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).