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Customs Standardization Group

The Customs Standardization Group

Key Points

  • Create a group within the industry to develop standards
  • Standardize shipping documents to improve efficiency
  • Create and promote software to enforce standards
  • Create hardware to promote the use of software
  • Implement digital documents to reduce waste and improve efficiency
  • Build an education platform to train users

Introduction

Customs documents (Bill of Lading, Commercial Invoice, etc.) have very vague standards and as a result, can lead to costly delays for everyone involved.  Documents can be formatted in almost any order, and be handwritten (sometimes illegible), and some shippers use such small types that documents can become unreadable.  There is also the issue of some shippers omitting required documents.

These factors can lead to costly delays in shipping, carriers having to maintain large warehouses to hold customer shipments while documents are being corrected, and large staff requirements to process and correct documents in a timely manner.

What I will propose here is for an industry-led governing body to push for standardization where possible, and harmonization where standardization is not possible, in all shipping documents.  I will go on to lay out my proposal for how the governing body should be laid out, pulling from systems used in government, corporate, and nonprofit sectors.  I will then give my proposal for how non-participating organizations can implement these standards, and the benefits for shippers, carriers, customs agencies, and brokers.

Standardization and Harmonization

  • Standardization means creating uniform business processes across various divisions or locations.
  • Harmonization looks at differences between process standards and sets bounds to the degree of their variation.

The goal in all documents should be first and foremost to achieve full standardization, but participants must go into this process understanding that due to differences in business models and governing regulations, this will not always be possible.  This is where harmonization will come into play, it will allow participants to work within an agreed-upon variation set forth by the group as a whole while minimizing disruption to their own processes.

Having well-defined standards for all shipping documents will lead to several improvements.  First when shipments are initially picked up by the carrier they can be quickly checked for errors and corrected prior to taking possession of the cargo.  Standardization will also allow for processing time to be reduced resulting in more efficiency and less overhead costs in document processing.  Standardization will also allow for faster processing time during international border crossings allowing customs officers to work more efficiently which will result in cost savings for the industry as a whole.

*For the purposes of this document when I refer to North America I will only be referring to the United States, Canada, and Mexico, unless otherwise noted.

The Customs Standardization Group

What I propose is that the major international cargo carriers, brokers, and North American customs agencies come together and form a 501(c)(3) nonprofit governing agency (the Customs Standardization Group – CSG) to establish standards for shipping documents, and develop and maintain tools to aid all parties in maintaining these standards.

Due to loose standards in the layout of documents, the first step will be to agree to basic standards for all major documents.  I would suggest first focusing on the Bill of Lading (BOL) and Commercial Invoice (CI) as these are used for every international shipment.  First, the focus should be on what has to be included in every document, I propose the following:

Bill of Lading

Commercial Invoice

  • The name, address, and phone number/email address of all parties involved.
  • Space for the tracking number and barcode/QR code.
  • Space for detailed manifest details utilizing the World Customs Organisation’s Harmonized Code.

It is to be expected that there will be variations in the placement of these items due to various parties having differing requirements, but the goal is to first agree upon basic standards that all parties will require shippers to follow.  Once these standards are agreed upon the group should focus on all other supplementary documents that the group wishes to standardize.

Membership

Membership in the Customs Standardization Group will be limited to the following groups.

Membership fees

There will be a two-tiered membership, a voting member, and a non-voting member.  The cost of membership is proposed as follows:

  • Voting Membership – $500,000 annually
  • Non-Voting Membership – $250,000 annually

All members will sit on the governing council but only voting members can vote, hold office, and participate in committees.  Non-voting members will be limited to only debating issues with the governing council prior to voting members casting their votes.

Government agencies will be non-voting members without paying the $250,000 annual fee.  This is to encourage government participation and buy-in.  If government agencies wish to have a voting membership they will be allowed to pay the $500,000 annual member shipment.

Restrictions

During the Customs Standardization Groups formation, there will be no time restriction on a member’s ability to vote.  Once membership has been established for 365 days, news voting members will be barred from voting for 90 days from the day they become full voting members.  This restriction is put into place to prevent opportunistic membership with the aim of affecting a single vote.

Governance & Voting

Governing Council

All members (voting & non-voting) of the Customs Standardization Group will sit on the governing council and participate in the debate.  As stated in the membership section, only voting members will have the right to vote, hold office, and participate in committees.

The governing council will be considered established once there are five voting members for 365 days.  Until this time the voting members operate without a chairperson or vice chairperson, and committees will not be formed.

