that there are a number of other disruptive technologies and innovations that are changing manufacturing and the global supply chain as a whole, and we are not focusing enough on the future impact. Between machine learning technologies and robotics and artificial intelligence, our world is changing quite rapidly. Unfortunately, sometimes politics get in the way of objective discussions on the impact of these significant changes on global trade and leaders turn their attention to the problems they know how to address. This creates a situation where it is very difficult to plan for the evolution, before its impact is at the doorstep.
I know there are a number of think-tanks that are doing some work on this, but if societies as a whole are not sensitized to these inevitable evolutions I fear that there will be continued polarization of opinions of what factors are impacting local economies. These opinions can lead to reactionary regulations that have an impact on the global supply chain. This is not an issue that is impacting one or two countries; this is a worldwide issue.
We see some of the impact changes, as companies begin to make nearshoring decisions for their manufacturing, as good, cheap labor is no longer the sole driving force for their manufacturing location, as the use of robotics, artificial intelligence and machine learning are integrated into more and more manufacturing processes.
A simple, personal example, to drive home the point: My first real job as a high school teenager was working at McDonald’s. I learned many foundational workplace and life skills in this job, like the importance of working as a team, following company policies, brand integrity, customer service, showing up on time, and budgeting. This experience is one that I often credit for starting me on the path for my own success.
Today, I don’t eat at McDonald’s as much as I did in high school, but occasionally I like to indulge in breakfast items. I have found that going to a McDonald’s these days is not for the technologically illiterate. If you come inside a store, you will find the innovations of touch screens to place your orders, and also pay for them. The human contact is now strikingly limited.
I have not had the opportunity to see how the back of the house has innovated, but looking at the number of employees working at a McDonald’s today versus a decade ago there seem to be significantly fewer employees working there, so I would surmise that there have been some cooking efficiencies identified. My comments are not meant to show McDonald’s in any kind of negative light, it is simply an example of how our world is evolving and how even in a simple example technology has transformed our world.
So what does this have to do with global trade? Technological disruptions have everything to do with global trade. Don’t get me wrong, goods will continue to be manufactured, but the “where” and the “how” is quite likely to change, and how those goods get from the manufacturing location to the consumer will also continue to evolve. As such, governments need to review whether the current rules cover the realities of a disrupted supply chain. At the WCO, we are having conversations on these topics, but this issue is clearly broader in scope than just the customs and border agencies.
Thirdly, but certainly not finally, one other worry related to security is that people become complacent. If there hasn’t been a recent terrorist event, people forget about the threat and maybe lose some of the motivation to ensure strong adherence to the established security practices. Supply chain security will unfortunately always be at risk. In some cases the risk is less nefarious than a terrorist attack, but can be still as dangerous.
I recently had the opportunity to visit a Port Terminal in Melbourne, Australia. It was very interesting to see the changes that they have instituted to ensure vessel and human safety, at dock and in the open seas. Many of the practices that are put in place to secure balanced loads in individual containers and smarter stowage plans can also help ensure that there is limited access to vessels and containers for bad actors.
The WCO continues to support members with establishing and maintaining strong risk management systems and implementing Authorized Economic Operator Programs, because they are important pieces of a strong supply chain security system. Automation is helping, access to the right data at the right time can help better identify risky containers, and at the same time facilitate lower risk containers to get them out of way quickly and allow for focused attention to those higher risk containers/shipments.
All of these measures, along with other supply chain security practices, require consistency and rigor in order to truly serve the purpose and intent for implementation. Complacency undermines the overall supply chain security and whittles away at the layers of protection that have been built over the last 15-plus years.
We also remind our members that threats to supply chain security are real, and that even transit countries suffer consequences when illicit and dangerous goods are allowed to enter their borders.
These security concerns also relate to the movement of people, and more and more we are seeing convergence of high-risk shipments being associated with frequent travelers. These are correlations and associations that should not be overlooked. Continued vigilance and interagency cooperation are critical to ensure proper levels of security are in place.
