A2X Interview Digicust on the future of customs processes

copyright Digicust

copyright Digicust

Outdated software solutions, unstructured data, paper-based processes, skill shortages, and the wrong mindset:
There is an enormous improvement potential in the traditional customs processes. This is where Digicust comes into play!
We spoke to their CEO Borisav Parmakovic about the main challenges and how Digicust works on solving them.

What are the challenges for logistics companies engaged in foreign trade?

Borisav:

  • Skills shortage:
    One of the long-standing problems in this industry is the shortage of skilled workers. The result is a lot of overtime for existing staff, a poor working atmosphere and errors in customs clearance. The lack of skilled workers gives many people the opportunity to enter the profession with less know-how. However, this results in many appeals, administrative penalties and inefficiencies in the clearance of goods.

    However, one must not forget the main causes of the shortage of skilled workers. On the one hand, it is the disproportionately increasing workload in customs clearance. On the other hand, the job is not advertised attractively enough, although the latter is certainly difficult to achieve. The tasks are unknown and appear dry and legal, especially to a layman.

  • Customs tariff classification and customs examination of documents and goods:
    The average error rate in customs tariff classification is 25%. Apart from the additional costs for the state and the customs service provider, the biggest problems are customs audits and tax losses. Due to incorrect customs tariff classifications, the customs declarant checks for incorrect measures, prohibitions and restrictions. In such cases, the administrative penalty costs at least € 90 and, depending on the goods, can amount to up to € 200,000 in the case of a dual-use good. It is rather difficult to recover from such high penalties as a small business.
  • Outdated software solutions, poor document quality and unstructured data: 
    The IT landscape in customs clearance leaves much to be desired. The top of the list here is the use of interfaces to the customs office, software rules, master data and simple AI systems for customs tariff classifications. However, the latter is only used with caution, as the probability of errors is very high. Interfaces to importers and exporters and transport management systems are possible but tend to be used less. In particular, the connections to shippers are considered too cost-intensive by the importing/exporting companies. 

    In import, there are very often problems with document quality. This means that documents are first checked due to missing/incorrect information and then requested by the importer. For shipments from China, the rate of poor documents was around 80% in 2019. It would be interesting to know how big the problem still is today. 

    In any case, documents continue to be handed over physically or in PDF format by mail due to high development costs and poor document quality. The result is unstructured data, which makes it impossible to use highly innovative AI systems for qualitative customs tariffing and fraud detection or verification of documents. This is probably also a reason why existing customs software providers do not yet offer applications that can “learn” from customs declarants. How could they, without data? 

    The biggest technology problem in my opinion is the lack of “The Internet of Things” in customs. If customs systems were intelligent enough, it would be possible to connect these solutions with sorting machines, XRays, warehouse machines, vehicles and other intelligent systems. It is unimaginable what increases in efficiency and optimizations in security we could expect, not only for the customs service provider but for all supply chain participants along the complete value chain of a good. 

  • Globalisation, e-commerce and digitalisation:
    International trade continues to grow in volume. One of the main drivers for this is cheaper prices in third countries as well as digitalization in trade and the trend towards more and more purchases being made online. The trend to buy online was recently reinforced by the Corona pandemic.

  • Wrong mindset:
    Unfortunately, one of the most important characteristics for the digitization of customs is missing. In my opinion, this is the willingness to really want to digitize with full passion. There is a lot of talk about automation and job loss. However, it is no wonder that this fear has arisen among customs declarants and operational staff. There are far too few opportunities for further development or a general lack of prospects. There is always talk of operational excellence. How about improving the customer experience and the service itself? This would not only please the customers, but also the staff.  

    Communication should be completely rethought. No matter how much automation there is in customs, skilled staff will always be needed. The know-how may change, you will have to evolve. However, I think this is exactly the right approach. After all, you want to have some action in your job and not be afraid of losing your job. In the latter case, I personally would not be willing to promote digitalization either.

