The Central Board of Excise and Customs, in conjunction with the Ministry of Finance, has in recent times taken a slew of measures to improve ease of doing business in India. One such initiative is the introduction of 24x7 Customs Clearance facility at several ports. While the community has welcomed the move, a lot of ground needs to be covered to implement the system optimally.
Indranil Das | July 2016 Issue | The Dollar Business
If you talk to a foreign trade enthusiast, one concern that will inevitably find its way into the conversation is that India still needs to do a lot to improve ease of doing business for investors and members of the EXIM fraternity, and not to say, delay in Customs clearances at various ports would perhaps be a prime case in point. The government seems to be well aware of the fact and as such, has initiated a slew of reforms including 24x7 Customs Clearance facility being extended to 19 seaports and 17 air cargo complexes. This should perhaps go a long way towards alleviating turnaround times at ports and make life easier for Indian and foreign exporters and importers. For cargo handlers, shipping lines and air cargo operators this is a boon, as it allows them to expand their operations and become more cost effective.
Need for Speed
While Customs and clearance mechanisms have become much more efficient over the last few years, there was a time when Customs clearances was a major headache for the EXIM community. There were rumours of rampant corruption and deliberate delays along with red-tapism that Indian system was once well known for. Importers were made to run from pillar to post to get clearances while their perishable import items lay rotting in ill-equipped warehouses. Exporters suffered demurrages due to lack of clearances at the port of origin, while at the same time earning a very bad name for failing to adhere to their promises of timely delivery of products to their overseas customers.
However, with foreign trade gaining importance in the country’s economy it was but imperative that steps needed to be taken to mitigate these issues. The problem though did not lie solely with officialdom. There was a lack of infrastructure – rather there still is – in terms shipping berths, loading and unloading equipment, inspection and warehousing facilities, as well as a lack of coordination and communication within statutory bodies. All this exponentially increased the woes of our EXIM community, while at the same time increasing transaction costs to a level where their products were no longer competitive in overseas markets. In the face of a global slowdown and India’s declining exports, there was an urgency to address these issues, and the government took the ‘24x7
Clearance’ route to help the community regain confidence in the government’s intent.
Now that 24x7 Customs Clearance has been extended to major seaports and airports, and has been warmly embraced by all in the trading community, the question that needs to be answered is: Are we equipped enough to provide a 24x7 Customs Clearance? The challenges are many. Not only will the Customs Department have to operate 24x7, so will all those who are involved in foreign trade – and that would include the respective banks, custodians, carriers and freight forwarders, etc. Working 24x7 would mean staffing these various organisations to work in shifts, and that has its own economic costs.
This move would also mean that not only floor level employees, but even senior officials of these departments will have to work in shifts.
In many countries across the globe, cargo clearance is done only during normal working hours and on normal working days. However, this is only possible in developed economies because they have adequate infrastructure for clearance and have systems & structures that allow them to clear cargo without creating a logjam. In countries like India, which lack adequate infrastructure and resources, 24x7 Customs Clearance makes complete sense. But feasibility in terms of various resources remains a big question. A good start could therefore be to extend the timings of Customs clearance at seaports and airports so as to reduce congestion during peak hours that is commonly observed between 2pm and 6pm during the day.
Thinking Long Term
Atul Kumar Saxena, President, Indian Importers Chambers of Commerce & Industry says, “The biggest problem with Indian Customs is that the system doesn’t work all the time. Every other day there is a break down and then there are issues like the appraiser taking a lot of time to evaluate Customs Duty on a consignment. Besides, non tariff barriers like FSSAI are a big challenge.” He also believes that while the government takes decisions with the right intent, implementing agencies find loopholes in the system to undermine the policy initiatives. Some deadline should be shared with India’s import-export stakeholders as far as putting to practice the much-talked about Customs Single Window Clearance. All that we are told is that it’s still a work in progress and will remain so until the beginning of FY2017-18. As per CBEC Circular 10/2016, dated March 15, 2016, online clearance under Single Window Project has been rolled out so far only at main seaports and airports in Delhi, Mumbai, Kolkata and Chennai. As can be imagined, the Single Window Clearance system – envisaged to reduce delays and costs in foreign trade – is not an easy objective to achieve, given that it calls for importers and exporters to electronically lodge their Customs clearance documents at one point only with the Customs, with the guarantee that required permission(s), if any, from agencies (PGAs) such as Customs and the Department of Plant Protection, Quarantine and Storage (DPPQ&S), Food Safety Standards Authority of India (FSSAI), Drug Controller (CDSCO), Animal Quarantine (AQCS), Wild Life Crime Control Bureau (WCCB) and Textile Committee would be obtained online without the importer/exporter having to separately approach these agencies.
