How Security Contributes to Economic Competitiveness of the Air Cargo Industry

1. How Security Contributes to Economic Competitiveness of the Air Cargo Industry ICAO – WCO Joint Conference on Enhancing Air Cargo Security BAHRAIN 16-17TH APRIL 2014 Dr. TIJU THOMAS CONSUL (Economic) Consulate General of India, Dubai

2. Importance The Air cargo industry is growing very fast and it is bound to increase its momentum in the future largely due to the growth in high value and time sensitive cargo volumes. But at the same time, Air cargo security has become one of the major global security concerns given its recognized vulnerabilities making air cargo possibly the easiest target for terrorists. While the disruptive attempts underline the need for more robust air cargo security, the challenge lies in making sure the goods flow smoothly, cost effectively and efficiently without impeding global trade,yet ensuring high security for air cargo all the while .After a lot of disruptive incidents and detection and abortion of various sinister designs in this sector in the last decade or so, nations and organisations have come together to adopt multiple measures aimed at enhancing air cargo security.. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

3. Customs perspective From a customs perspective, securing air cargo from acts of unlawful interference, while facilitating the easy movement of goods worldwide has been a major priority. There are various dimensions of Unlawful interference, the Customs would look into: • Not just immediate danger to the cargo, the aircraft or the handlers. • It includes Threats to the nations and its population along its supply chains and more importantly to the destination nation: Economic , related to National security, Environmental degradationor loss of Cultural ethos. Multiple aspects / angles the Customs would look into in addition to the security of the air cargo  the requirements would not be the same as that of the aviation authorities. With these differing standards and requirements, freight companies need to adhere to multiple and often overlapping security standards  Duplicate efforts and Additional costs. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

4. Every penny counts! Companies traditionally find it challenging to justify security-related investments based on neo-classical economics because they focus largely on the direct expenses and benefits and not on the collateral benefits like supply chain efficiency, improved customer satisfaction, improved inventory management etc. that may be realized. Other major security related expenses: • Time factor : Most security regulations cancause a significant adverse impact upon the air cargo industry, especially given their debilitating effect on shipment transit time in an industry characterized by time-sensitive realities. • Cost involved in technology and infrastructure: The huge cost of implementing such security measures also poses a major hurdle - Includes the cost of acquisition, installation,training, operation and service; labour, the cost of capital, and utility costs ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

5. The ideal way – Risk Management A comprehensive security plan must adopt a multimodal vision that follows a Comprehensive Risk-management approach which: • Enables to identify & focus on high security risk shipments • Adequately addresses vulnerabilities in the system • Does not unduly impede the flow of commerce and • Is fiscally responsible. RISK MANAGEMENT SHOULD COVER: • An assessment of threatsto air cargo security in a particular region, based on factors suchas capabilities, intentions & past activities • An assessment of vulnerabilitiesto those threats, identifying particular weaknesses that may be exploited & proposing measures to address them • An assessment of relative importance of addressing the identified vulnerabilities, given their effect on public safety and the economy. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

6. Indian Experience India has a very robust and well integrated IT based Risk Management System (RMS), complementing a self-assessment system in a comprehensive manner. The automated system cuts down cargo clearance time by one-third, helping importers who benefit by saving money on account of quicker clearances. A very large majority of the consignments are being assessed through RMS without examination and on self-assessment basis. At the same time, the RMS envisages interdiction of cargo that is potentially non-compliant and has a large number of success stories to its credit. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

7. Cases booked in Air cargo • Narcotic drugs, Bulk drugs and pesticides seized based on the risk profiling when attempted to be smuggled in air cargo consignments • Gas compressors were found to contain Gold and Iridium Fake Indian Currency Notes concealed inside School bags IMPORTANCE:It need not be the same item; the modus suggests that anything similar including major security risk items could have been imported ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

8. Is Risk Management alone sufficient? See this case where an unmanifestedMandraxconsignment was added into a pallet with the help of airline staff - totally bypassing the system Here we realise the importance of incorporating various other best practices that should run parallel to and compliment the risk management system to enhance air cargo security ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

9. Othermeasures  Procedures to ensure physical security of air cargo facilities & operations • Periodic inspections and oversight of air cargo facilities; •Providing training for air cargo personnel; •Increasing control over access to aircraft and cargo facilities etc. • Various security tools like Tamper Evident Tapes and Seals, Bolt and Cable Seals, Truck / Trailer / Container Locks and Seals, Electronic Seals, Pallet Security, Cargo & Personnel ID and Screening Systems should be diligently employed . Advance electronic information: which allows identification of high-risk consignments asearly as possible in the supply chain. Responsible sharing of information including Real time sharing of information / data with concerned stakeholders should be encouraged. Enhance international cooperationto prevent acts of unlawful interference.Align policy and regulatory frameworksto achieve synergy, avoid duplications, and promote mutual recognition of air cargo security regimes & regulatory activitiesShare best practicesbetween all stakeholders in the air cargo supply chain. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