  • Government institutions and processes:
    Unfortunately, many documents still have to be handed over in the physical original. However, the problem lies less with the German or EU customs office. Electronic originals are currently not accepted by third countries

What innovations do you believe we need for stable supply chains?

Borisav: I firmly believe the solution lies in combining better data with smart methods. Increased visibility on both the demand and supply side and improved tracking on the go is an important foundation.

Innovative solutions and processes that contribute to flexibility are built on this information.

How relevant are these challenges? What are the costs and time involved?

Borisav: The challenges are very relevant. If there are no technological changes in customs processing soon, transport will very often experience enormous delays from customs in the future. These are not only very high costs for customs service providers but also for shippers. Customs clearance will be overloaded and for a certain time the excessive effort will slow down the processes until solutions to the problems have been found. You could compare the whole thing to an overloaded computer that has no more free working memory and all the applications can no longer run properly.

How can the challenges that exist in foreign trade be solved?

Borisav: In addition to being a driver for international trade, digitalization is also a way to overcome the challenges in foreign trade. For example, there are now many online courses for training skilled workers. The state wants to offer private importers simplified options for customs clearance and, in general, the goal is not only to automate processes through digitalization, but to make them simpler.

What problem are you solving here at Digicust?

Borisav: The vision of Digicust is big. We have a solution ready to hand for every problem. The only thing missing is the necessary investment. Right now, we are busy laying the groundwork for digital transformation in customs. In addition to providing the necessary technological conditions, this includes creating new value in customs clearance. Custom declarations are very important and always will be. 

However, we will speak more of an IT customs specialist than a customs declarant as previously known. IT is just one example of how the job of a customs declarant can be expanded and made more attractive. Customs consultants for shippers and customs security will increasingly be topics with which a customs declarant can identify in the future, instead of, for example, tedious typing, overtime and paperwork.

What makes you special?

Borisav: Generally, I prefer to leave the answer to this question to others. I, therefore, try to keep it discreet. Digicust takes a completely new, innovative approach to realizing its solutions. We have turned the entire process landscape in customs clearance upside down and started to “digitize” it. We are talking about digital processes that start with more paperwork but increasingly avoid the paper economy. The goal is completely paperless customs clearance, even for original documents. 

In order to realize this large, ambitious goal, all participants in a value chain must be involved. This means that even the state is one of our target groups. With technologies such as blockchain and AI, we hope to present the state with concepts for increasing security in foreign trade. Perhaps state institutions can be persuaded to cooperate across borders in this way. This could be achieved successively, e.g. initial cooperation between the USA and Germany.

How far along are you with your solution?

Borisav: The product Dexter, data extraction from customs documents in PDF format, is already fully developed and can now be used reliably for any type of document. 

The automatic classification of goods in the customs tariff, known as Taric, is able to assign customs tariff numbers for English goods descriptions up to the 6th digit reliably and with high precision. Soon, Taric will also be able to classify German goods descriptions with 6-digit customs tariff numbers. In both cases, general and special notes are already taken into account, and even justifications for classification according to AV1 to AV6 and the Combined Nomenclature, as well as the TARIC system, are given. We are also currently working on the automatic classification of goods with 11-digit customs tariff numbers. For this purpose, we are currently evaluating whether reinforcement learning or deep learning models are better suited to choose between approx. 24,000 customs tariff numbers. 

The third virtual customs robot Neo, our fraud detection and document control system is the least developed product so far. This requires developing a web application through which Neo can learn from the customs declarant and customs officer how to check or request correct/missing information. 

Coincidentally, Digicust is developing just such a web application called Digital Customs. What is special about this web application is that all possibilities for data collection are considered and that all virtual machines Dexter, Taric and Neo are integrated into the Digicust IT ecosystem. With the help of Digital Customs and virtual machines, a cycle of qualitative, structured data is created, making the magic happen in customs clearance. With the web application, consignments can already be processed at import. It is important to emphasize that Digital Customs does not have a connection to the customs office, but can much more be used as a pre-system for existing customs software providers. The customs software providers already have their interfaces to customs offices and there is no need to reinvent the wheel.

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