Once the governing council has been established the chairperson will be selected based on membership date as will the vice chairperson.  The chairperson and vice chairperson will hold office for 365 days and then the next person in line will take the office.  New chairpersons will take office on the second Monday of January each year.  New voting members will be added to the line of succession behind the previously newest member.  In the event that a new member is in line to become the chairperson or vice chairperson within the first two years of membership, they will be passed over and the next person in line will take the office.  A member must serve as vice chairperson prior to becoming chairperson, so if a new member’s ineligibility is only for vice chairperson they will automatically be barred from holding the chairperson’s office as well.

In the event that the chairperson leaves the Customs Standardization Group or is removed from the chairperson position, the vice chairperson will assume the duties of chairperson until the second Monday of January.  In the event that the vice chairperson leaves the Customs Standardization Group or is removed, the position will remain vacant until the second Monday of January.

Any voting member may request the removal of the chairperson or vice chairperson, each request must be made and voted on individually, and can only be made once per term per person.  Once the request for removal has been submitted two other voting members must second the request.  Once the request has been seconded by two other voting members the floor will immediately be opened for debate, during debate any member may request an end to debate, this must receive a 51% affirmative vote to proceed.  Once the debate has been ended the vote to remove the party in question must be taken.  A 2/3rds majority must be reached to remove a chairperson or vice chairperson.  If the 2/3rds majority is reached the person will be removed immediately following the vote.

In the event that an organization’s membership is to be revoked, the request will be submitted, seconded by two other voting members, and then the floor will immediately be opened for debate.  Again a 51% vote will be required to end the debate and move to the voting process.  Once a vote to remove an organization from the Customs Standardization Group is cast it must reach a 90% affirmative vote to be considered passed.  Once the 90% affirmative threshold has been reached the organization’s membership will be revoked and the organization’s membership fee will be returned at a prorated amount for time past since paid.

Meetings

The governing council will meet at a minimum of once every quarter, an additional meeting can be requested by any member and if 51% of members vote in favor of the added meeting it can proceed.

Meetings may be held in person or virtually.  Only authorized representatives or their designated representatives will be allowed to attend governing council meetings.

Proposals

Any voting member will be allowed to introduce a proposal to the governing council.  For a proposal to be voted on, there must be a five-day grace period to allow members to read the proposal and discuss their vote with their organization.  For all proposals to pass they must receive a 2/3rds affirmative vote from the whole governing council to pass. If a proposal fails to reach a 2/3rds majority the proposal can be resubmitted for a second vote, if the proposal again fails to reach the needed 2/3rds majority it can not be reintroduced for 365 days following the date of the second vote.

Committees

The governing council will have the following permanent committees:

  • Executive oversight committee – responsible for interviewing candidates for executive positions and presenting findings to the full governing council prior to voting.  This committee will also serve as oversight of the executive staff once confirmed by the governing council.
  • Finance committee – responsible for reviewing Customs Standardization Group’s finances as presented by the CFO and approving budget proposals prior to the full governing council vote.

Further committees may be formed as needed, once proposed a 51% majority affirmative vote of all voting members will form the committee and appoint its members.  All committees must have a minimum of three members but no more than eight members.

The executive team

The executive team that will manage the day-to-day operations of the Customs Standardization Group will be as follows:

  • Chief Executive Officer (CEO) – Responsible for the overall vision as laid out by the governing council.  Will also have a permanent non-voting seat on the governing council.
  • Chief Financial Officer (CFO) – Responsible for CSG finances and budgets.  Will report to the finance committee the status of the CSG prior to every quarterly meeting of the governing council.
  • Chief Operating Officer (COO) – Responsible for operations, and administration.  The heads of the legal and marketing departments will also report directly to the COO
  • Chief Technology Officer ( CTO) – Responsible for the development, implantation, upgrading, and maintenance of all internal and external technology.
  • Chief Administrative Officer (CAO) – Responsible for oversight of Human Resources and Public Relations departments.

The executive team will be interviewed and recommended by the Executive Oversight Committee and each position will be voted on by the full governing council requiring a 51% affirmative vote to pass.  The governing council will vote on whether to keep or remove each member of the executive team once per year at the first full council meeting of the year.

If an executive steps down, or is removed, the Executive Oversight Committee will immediately begin interviewing replacements.  The committee will work with the CEO to perform these interviews.  If the CEO is being replaced the committee will work with any members of the executive team not applying for the CEO position.

Limited Powers

While the members of the Governing Council will be, much like the United Nations, representatives of their respective organizations, they will have limited powers.  The Governing Council will have the power to hire and fire members of the Executive Team, approve budgets, and issue guidance to the Executive Team.