Many in the industry, including ports and logistics operators, believe that the long-term solution to the problem is to build physical and electronic infrastructure to reduce both delays and transaction costs at ports. Anthony van der Hoest, Cluster Manager – Logistics, Port of Amsterdam says, “We have a digital port community system, which we call Portbase. Most of the Customs related processes have been automated and it has helped to speed up the Customs formalities. We also have authorised economic operators, which are the companies, e.g. terminal operators, that have been certified by Customs to carry out tasks which used to be done by the Customs authorities and it has helped to improve things in a big way in the last few decades.”
Julian Michael Bevis of the Maersk Group too feels that airports and seaports in Singapore, New York or London are able to operate 24x7, as they have been able to execute the technology to enable exchange of information 24x7 and thereby reduce the cost of cargo clearance and the overall cost of logistics.
While 24x7 Clearance is a step in the right direction, policymakers may now want to pay heed to its implementation. Many would recall that four years back (in September 2012), CBEC had run the 24x7 Customs Clearance facilities on a pilot basis at a few customs houses at some major ports for only select categories of merchandise. However, the exercise wasn’t adopted on a large scale thereafter, because the pilot test itself was a big failure. Issues like as absence of officials from inspecting agencies (like such as FSSAI, the Directorate of Plant Protection Quarantine and Storage – DPPQS, Assistant Drug Controller – ADC, etc.), lack of interest on the part of EXIM stakeholders to use port facilities coupled with non-availability of CHAs during the night, and added costs for all stakeholders that the round-the-clock system called for, were to be blamed.
In India, today, documentation and transactions costs have been lowered through electronic document exchange systems, logistics costs remain high compared to those in developed nations. But a round-the-clock facility (as difficult as it sounds to be implemented) will mean perhaps the biggest on-ground change for India’s exporters and importers.
To make this promise a reality, manpower and other resource allocations will have to be centrally and regionally planned to avoid a repeat of the failure that this initiative was way back in 2012.
Julian Michael Bevis, Senior director (Group Relations), south Asia,The maersk group
We welcome the government’s decision to avail 24x7 Customs Clearance at sea ports and air cargo complexes. It will help speed up cargo movement and EXIM trade in the country. As far as the Maersk Group is concerned, it will help us extend our operations as we will be able to handle more cargo and improve our service levels.
Customs has become more efficient in recent years but there is scope for further improvement. The government has been stressing on improving business environment and the decision on Customs is one of the many efforts by the government to send a positive message to the trade and business community. However, the real difference could be realised based on the availability of adequate number of suitably qualified and experienced Custom officials on ground. And since it is an internal matter, it can only be answered by the concerned department.
Moreover, there has been gradual improvement in efficiency on part of other statutory bodies like FSSAI, plant quarantine, drug controller, etc., in facilitating the trade. However, there has to be some significant improvement with regard to various government agencies involved with the EXIM trade and cargo clearance process to bring down the transaction cost related to export and import of goods in the country. A major part of the reformation and improvement in making cargo clearance process efficient will depend on the modernisation of communication system and exchange of information between various statutory agencies. In the age of information and technology, dependence on manual mode of information exchange is quite archaic and it slows down the entire process of movement of goods. This is a major concern for Indian logistics industry and it is high time that the government implements reformation process, including electronic exchange of information across all verticals of logistics – air, sea and road.
The implementation of Port Community system at sea ports and airports will allow all stakeholders to access information and know the status of a consignment in real time. It will eliminate the dependence on physical paper and speed up the cargo movement process. If we take reference from any major sea port or airport like Singapore seaport or airport, Port of Hamburg or London airport, they have implemented community systems, which enables faster communication and exchange of information. It makes the entire cargo movement process transparent and eliminates any likelihood of uncertainty related to status of a consignment. The airports and seaports in Singapore, New York or London operate 24x7, and the cargo clearing process takes place throughout day and night. They have been able to execute the technology to enable exchange of information 24x7 and thereby reduce the cost of cargo clearance and the overall cost of logistics. The cost of logistics, apart from the transportation cost, also involves the cost of all the paper work and the expenditure on manpower to carry out the work and the delay involved in the manual process. India needs to focus on implementing such processes to bring down logistics cost significantly.
