AEO: Decision-Making Guide
- Arne Mielken
- Sep 23, 2024
- 9 min read
Are you considering applying for Authorised Economic Operator (AEO) status and wondering where to start? Then this is the guide for you.
You may have heard of the Authorised Economic Operator "AEO status" as being a "kitemark" in international trade, a "trusted trader programme" and one that once you have it, allows you to pass through the "green channel", the one with no border controls and the customs authorities offer "a light touch". So what is the Authorised Economic Operator (AEO) status all about?
It's time we clarified this Authorised Economic Operator (AEO) status and looked behind the curtain of government guidance.
Reading this blog allows you to better answer whether the Authorised Economic Operator (AEO) is actually right for you at this present moment:
Are the benefits actually overhyped or genuine?
If genuine, do they matter to your business?
So read on to explore if Authorised Economic Operator (AEO) is right for you right now
As a Customs Advisor and Global Trade Expert, I have been helping many companies obtain AEO status across many jurisdictions, and I am delighted to share my top pieces of advice and create this Ultimate AEO Guide. I am always amazed how companies" just go for AEO" without doing a sound cost-benefit analysis and getting their groundwork done first. Only after their application gets rejected, do they just realize that the time is not ripe for AEO for them yet.
⇒ Please share your views and leave a comment below. I would be delighted to hear from you.
So, if you are ready to learn about the benefits of AEO for your business, what you need to do to become one, what the process is of becoming an AEO and what obligations you enter into when you are an AEO, I welcome you to read on.
What we will cover about the Authorised Economic Operator (AEO).
Why Is Becoming an Authorised Economic Operator (AEO) so Important For Businesses that Import or Export?
Well, is it? It would be my first question.
For a start, being an Authorised Economic Operator (AEO) is a business choice, not a legal requirement. That means that it needs to make economic and financial sense for any business to go for it. Before even thinking about the programme itself, if you are interested in applying for the status, ask yourself:
"Can I present a series of convincing reasons as to why this is beneficial for my business?"
If I made a business case for AEO with my company, would anyone agree with me and, more importantly, sign this off, especially if told them it would involve many hours of preparation, many people and, potentially, a lot of money to get it?
If you think that regardless of what you present to the decision-makers in the company, they won't go for anything that would require financial and time investment to improve customs compliance and supply chain security in your company in return for customs and supply chain facilitation, then STOP right here.
Certainly, read on, but pause the idea of getting AEO until the time is right - meaning, for example, you get into a compliance audit with the authorities or the goods get stuck at the border.
Are you really ready to get closer to the customs authorities?
In a way, being an Authorised Economic Operator (AEO) is entering a partnership programme between the customs authority and a business. Your relationship with them must be based on the principles of
mutual transparency,
correctness,
fairness and
responsibility.
It is a close relationship with the authorities, and unless you are willing to be transparent and let customs "open all the drawers in your business and look under the bed", it might not be a good fit for you at the moment. If you are ready to partner up for compliance and supply chain security and engage, then go for it.
Would you like your compliance & security commitment by more countries?
AEO was always conceived as a global programme. While countries have their own version, there are some 100+ programmes now around the globe, most have what is known as "Mutual Recognition". This means the security and compliance commitment your company made in your own country is recognised aboard as well, and the same "fast track, green lane" benefits exist there, too. This can make it so much easier to get into more challenging markets, like China, for example. Who wouldn't want a fast pass to China?
Countries that have signed MRA's include
CHINA
JAPAN
SWITZERLAND
USA
EU
UNITED KINGDOM
Are you ready to turn your company upside down?
Authorised Economic Operator (AEO) means business transformation with an unwavering commitment to compliance. This stretches much further than the Customs department and includes functions like IT, HR, Warehousing, Logistics, Security, Imports, Exports, Procurement, Sales, Finance, and Legal. All need to be involved and all need to be engaged. SOPs and KPIs are key. So, if you are ready to commit to trade compliance across all areas of your company, then AEO may be right for you.