The Executive team will be responsible for the day-to-day operations and determining the best way to achieve the goals set forth by the Governing Council’s guidance.  The governing Council will not take part in the administration of the day-to-day operations.  This rule is to ensure that there is no risk of collusion which would harm the CSG and its mission.

Software & Hardware

The CSG will achieve its goal by providing free software and at-cost hardware to all parties.  The software will build customs documents to meet the agreed-upon requirements set forth by the CSG and ensure that shippers who do not have adequate knowledge of international shipping can build documents that will meet standards. The hardware will serve as a way to securely store documents, keep the software up to date, and ensure a secure connection to the CSG network.

Software

First, why give the software away for free?  The main goal is to onboard shippers to the CSG platform, paywalls are a considerable barrier to entry.  How many times have you not downloaded an app on your phone because you didn’t want to pay the $0.99 purchase cost?  That $0.99 cost was a barrier to entry.  By providing the software for free that barrier to entry is eliminated.

The software should be built as a desktop application for Windows, Mac, and Linux (Debian & RHEL) and should be downloadable from the CSG’s website.  Once downloaded the user will be prompted to create an account.  If a company profile has been pre-established the user account should be associated with the company account.  After account creation, the user will select preferred carriers and brokers, and enter billing information, and all contact information for their location.

Company accounts will allow for multiple users and locations and will associate all shipments made by associated users under the company account code.  The company account will ensure that preferred carriers and brokers are whitelisted for shipping managers, and any special rules for select locations can be issued and managed.  All billing and contact information can also be defined by the company account and enforced on associated user accounts.

Once the user account has been established, and if needed associated with a company profile, the shipper can begin entering customer information, and product information.  Built into the software will be the ability to upload customer and product information through a spreadsheet, this will also reduce the barrier to entry and encourage the shipper to use the software.  Once all data has been entered the shipper can begin building shipping documents and integrating the software into their workflow.

The first step is to build the software for the shipper, but once the final product has been released the CSG will begin working with carriers and brokers to build software for their use.  This software will be built to process shipping documents from both CSG software and third-party documents.  This software will also be built with the ability to connect to customs and other government agencies to allow for the electronic delivery of documents and to resolve issues if they should arise.

After the carrier and broker software has been released the customs and other government agencies software will be built.  This software will be built primarily for customs agencies to process and clear shipments, but it will also have built-in functionality for other government agencies that may be needed.

Once all parties have implemented the CSG software there will be a fully digital line for documents from shipper to carrier, to broker, to customs.  There will also be the ability to notify all parties and any point in the shipment of an issue and expedite its remediation.  For example, if the broker notices an issue, they can simply open the comment section for the shipment, check a box next to the party they wish to address their comment to, enter a comment noting the issue and a request to correct it, then enter the comment.  This comment will be entered for all parties in the chain of custody to see with a tag denoting who made the comment.

Once a comment is entered, the party that the message is addressed will receive a notification and they will be able to read the comment, correct the issue, and send updated documentation.  Once the documentation is sent the software will automatically add a comment that new documents have been added and all parties will be notified.  So in the example, the broker found the issue, so once the updated documentation has been received they can review it and if they accept it they will open the comment section and press the RESOLVED button, this will remove any flags on the shipment, and allow it to proceed.

Hardware

So if the CSG is giving away downloadable software what is the hardware needed for?  The hardware will serve as an added layer of security to the shippers and will serve to reduce server costs for the CSG.

For shippers, they will receive a dedicated computer with at least a 1TB hard drive that will connect to the CSG network out of the box.  They will not only be able to store all their shipping documents locally, but they will also be able to access and create shipping documents even when they are unable to connect to the CSG network.  The hardware will also have top priority for CSG software updates.  The CSG will also provide a warranty and replacement parts as needed.  The hardware will be marketed as a plug-and-play “it just works” solution.

For carriers, brokers, and government agencies the hardware will be rack-mounted servers.  These servers will run the software designed for each group, prior to installation the CSG will make the modifications required to the software for each party to suit their individual needs.  These modifications will include integrations with current systems and cosmetic modifications to as closely match current workflows as possible while staying within the agreed-upon standards.

For the CSG having shippers, carriers, brokers, and government agencies storing their own data will reduce the server costs that will be needed.  The CSG will also have a list of what hardware each party has and will be able to provide a more accurate customer service solution when technical difficulties arise.  There will also be an option for compressed and encrypted backups for each system, these backups will be transmitted to and stored on CSG servers.  The backup service will come at a cost to the user, but through the use of compression, these costs can be reduced.