J. Krishnan Partner, s. Natesa iyer & co. And general committee Member, the madras chamber of commerce and industry
TDB: How do you view the government’s decision to initiate 24*7 Customs Clearance at several ports across India?
J. Krishnan (JK): With increased emphasis for non-intrusive regulatory compliance by Government of India, 24 x7 is a welcome initiative for the trade. This is yet another facilitation to bring down the high transaction costs in foreign trade.
TDB: What challenges do you see in the implementation of 24*7 clearance?
JK: It is essential to ensure that the lower rung of officers is re-trained to work in a paperless environment and facilitate trade. The success of 24x7 Customs Clearance can be ensured only with the cooperation of all support agencies accepting and implementing this. Presence of Customs officers on a 24x7 basis without similar presence of the support agency personnel is a serious impediment today. There is also need for a change in the mindset.
TDB: Do you think it is a practical decision to execute 24x7 Customs Clearance at various ports?
JK: Government of India has commissioned many studies to reduce the abnormally high dwell time of import cargoes and the resulting cost push. As a policy decision, 24x7 is visionary. But it’s also expected that the trade ensures strict compliance to enjoy the efficiencies. Modern manufacturing deadlines are set in hours and not weeks. Hence, availability of 24x7 by regulatory agencies is keeping up with changing times.
Amit dawar, Director, Value added services, DHL global forwarding
TDB: What is your reaction to the decision on 24x7 Customs Clearance?
Amit Dawar (AD): While this is an encouraging decision, 24x7 clearance will be subject to certain pre-requisites and conditions like specific ports and airports, category of importers, facilitated assessment, duty paid in advance, etc.
TDB: What kind of bottlenecks and challenges would implementing agencies face in executing 24x7 Customs Clearance?
AD: For this scheme to be effective, all stakeholders need to be well aligned, such as banks, custodians, airlines, shipping lines, and to some extent even Customs. In some cases, custodians have used this to levy additional charges on shipments which are otherwise eligible for such clearance, but have not opted for doing so.
TDB: What more needs to be done by the government to facilitate faster clearance of cargo by the Customs?
AD: Customs could look at facilitating cargo by moving the concurrent assessment to post audit entirely, except for very high-risk shipments. Inspection and examination of cargo could continue as required and compliance requirements could be checked at the inspection level instead of getting these checked at the assessment stage.
No doubt the government is taking steps to speed up cargo clearance, but still over 50% of shipments are being assessed and examined.
It would be worthwhile for the Customs to audit if it has resulted in any significant gain to the country such as detection of short duty payments, offending goods, etc.
Shantanu bhadkamkar, MD, ATC Global Logistics Pvt. Ltd. & President, Maharashtra chamber of Commerce, Industry & agriculture
The government has taken a lot of interest in implementation of 24x7 Customs Clearance. The decision has been taken at the highest level in the government, and the monitoring is also being done at the highest level. It seems that the primary reason for this initiative is to reduce the time required for clearance in India, right from arrival of the cargo until the delivery of the cargo is taken. One of the reasons of delay is inadequate infrastructure, and therefore, the idea is to utilise the physical infrastructure to the full capacity on 24 hours basis.
The quantum of cargo, the cargo handling requirements, the value of goods and the incidence of duty, the regulator, and documents requirements for import and export of cargo put higher demands on the presence of expert personnel for fulfilment than the requirements for movement of passengers. While it not impossible to successfully implement 24x7 Customs Clearance, it’s lot more challenging than on the passenger side.
All over the world, the cargo clearance is done only during the normal working hours and on normal working days. This is possible due to infrastructure adequacy and higher rank of ease of doing business index. In India as well, 24x7 Customs Clearance can only be a short-term solution. For long term we need to ensure an improvement in our ranking in the Ease of Doing Business Index and build adequate good quality modern infrastructure.
The challenges for 24x7 operations are many. It is essential that all other stakeholders, including custodians, carriers, banks and international freight forwarders, too operate 24x7. Experience shows that it is not sufficient to have skeletal staff for operations after normal office hours, even senior officers of all stakeholders need to work during these hours. Additional shifts, in addition to the regular shift, involve other concerns such as increased cost due to requirement of additional staff, higher allowances required for night shift working, etc. Only if all these issues are addressed (with a practical approach), 24x7 Customs Clearance can be a reality.
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