Previous Page  20 / 194 Next Page
Information
Show Menu
Previous Page 20 / 194 Next Page
Page Background

Authorized Economic Operators

In the Islamic Countries:

Enhancing Customs-Traders Partnership

10

performance and reduce time to trade, the existence of a Mutual Recognition Arrangement is

not necessarily associated with better trade performance. Finally, it is important to note that

shorter time to trade exerts a positive effect on the delivery of goods, which improves

customer’s satisfaction. Indeed, Urcioli et al (2013) show that customer attrition decreases by

26 percent and the number of new customers increase by 20 percent as a result of AEO

introduction.

Quality Signaling-Effect

The presence of an AEO certification is perceived as a “quality” mark that provides a signaling

mechanism. Indeed, the latter indicates that the firm is reliable and compliant with respect to

security and safety standards and hence can be treated as a “secure” trader (Tweddle, 2008).

Moreover, this quality-signaling effect help countries diversify the number of their

destinations as the presence of an AEO reduces the information barriers that have a

particularly significant effect on trade with less familiar countries and fosters a positive

reputation with Customs agencies of participating countries or regions.

More Supply Chain Programs

AEO holders can coordinate shipments and manage their inventories more efficiently than

non-AEO holders, which can help reduce costs especially with “just-in-time” production

techniques. The survey conducted by the Cross-Border Research Association (CBRA),

presented in Urcioli et al. (2013), proves that AEO programs help improve inventory

management as there is a 14 percent reduction in excess inventory and 12 percent reported

on-time delivery. Moreover, with improved supply chain visibility, access to supply chain data

increases by 50 percent and the timeliness of shipping information increases by 30 percent.

Lower Insurance Premiums

Ahokas and Hintsa (2010) state that one of the benefits of belonging to an AEO program is to

increase the supply chain security and hence boost exports. Although supply chain security

investments are costly for companies and Customs Authorities, the AEO certificate aims at

lowering business costs. Hence, as it is shown in Figure 1.1, companies have to balance costs

and benefits of supply chain security. The minimum point of curve III implies the lowest cost

for supply chain security compliance. If an AEO program is adopted, security cost is reduced

and curve II shifts to the right pointing out a better and more cost-effective measure for

improving supply chain security and thereby lower cost of security compliance. This leads to a

higher level of security and more exports and imports. Firms reported that security improved

and that there is a 38 percent reduction in theft and loss with AEO certification as presented in

Urcioli et al. (2013).