Wishing on a cognitive customs star

In an age of digitized globalization, geographic and regulatory barriers fall, electronic distribution explodes, inventory becomes obsolete, and focused competitors ferociously attack. A set of ubiquitous government entities stands at the gates of international trade, Customs and the Participating Government Agencies (PGA), referred to Border Protection Management (BPM). Regardless of any supply chain advancement, a nation-state remains the legal custodian of its territory.

At the foreign point of origin, a farmer must authenticate and cause data on his mangos to be written to a blockchain before provenance validation at the source. At the country of importation, the product needs to clear BPM before being released for consumption. The weakest link in a digital global supply chain matters.

Focusing on the importation reality, when BPM executes strategically, it can stimulate and protect the economic interest of its trading regions. The drivers in play could overcome the agencies, hamper modernization, and even put its relevance at risk as the world heads to, and reacts to, the repercussions of going global in the age of digital.

This article’s opening is an adaptation of a paper I authored in 2002 while serving on the U.S. Customs Modernization Program; BPM’s regulatory requirements remain a barrier to supply chain optimization. Hard-earned global trade efficiency and effectiveness innovations cannot ignore BPM; the gatekeeper demands its toll.

A nation’s Customs and Participating Government Agencies have a myriad of obligatory regulatory requirements, based on the product, which is not easily understood. The comprehensive nature of the experience and expertise needed to interpret these regulations go beyond the scope of this article; it would take a series of books and course study to communicate.

Harmonizing and standardizing the data associated with supply chain execution and BPM is a monumental task that standards bodies have been working on for decades. The World Customs Organization Data Model[i] is the culmination of this effort; it is not light reading. Attempting to generalize the rules between nation states is a job best left to a computer.

Managing BPM data is no easier for the nation-state than the importer; they just come at the challenge from varying perspectives, but not necessarily with different objectives. Several of the world’s largest food retailers are involved in blockchain technology pilots along with BPM agencies. In a Mexico mango pilot, Walmart summarized its success with the statement:

Using blockchain technology, Walmart was able to track the shipping history of two mangos in two seconds. Using standard methods, this process took six days, 18 hours, and 26 minutes[ii].

Consider if this blockchain technology were in place before the recent E. Coli romaine lettuce outbreak and what the functionality’s worth would have been to Chipotle's market value, as it faced similar challenges. These benefits extend as much to the regulatory agencies charged with protecting a nation’s food supply as the importer, its customer, or the consumer.

The statement ‘blockchain technology’ is an oversimplification of what it takes for a use case to be successful on a grander scale beyond its pilot. There is a convergence of multiple technologies and new business process adoption from the farmer’s suppliers downstream to the ultimate consumer.

Change is not homogeneous across supply chain stakeholders, even when the world’s largest retailers demand it. AI and blockchain technologies are going to make the future possible, long before a heterogeneous business environment fades into togetherness.

Decentralized ledger technology, harmonized and standardized, represents a single view of transparent trust for all stakeholders. Getting from today’s data diversity, EDI, systems integration, and obfuscation of the truth to blockchain nirvana will take a bit of effort and cultural change. It is easy to speak about transparency; deriving competitive advantage from a greenhouse is another matter.

Quantifiable value to a food retailer is added by having immutable trustless tracking, tracing, and provenance operational; that case alone is a killer app for the marketplace and from the BPM’s perspective. The global pharmaceutical supply chain has blockchain pilots in inventory management, regulatory submission, data management, and clinical trial management[iii]. AI is an integral part of the pharma’s undertaking and will have an impact on regulatory compliance and what resources are best applied to accomplish the task[iv]. New entrants such as Vanig are focusing their blockchain/AI product on a decentralized e-commerce/supply chain integrated solution addressing existing pain points and inefficiencies[v]. The unmet needs of business drive disruption; technological advancements enable it.

It is my experience that standards bodies have competition too. Data harmonization and standardization is a cornerstone of technology convergence, and the advancement of AI will accelerate its benefits before technical realization. Will the 1.5 million-member GS1 be blockchain technology's Rosetta Stone[vi]? What about the Mobility Open Blockchain Initiative (MOBI), the automotive sector’s largest consortium of blockchain tech with founding members including BMW, Ford, General Motors, Renault, Bosch, and ZF[vii]? How will the Blockchain in Transportation Alliance (BiTA), of which I am a member, affect standards with its hundreds of diverse adherents including UPS, Federal Express, Navistar, JD Logistics, SAP, project 44, P&G, U.S. Express, and AON?

By dictate or adoption, will the world’s multitude of systems involved in supply chain execution utilize the same standards? Maybe not, but any importer in every country has one thing in common: Customs and PGA’s. All importers would agree on reducing BPM regulatory compliance risk and expenses.

Regulatory burdens for BPM are laser focused, and that requires specific expertise and manpower to address the rule sets. Data harmonization and standardization from a diverse and distributed data set, including many forms of unstructured data, are intractable challenges.

Can customs and participating government agencies regulatory requirements transition to, and in time be mastered by, AI and a trustless decentralized ledger? For global trade stakeholders, the competitive advantages are significant. BPM agencies, regularly at odds to do more with less, would benefit as well. Innovative BPM modernization is going to provide substantial benefits, especially for the Customs Brokers left standing in the disruption aftermath.

Over four hundred IBM blockchain projects spanning retail, financial services, healthcare, media, the supply chain, and more believe the disruptive technology, paired with AI, is the future[viii]. AWS seems to be gearing up for a blockchain as a service (BaaS), regardless of customer readiness[ix]. BaaS, integrated with other technologies including AI, are being offered by Oracle, Microsoft, IBM, JD.com, Baidu, and Huawei[x]. Hard realities around IoT, blockchain, and AI are addressed, as evidenced by the number of patent applications[xi].