Artificial Intelligence & The Blockchain

I have put these topics in their own section instead of including them in the Software & Hardware section because while I do feel strongly about these topics, they should not be the primary focus in the beginning.

Artificial Intelligence

During the design and build phase of the Customs Standardization Group software plans should be made to include Artificial intelligence (A.I.) in the software.  A.I. integration into all aspects of the software will lead to cost reductions and faster movement of freight.  Obviously, the Use of A.I. will be subject to user preferences, but users should be encouraged to implement A.I. into their workflows and adjust the settings to fit their comfort level.

At the shipper level, A.I. could automatically build customs documents based on the customer’s order.  The A.I. could also check shipping quotes and present options, it could schedule the pickup of the freight and transmit documents to the carrier once the carrier’s A.I. acknowledges possession of the freight.

At the Carrier level, A.I. could alert the shipper A.I. that the carrier has confirmed possession of the freight and request shipping documents.  It could then process the documents checking for errors and if found request corrected documents from the shipper A.I.  Once the carrier A.I. approves the documents it could send the documents to the Broker’s A.I. for customs clearance.

At the broker level, the broker’s A.I. could scan the shipping documents checking for errors according to the broker’s standards.  If an error is found it could automatically flag the shipment and request corrections, and then once corrections are received and approved remove the flag and transmit the documents to the customs agency.

At the customs agency level the documents would again be scanned to ensure they meet the agency’s standards, and again if an error is found flag the shipment and request corrected documents then remove the flag once they are received and approved.  The A.I. could then approve the documents and clear the shipment to cross the border or submit the documents for human inspection and approval.

At any point in this process, the A.I. could use the contact information collected from the buyer or third party to request needed information and update the shipment accordingly once received.

A.I. could also be used to audit information for all users of the software and build needed compliance reports and forms.  A.I. could also be trained to identify common issues with certain types of shipments and surface the needed information for the human user when they open the shipment in the software.

The Blockchain

While the Customs Standardization Group should build systems that leverage existing systems, it should also look to the future.  Blockchain technology offers amazing opportunities to the freight and logistics industry.  As I wrote about in my post Asset Control Coin (ACC) a separate Ethereum-based blockchain could be built and used to track assets as they move and provide clear proof of ownership once delivered.

The CSG should be the leader in the development of this technology and should build the CSG software with its implementation in mind.  By building the CSG software with the future technology in mind the CSG can jump forward and lead the industry.  The CSG could also act as the educator for the adoption of this new technology, taking the burden off of the carriers, brokers, and customs agencies.

Asset Control Coin should also not be built solely to work within the CSG software, ACC should be built as a wholly separate project that the CSG software can integrate into its workflow.  ACC should be open to everyone regardless of whether they choose to use the CSG software or not.

Once the ACC is built into the CSG software it can begin to supplement the fully digital line of documents I spoke about in the “Sofware” section of this post.

In Asset Control Coin (ACC) I also spoke about the possibility of building Credit Coin on the ACC blockchain.  This not only aids in the adoption of Credit Coin (CRED) and provides a single point of entry, but reduces overhead associated with building two separate projects.

In the post Providing credit to the Bitcoin economy through Credit Coin, I talked about using an Ethereum-based blockchain to provide credit to the Bitcoin economy.  By having a sub-team on the ACC team that is focused on building the Credit Coin protocols the two teams can work together to create a seamless protocol.

But why should the CSG even care about building Credit Coin?  As I spek about in the section “Financing the Customs Standardization Group” the CSG could potentially provide Letters of Credit as a means of financing itself.  The use of Credit Coin could supplement or even one day replace the use of traditional Letters of Credit, and at that time the CSG would be the leader in the industry.

But we use the dollar to pay for things, so why should we care about something based on Bitcoin?  This argument is why I feel the crypto aspect of the CSG should be a secondary goal, not that I don’t feel it’s important but that at the time of writing Bitcoin is not mainstream enough.  But take a look at the health of the US Dollar, it’s losing its supremacy in the world economy, in fact the world economy is fracturing, and more and more people, cities, and countries are turning to the comparatively stable and secure use of Bitcoin.  Bitcoin is digital gold, and when uncertain economic times rise, people time and time again turn to gold.  The next economic uncertainty will inevitably come, and this time the people will turn to digital gold.

Education

The Customs Standardization Group should also offer education to shippers.  This could be instructional how-to guides for not only how to use the CSG software, but for meeting minimum standards for shipping documents.