10. Role of Customs and WCO Find synergies that can help streamline security processes and protect the flow of goods which is absolutely vital to the world's economy. WCO with its Member Customs administrations handling 99% of global trade has endorsed WCO SAFE Framework of Standardsto secure and facilitate global trade Aims to promote the seamless movement of goods through integrated and harmonized supply chain management by -- Establishing standards to promote certainty and predictability, -- Enabling advance electronic cargo information, -- Using Consistent Risk Management approach to address security threats -- Strengthening Customs to Business co-operation and -- Co-operation between Customs administrations. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

11. Role of WCO - AEOs One important component of this is the Authorised Economic Operator program. An AEO is an entity engaged in the international movement of goods approved by Customs as compliant with the supply chain security standards, and are given benefits such as simplified Customs procedures and reduced Customs intervention. Many Customs Administrations have their own models for identifying and rewarding reliable stakeholders AEO concept is being increasingly adopted by various Customs administrations with the objective of subsequent mutual international recognition and later the integration into Globally Networked Customs. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

12. AEO – Indian Experience AEO programme pilot was introduced in August 2011 and it became fully operational in November 2012. Generally, a low risk score is attributed in the RMS for an AEO. Let us see the specific advantages in different sectors: A.         Importers:(a)       Greater Facilitation - than for an ACP importer or normal importer. (b)       Reduced bank guarantee - Not to exceed 5% of the bond amount.B.         Exporters:(a)       Reduced percentage of examination. 10%  5%. (Normal cases)25%  10% (Export under claim of drawback / Reward Schemes) 50%  20% (Examination of goods to sensitive destinations) (b) Value limit raised FIVEtimes for drawback shipping bills andDOUBLEDin case of EPCG/ DEEC shipping bills ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

13. AEO Benefits – Indian experience C.Logistic Service Providers:(a)    Waiver of Bank Guarantee in case of transshipment of goods. (b)    Transit of goods: No need to take permission on a case to case basis International transshipped cargo: Ramp to ramp or tail to tail transfer of cargo can be affected without Customs escorts.D.Custodians or Terminal Operators: (a)        Waiver of Bank Guarantee(b)        Extension of approval for longer period -- for a period of 10 years at a time ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

14. AEO Benefits – Indian Experience E.         Customs House Agents:(a)    Extended validity period of licenses. The License to be valid till validity of their AEO authorization. (b) Exempting the Fee for renewal of a license.F.         Warehouse Operators:(a)    Faster approval for new warehouses.(b)    Reduced bank guarantee: 25%  5% of the duty liability --- individual consignments of sensitive goods to be warehoused(c)    Warehousing Extension up to SIX months at a time (In case of goods not likely to deteriorate) ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

15. AEO Benefits – Indian experience % and cost of Examination, Delays License fees, Rents, Storage charges BG, Bonds and Cost of capital Trust levels, Facilitation Faster approvals, clearances Increase in liquidity ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

16. AEO.. Cont In addition, the status provides an Internationally recognized quality mark indicating Secure role in the International supply chainCustoms procedures are efficient and compliant An entity with an AEO statuscan, therefore, be considered a 'secure‘ trader and a reliable trading partner.These ensure that AEOssee a definite benefit totheir investment in goodsecurity systems & practices. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

17. Investing in Better Security makes Economic Sense Evidence for this positive security premium is growing over the years.The Stanford University studies to confirm and quantify the magnitude of collateral benefits received by a select group of companies that are considered “innovators” in supply chain security in their industries The findings clearly indicated that significant business value accrues from supply chain security investments. Studies were able to identify that these companies not only received the expected security benefits from their investments like reduced risk, less theft and pilferage etc., but also were able to quantify numerous collateral benefits they received, such as: ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

18. Investing in Better Security makes Economic Sense COST REPEAT ORDER RATES REFERAL ORDER RATES 1. Higher Supply Chain Visibility 2. Improved Supply chain efficiency 3. Better Customer Satisfaction 4. Improved inventory management 5. Reduced cycle time & shipping time ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

19. Conclusion: Add to this the benefits granted as an AEO which will reinforce and multiply the direct and collateral benefits mentioned just now. Direct Benefits + Collateral Benefits + Granted benefitsECONOMIC COMPETITIVENESS I am sure this will definitely drive away any remaining apprehensions about the positive role that security and regulatory developments can play in improving industry competitiveness. ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

20. QUESTIONS ? ICAO – WCO Joint Conference, Bahrain April 2014 - Dr. Tiju Thomas, Consul (Economic), Consulate General of India, Dubai

21. THANK YOU