According to DHL Trend Logistics, cognitive customs refers to customs brokerage processes augmented and automated using AI. A significant issue with customs today is that it relies on highly sophisticated manual processes that require skillful knowledge of regulations, industries, and customers. It is also an effort-intensive process; information must be cross-referenced and validated from customer and carrier documents, regulatory bodies and government-specific sources. All of this requires close attention to detail, and it is difficult for human workers to maintain a consistent level of concentration[xii].

Customs brokerage moving to AI on the blockchain is an enterprise solution that will serve all stakeholders. Using natural language processing and self-learning capabilities, an AI solution could extract the needed information and automate the declaration, calling upon human involvement as required. From the government’s side, AI and blockchain address its challenges in trade facilitation and national security. Business will likely lead the effort to cognitive customs.

Is this nothing more than wishing on a cognitive customer star? Can regulations be migrated into a set of instructions for machine learning? There is a seemingly endless cascade of rules relating to the importation, from various agencies. A single U.S. PGA program can take up hundreds of pages of an electronic record implementation guide. The interrelationships of a multitude of data sources boggle the human mind, and therein lies the rub.

AI and blockchain applied to BPM are about growth opportunities for LSP and Customs Brokers far more than cost reduction. For BPM agencies it represents transformational functionality in addressing the challenges of digital globalization against what we have today, a ‘modernized’ version of 1980’s-based technology and processes.

Teams I worked on advancing BPM systems to generate competitive advantages for non-governmental global trade stakeholders since the 1990’s, met with varying levels of success. It was not a lack of innovative thought that constrained progress. AI immaturity, senior management challenging the risk/reward balance, or an unyielding profit formula for the business relegated product development towards compliance and operational effectiveness. That was then.

AI has matured along with an understanding of how to model complex data and rule sets, providing a way to initiate the machine learning training processes. The trusted decentralized ledger has emerged onto the marketplace of ideas.

Border Protection Management has been identifying as a historically constrained market that disruptive forces will open. Companies including DHL and IBM are iteratively developing a business model to win in that market and are acquiring or hiring complementary capabilities to compete successfully; so is U.S. Customs and Border Protection.

Using blockchain technology, AI, and IoT has the potential to redraw the playing field improving trade facilitation and increasing national security while expanding global participation in the marketplace. The first to market with a viable blockchain/AI/IoT platform will capture competitive advantages, mature a workforce, and modernize its business model. Waiting for government to lead and following in its regulatory footsteps along with the herd, not so much.

The customs brokerage business exists on a sliding scale of margin from trusted advisor to commoditization. Blockchain, converging with other technologies, is going to redefine what it means to be ‘trusted.’ Once trust is automated and continuously rated, it becomes a transparent metric for analysis, not a foggy historical feeling.

As Border Protection Management regulatory agencies follow businesses, how long until AI validated import declarations from a trusted agent gain the upper hand? How many years will it take until trust and commoditization merge into a single expectation of service? Just how many Netflix competitors can the marketplace support?

As leaders head up the BPM glass escalator at an ever-quicker pace, it is hard to match the speed of ascent on a staircase. Worse still, a treadmill.

Thanks to Prem Kumar from Vanig for his comments on this article’s earlier draft; the writer is a Vanig advisor.

[i] World Customs Organization, WCO Data Model, http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/data-model.aspx

[ii] Forbes, IBM Forges Blockchain Collaboration With Nestlé & Walmart In Global Food Safety, August 2017, https://www.forbes.com/sites/rogeraitken/2017/08/22/ibm-forges-blockchain-collaboration-with-nestle-walmart-for-global-food-safety/#50412ea43d36

[iii] iSolve, 4 Key Use Cases Where Pharma is Leveraging the Blockchain with BlockRx Pilot Program, http://isolve.io/2017/03/19/4-key-use-cases-pharma-leveraging-blockchain-blockrx-pilot-program/

[iv] Pharmaphorum, How AI, blockchain, and big data can reduce drug development costs,May 2018, https://pharmaphorum.com/views-and-analysis/ai-blockchain-big-data-can-reduce-drug-development-costs/

[v] Vanig, https://vanig.io/

[vi] GS1, GS1 recommends use of existing data standards in enterprise blockchain implementations, https://www.gs1.org/sites/default/files/docs/internet-of-things/gs1_blockchain_external_messaging_a4.pdf

[vii] Coindesk, BMW, Ford, GM: World's Largest Automakers Form Blockchain Coalition, May 2018, https://www.coindesk.com/bmw-ford-gm-worlds-largest-automakers-form-blockchain-coalition/

[viii] Xconomy, Blockchain Gets Real? IBM Advances Projects With Walmart & Others, April 2018, https://www.xconomy.com/new-york/2018/04/25/blockchain-gets-real-ibm-advances-projects-with-walmart-others/

[ix] CIODive, Is AWS gearing up for Blockchain as a Service?, April 2018, https://www.ciodive.com/news/is-aws-gearing-up-for-blockchain-as-a-service/521927/

[x] Coindesk, Oracle to Launch Its Blockchain Platform This Month, May 2018, https://www.coindesk.com/oracle-to-launch-its-blockchain-platform-this-month/

[xi] Coindesk, IBM Reimagines Proof-of-Work for Blockchain IoT, April 2018, https://www.coindesk.com/ibm-reimagines-proof-work-blockchain-iot-devices/

[xii] DHL Trend Research, ARTIFICIAL INTELLIGENCE IN LOGISTICS, 2018, http://www.mhlnews.com/technology-automation/artificial-intelligence-thrive-logistics