While 2,000 companies gear up to claim compensation for the impact of the I.C.S. crash on their business, Joe Parkes takes notes on both sides of the debate, and finds out how Australian Customs will resolve the problems.
Australian Customs believes the now infamous technical collapse of its Integrated Cargo System (ICS) last year had no significant impact on exporters. “I am not saying there was no impact, but there were no significant problems for exporters … unless they were importers as well,” says Customs spokesman, Matt Wardell.
Sounds reassuring. But then you discover from Austrade that some 31 percent of all Australia’s exporters are also importers, and 55 percent of our exporters use imported elements in goods and services that are then exported. On top of that, Customs has revealed to a Senate Committee in Canberra that it has ordered an independent review of ICS following another system failure in February.
Meantime, about 2,000 companies are reported ready to claim compensation from the Federal government as a result of the ICS failure and its effect on their business.
Exporters must be wondering what’s going on, and what it all means for the future of Australia’s export trade.
It’s been nearly two years since Customs declared it had changed forever the nature of the nation’s export culture by introducing ICS as the lynchpin in an online revolution aimed at getting our products to the international market faster, more efficiently, and with added security.
Brian Lovell, CEO of the Australian Federation of International Forwarders, isn’t sure about that. He calls ICS a comedy of errors. “It didn’t start out that way,” he says. “When the first stage of the system—for exports—was implemented on October 6, 2004, it worked well. Things went fairly smoothly, even after the phasing in of a number of additions to the system, but the original release date for the ICS imports component was delayed to October 12, 2005, to allow for appraisal.
“There was little appraisal done and much of the testing was not completed properly. Many traders and forwarders were not able to test their software with the ICS program. But apparently political imperatives made it necessary for Customs to press ahead with its implementation. So we ended up with a problem, both from the perspective of the system’s users on our side of the fence, and for Customs officers who were unfamiliar with the new system.”
Lovell claims so many problems occurred during last year’s system crash—referred to in the business media as a ‘calamity’—that Customs couldn’t cope, with delays lasting up to an hour and no diagnostics available to track down the problems.
Wardell disputes this. He says speculation fuelled a lot of the ‘calamity-style’ reports of the ICS. “There were even rumours of Australian ports grinding to a halt, but there were no ships turned away and they never left port unloaded,” he says. “Customs worked hard with industry to resolve those issues. The outage was related to a power supply problem in a data centre, not the ICS itself. The problem was rectified within hours. Customs received no reports of import or export cargo delays as a result of the outage.”
The ICS breakdown at Customs affected both large and small import and export firms, including at least one company with a foot in both camps: the Bata Shoe Company of Australia. The modestly sized local arm of the world’s largest footwear manufacturer exports round five percent of its local production of gumboots, safety work boots and rainwear.
“Why they had to roll out the system in the peak retail season is beyond me,” says Bata’s export manager, Jon Moore. “There were lengthy hold-ups in the documentation process which then produced a huge clearance backlog and this, in turn, created congestion on the wharves. Everything slowed to a grinding halt and meant we accrued storage charges.”
The good news for Bata is containers are currently moving in a timely manner. But Lovell insists that Customs’ problems are not over yet. “Even when it is working correctly, ICS is very intolerant of any mismatches in data,” he says. “Even a minor keying error with an alpha-numeric suffix is enough to incur a rejection. And that’s before you have even reached the first stage of the export process.
“The ICS system was simply not fully cognisant of industry’s needs, with the so-called Customs Barrier really becoming a barrier to trade. All of this happened during the pre-Christmas period, the busiest time of the year for retailers and importers around Australia.
“But Customs insisted they had to implement it in October because the old system was about to fall over. Since then, they have put into place what they call, ‘workarounds’, or contingency plans and procedures, allowing businesses to use some semi-automatic processes that create bypasses in the system. The problem is, these bypasses have become the norm instead of the exception and this is going to create difficulties in the longer term.”
Brian Farquhar, general manager of TradeGate ECA, a non-profit, non-government, user-based organisation established to facilitate electronic commerce, has a more benign view of the Customs ‘workarounds’. In his opinion, they were the one single factor that kept Australia’s trade wheels turning during the ICS turmoil. “One of the big problems for exporters handling their own online dealings with Customs was created when they found they were getting no response to their messages,” he says. “They kept re-sending their orders and messages and it was almost like an online attack on Customs. Some delays went on for hours.”
Customs’ Wardell holds a different view. “Contingency arrangements were successfully enacted [at the time of the crash],” he says. “But they proved largely unnecessary. All major issues identified following the introduction of the imports component of the ICS have been largely resolved.
“We are continuing to work with industry through a number of forums to resolve business process issues associated with the ICS and identify opportunities for further improvement. This will be an ongoing process.”
Lovell and Farquhar are in agreement that the exporters who most felt the sting from the breakdown are those who also handle imports, either for direct re-export or to incorporate into Australian products for export.
“Things are not too bad at the moment and there are action groups working on getting the system right,” Lovell explains. “But we’re not out of the woods yet. I don’t expect we will see an ICS system that really works in the way it was designed and supposed to until the end of 2006.”
Farquhar believes most of TradeGate’s clients—some 650 exporters who are mostly SMEs—weren’t necessarily aware of the problem, apart from the extra time it took to get clearance for their exports. “When the Customs system goes down we just re-queue the messages to be sent again when service resumes,” he says.
ICS is part of Customs’ Cargo Management Re-engineering (CMR) project and one of the country’s biggest ever public sector e-business projects. Customs’ move away from paper-based documentation is only part of the story. Exporters must now go online for everything from their banking and insurance to the more complex tasks of Australian Quarantine approvals, transport movements, stevedoring, freight forwarding and shipping. Most of Australia’s stevedores now
also require exporters to submit electronic Pre-export Receival Advice (PRAs) containing cargo details before a container arrives at the terminal.
Since it seems that it is our import-exporters who suffer most in the offshore sales arena when things go wrong in government document processing, is there any good news out there to help ease their pain? Yes, it’s called Tradex.
Administered by AusIndustry, the business arm of the Department of Industry, Tourism and Resources, Tradex gives traders who import for re-export up-front exemption from import duty and GST, leading to potentially significant advantages to an exporter’s cash flow position, which can then be passed on through the supply chain.
David Price, Tradex product manager, says eligible exporters only need to register once and are provided with an order bearing a unique number. When goods are imported for export, Customs duty and GST are waived. “For many companies, Tradex offers a simple and effective way of using these cash flow dollars for other business activities, like plant upgrades or market development,” he says.
Lovell thinks Tradex works well, but feels that, ideally, Australia should have tax-free trading zones for imports to be used in developing exports or re-export. This would avoid the entire tax and duty issue altogether.
What of the future? The most ominous word in the corporate lexicon of Australian exporters now seems to be: security. Lovell believes all exporters will need longer lead times to get their products to a port or airport for export because Customs will be examining more exports than ever at Australian ports.
“Exporters will also have to be prepared for much more controlled, intense and detailed examinations of import and export data in other countries because, like Australia, they are securing their borders,” he warns. “We may eventually see our Customs declarations at the point of export becoming used as the basis of import declarations at the port of arrival.”