Authorised Economic Operator (AEO) Benefit Verification in 10 Questions
It is not a matter of listing all the benefits and then telling you: "Look, how Amazing". It is about making these work for Your Business. I remember a conversation with a customs manager of a large, global electronics brand telling me: "Once we applied, the authorities came down on us hard. For one year, we had many more controls than ever before. There was no simplification, we became their focus"
So, before you apply, think about if you really would benefit from Authorised Economic Operator (AEO) status.
So, please, let's work together on this.
Rating them from 1-5 where 1 is NOT ESSENTIAL and 5 is HIGHLY ESSENTIAL, how would you rate these benefits for YOUR business:
1. How important is it for your business to obtain a reduction in the financial guarantee you provide to the customs authorities?
YOUR RATING: _____
2. How significant is it to get easier access to customs simplifications?
YOUR RATING: _____
3, Have your goods been subject to a lot of physical and document-based controls related to security & safety or customs legislation? If Yes, would having fewer of them matter to you?
YOUR RATING: _____
4. Would you consider it helpful if the customs gave you a prior warning in case of selection for physical control?
YOUR RATING: _____
5. If you were selected for control, would it be of benefit to be able to jump the queue?
YOUR RATING: _____
6. If customs wanted to control you, would you like to be able to request a specific place for customs controls?
YOUR RATING: _____
7. How significant is displaying the AEO logo on your websites/emails to be recognised as a secure and safe business partner?
YOUR RATING: _____
8. How important are improved relations with customs authorities for you?
YOUR RATING: _____
9. Overall, how influential would you rank the benefits of reduced theft and losses, fewer delayed shipments, improved planning, improved customer service and improved customer loyalty and lower inspection costs of suppliers and increased co-operation?
YOUR RATING: _____
10 How important is Mutual Recognition of your status with other countries?
YOUR RATING: _____
Now total them and tell us what the number is. Here is our guide:
10-30 points - The time is probably not ripe for you to apply for AEO
31-40 points - You may have a case for AEO, but the costs may outweigh the benefits
41-50 points - Time to build your business case for AEO - this may actually work for you!
Authorised Economic Operator (AEO) Costs You Need to Be Aware Of
The AEO status usually does not come cheap. More broadly, you can think of
Direct costs would be the time invested by different departments, financial investment in upgrading processes, procedures and IT systems, employing a dedicated AEO customs manager or getting outside help from a Customs Consultant.
Indirect costs might include associated costs like subscriptions, higher annual electricity or security bills, higher accounting costs etc
Intangible costs of a decision, such as an impact on customers, employees, or delivery times.
Opportunity costs such as alternatives in not applying for the status
Cost of potential risks such as regulatory risks, and competition impacts.
The costs may be higher than you think.
Obviously, the results of the aggregate costs and benefits should be compared quantitatively to determine if the benefits outweigh the costs. Given this, do you still think AEO is worth it for your company?
But be careful, with cost-benefit analysis, there are a number of forecasts built into the process, and if any of the forecasts are inaccurate, the results may be called into question.
Yes, AEO is for me! What do I do now?
Well, congratulations! You have already learned a lot and made a lot of progress. The next step with all your notes from answering the benefit section is to work on a proper cost-benefit analysis and then present this to the business to get their buy-in. There are various ways you can make your case, for example, a benefit-cost ratio (BCR) can summarize the overall relationship between the relative costs and benefits of a proposed project. Other tools may include regression modelling, valuation, and forecasting techniques.
After passing the business case, we then come to the planning phase. How will you get everyone else on board with AEO in the company? And how will you implement the necessary change to fulfil the AEO criteria?
That is for another day! For now, relax, you did well and have come a long way in advancing your company to greater compliance and robust supply chain security. If you'd like to know more about AEO, we have an excellent on-demand AEO Training Course ready for you, where you can learn all about the AEO program anytime and at any place.
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