Nepal faces significant challenges in managing risks associated with bilateral trade and regional trade, particularly with third-country EXIM (export-import) transactions. Addressing these risks is complicated further by Nepal’s low adoption of automation technologies to facilitate trade. Additionally, many trade facilitation measures are still lacking, preventing Nepal from fully meeting the World Trade Organization (WTO) trade facilitation requirements. Given these challenges, it is crucial for the private sector to push the government to implement technological solutions to address these issues. Achieving sustainable trade measures that align with the Paris Convention for Landlocked Developing Countries (LLDCs) remains a long-term goal for Nepal. The movement of goods involves multiple modes of transport and several transshipment points where delays occur. Tracking and predicting delivery times remains a significant challenge.
Supply Chain Risks in Nepal
Some of the key risks that Nepal faces in managing its supply chain include:
1. Forgery and Fraud: Forged certificates of origin to claim preferential tariffs, inaccurate invoicing to evade duties, document tampering for illegal trade, and the concealment of illicit goods such as drugs and weapons within legitimate shipments are common risks.
2. Illegal Practices: Smuggling through fake compartments in trucks and containers, over or under-invoicing, circular trading practices to hide transactions, and trade-based money laundering are frequent issues.
3. Goods Damage and Theft: Pilferage, damage to goods, and the importation of counterfeit brands are prevalent risks in Nepal’s supply chain.
These risks must be managed in accordance with the World Customs Organization (WCO) framework by adopting appropriate technological solutions and training customs officials and other stakeholders involved in trade.It is equally imperative to remain in line with risk mitigation provisions being adopted by countries within the region.
Technological Solutions for Risk Mitigation
To effectively mitigate these risks, Nepal must adopt a range of technological solutions:
1. Trade Data Management: Properly recording and cross-checking trade-related data with global databases, such as through blockchain, is essential for transparency and risk reduction. Digitizing documents and verifying their authenticity can further streamline trade processes.
2. Advanced Scanning Technologies: Implementing technologies like X-ray or gamma-ray scanners, Intrusive Inspection system ( NII) ,AI-enhanced imaging, and machine learning can help identify suspicious cargo and detect discrepancies in scanned images. AI-based analysis can also help predict risks by profiling patterns in trade.
3. IoT and Real-Time Monitoring: The use of Internet of Things (IoT) technologies for detecting tampered packages and real-time tracking systems with trigger alerts for route diversions is critical for ensuring cargo integrity.
4. QR Codes and Anti-counterfeit Measures: Incorporating technologies like QR codes, NFC tags, and holograms to verify product authenticity is another step in risk reduction.
5. Supply Chain Transparency: Enhancing trade transparency through collaboration with logistics service providers, including freight forwarders and customs brokers, is essential for end-to-end risk management.
Strengthening Customs and Stakeholder Coordination
A major issue in Nepal’s customs operations is the inability to effectively coordinate between various stakeholders involved in the supply chain. There is partial implementation of the Nepal National Single Window (NNSW), and reluctance in sharing customs data with transit countries, which hampers effective cross-checking and monitoring. Further, collaboration with terminal operators and quarantine measures is essential.
To address fraud, technologies like biometric authentication or digital signatures could be implemented to ensure that only authorized personnel are involved in the customs clearance process.
Health, Safety, and Cybersecurity Risks
Supply chain risks also extend to health and safety concerns, particularly regarding counterfeit goods, non-compliance with quarantine and sanitary and phytosanitary (SPS) measures, and the illegal import/export of endangered species and drugs. Furthermore, cybersecurity risks are increasingly important and need to be addressed to protect data and digital infrastructures in the customs sector.
Phases of Risk Management
Risk management can be broken down into three key phases:
1. Pre-Arrival Phase: This phase deals with risks related to product valuation, weight, and invoicing. Coordination between airlines, railways, transporters, freight forwarders, and customs brokers is essential for addressing these issues.
2. Inspection and Verification Phase: During this phase, technology and coordination among stakeholders at customs premises can help address risks related to the inspection and verification of goods.
3. Post-Clearance Audit Phase: This phase involves monitoring and auditing transactions after goods have cleared customs. Technologies for tracking and verifying trade data can help mitigate risks in this phase.
Conclusion
Effective risk management in Nepal’s supply chain involves addressing risks related to documentation and procedural compliance, security, money laundering, and unauthorized goods entry. Other risks include health and safety concerns associated with counterfeit goods and non-compliance with quarantine regulations, as well as the illegal trade of endangered species and drugs.
Adopting technological solutions is crucial for Nepal to stay aligned with global sustainability goals and to remain competitive after graduating to a developed country. Through the use of advanced technologies, improved stakeholder coordination, and a robust risk management framework, Nepal can build a more resilient and efficient supply chain, ensuring long-term success in both regional and international trade.