The CSG could also develop a longer-form educational series that will go into greater depth on national and international shipping processes and requirements.  The CSG could form a partnership with an online certificate program such as Coursera to offer these courses at an affordable price. 

An added benefit of partnering with an online course provider like Coursera is that students, upon completion of the course, can place a verified certificate of completion on their LinkedIn profile.  This reinforces to the students that they should follow the practices they have learned, and it acts as free advertising for the course which draws in more students who will learn the CSG standards.

Financing the Customs Standardization Group

At first, all financing for the Customs Standardization Group will come from member fees.  Once the group is established products and services can be offered to bring in more revenue.  The CSG will employ cost-saving measures at every point, from using surplus hardware when viable, to using Linux as the main operating system.  Remote work will also be heavily utilized at all levels, not only will remote work reduce the needed office size but offering remote work will attract the best talent as those individuals are more inclined to a fully remote career now.

Once the CSG is established and the software is being built a value add can be introduced in the form of a Point of Sale (PoS).  Users could use this PoS to collect not only payment, with the CSG taking a small transaction fee, but it could also collect needed customer information for building shipping documents.  The CSG could also act as a payment processor in the backend, possibly offering a lower rate and keeping all the profit for itself.

The CSG could also become a Non-Resident Importer (NRI) / Foreign Importer of Record (FIR) to customers who use CSG software for all documents.  The CSG would partner with a customs broker and provide, for a fee, customs clearance for parties who do not have a customs broker.  This could be on an ad-hoc basis, or customers could set up ongoing accounts rather than having their own customs broker.

Offer Letters of Credit (LC) to customers.  The CSG could also offer Letters of Credit to customers who, once again, use CSG software for all shipping documents associated with the shipment.  This would entail partnering with a financial institution and charging a fee to the customer for the service.

The CSG could also offer other forms of hardware and accessories.  Label printers could be sold with a label refill button built into the CSG software.  A partnership could be established with retailers to dropship labels to customers when ordered through the CSG system.  The CSG could also offer remote terminals.  Remote terminals would link with the onsite CSG hardware and allow employees on the shipping floor to select and print shipping documents and labels without the need for a company-associated account.

There is always a way to sell value-added services and products on top of your core product, and these are just an example of a few that I could come up with.  By encouraging CSG employees to brainstorm ideas the CSG could constantly be offering new value to its users.  There could also be the possibility of spinning some or all of these ideas out into a for-profit organization wholly owned by the 501(c)(3) to generate even more income that it can use for operating costs.

Political Action

The Customs Standardization Group should set up a Political Action Committee (PAC) to lobby governments to adopt the standards laid out by the group.  While PACs and Super PACs are generally not well regarded by the general public, I do see the formation of a PAC as a necessary evil to accomplish the ultimate goals of the CSG.

One way to offset the negative image forming a PAC will cause is to set out from the beginning a list of ethical standards, and then publish those standards on the PAC’s website.  And when someone breaks those ethical standards, hold them to account, publicly.

Funding

Funding the PAC will come first from excess capital within the CSG, next members will be encouraged to donate.  Finally, non-members of the CSG who are in the industry will be encouraged to donate, this can be sold to them as a way to support the CDG and its mission without being required to pay membership fees or take an active part in governance.

Direction

The PAC should focus its efforts on lobbying members of legislative bodies, customs agencies, and other secondary government agencies to adopt and enforce the CSG standards. Finally, the PAC should take part in public outreach, advocating to non-members the value of standardization to the shipping industry.

Conclusion

The freight industry is behind the times.  Yes, some technologies are being advanced, but customs documents and their handling are still in the 1970’s.  Drivers collecting documents during pickups, shippers hand writing documents, and the fax machine, just to name a few.  The industry is overdue for an upgrade.  The problem is that if only one organization tries to implement the needed upgrades they risk losing customers and market share.

The Customs Staandariztion Group can take this burden off all parties and as a nonprofit with no market share to lose, it can begin the process of building the infrastructure and educating the users.  This provides a risk-free option to all parties as they can continue to work with customers who choose not to implement the new standards while also serving those who do adopt them.

Through the Governing Council member organizations can still have some control over how standards are implemented but reduce or eliminate their risk of losing market share.  The Customs Standardization Group is the best way, outside of a government mandate, to bring about universal standards while avoiding the risk of collusion.

*NOTE* This is by no means meant to be an exhaustive post.  I work a full-time job and have personal responsibilities, the only time I get to research and write is a few hours most weekends.  This post is meant to serve as a blueprint that can be built upon.

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