For discussion
FCR(96-97)112
on 28 February 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Customs and Excise Department
New Subhead "Air Cargo Clearance System"

Members are invited to approve a commitment of $127,796,000 for the development of a computer system for air cargo clearance at the new airport at Chek Lap Kok.

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PROBLEM
PROPOSAL
JUSTIFICATION
Existing Mode of Operation at Kai Tak
Need for change at CLK
Proposed Computer System
Anticipated Benefits
Implementation Plan
Non-recurrent expenditure
Recurrent expenditure
OTHER ALTERNATIVES CONSIDERED
BACKGROUND INFORMATION
A breakdown of the realisable and notional savings

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PROBLEM

The Customs and Excise Department (C&ED) will not be able to exercise efficient and effective control on the clearance of air cargo at the new airport at Chek Lap Kok (CLK) without the support of a dedicated computer system.

PROPOSAL

2. The Commissioner of Customs and Excise (C of C&E), with the support of the Secretary for Trade and Industry, Secretary for Security and Secretary for the Treasury and on the advice of the Director of Information Technology Services (DITS), proposes to develop and implement an Air Cargo Clearance System (ACCS) to support clearance of air cargo at the new airport.

JUSTIFICATION

Existing Mode of Operation at Kai Tak

3. C&ED does not have a dedicated computer system for cargo clearance at the existing airport at Kai Tak. Customs officers manually scrutinise cargo manifests supplied by carriers to detect contrabands and goods which are prohibited or restricted for import or export. They also check the particulars of consignments against the intelligence in the department’s central Customs Control System (CCS) computer network and key-in a constraint code for each consignment in the computerised cargo inventory system (COSAC) of the Hong Kong Air Cargo Terminal Limited (HACTL). Through the code C&ED instructs HACTL as to whether it would release the goods or detain them for further action. With HACTL being the only cargo operator at Kai Tak, the largely manual cargo clearance system has been in smooth operation, though not without limitations.

4. Since COSAC is under the administration of HACTL, the operator’s cargo handling activities take priority in the system. Even though HACTL provides C&ED access to its COSAC free of charge, C&ED has no control over access to and management of the system. C&ED cannot link COSAC with CCS for security reasons and the system provides very limited functions for C&ED. Customs officers have to perform routine tasks such as checking and updating watch lists, compiling management information reports and logging statistics manually. The manual processes are repetitive and inefficient.

Need for change at CLK

5. There will be significant changes to the operational environment at the new airport at CLK. The cargo throughput at Kai Tak in 1995 was 1.45 million tonnes (i.e. 12.4% growth over 1994). Given that the new airport will be operating round the clock with a much increased flight capacity, we expect the air cargo throughput to continue to expand substantially. It will be unrealistic to expect C of C&E to continue clearing cargo manually, relying on the limited functions provided by a cargo operator’s computer.

6. Furthermore, the increase in the number of cargo operators from one in Kai Tak to six in CLK will have a significant impact on C&ED’s operation. Cargo handling will take place at different locations, with each operator using its own computer system. For obvious reasons, they will not share their business information with the others. C&ED cannot require them to submit cargo information through one of their competitors’ computer system.

7. C&ED must therefore install its own computer system in order to operate effectively and efficiently in the new airport and to cope with the multi-operator environment in CLK.

Proposed Computer System

8. C of C&E proposes to develop an ACCS which has the following main functions -

(a) to provide electronic links between C&ED and individual air cargo operators to facilitate the transfer of cargo information and customs clearance instructions, and the tracking of movement of consignments between air cargo operators;

(b) to provide an electronic link between ACCS and CCS to facilitate the retrieval, correlation, analysis and updating of intelligence; and

(c) to provide automated matching of the particulars of cargo with the intelligence in CCS and the lists of prohibited and restricted items.

To operate in the 24-hour environment in CLK, ACCS, as a vital tool for customs clearance, has to be available 24 hours a day. There is a need to provide resilience equipment to enable ACCS to carry on in the event of hardware failure. There is also a need to provide disaster recovery equipment in a separate building to enable ACCS to carry on in the event of damage to the primary computer room. In addition, as we shall connect the system to computer systems both within and outside the Government, it must include stringent security features to prevent unauthorised access.

Anticipated Benefits

9. Improve data security and accuracy : ACCS will safeguard data security as C&ED will have ownership of the system. In addition, its matching facility with CCS and the lists of prohibited and restricted items will enhance accuracy of the cargo selection process. The production of statistical and management information reports by the system will also greatly reduce the risks of human error.

10. Support smuggling trend analysis : With a comprehensive database of consignment information, ACCS will enable the department to analyse critically the modus operandi and profiles of smugglers, facilitating the detection of contrabands and thus enhancing C&ED’s anti-smuggling capability.

11. Provide a level playing field for all air cargo operators : If the customs cargo clearance process relied on the computer system of a single operator, others might conceive that we are giving the operator an unfair edge over the others. The proposed ACCS will ensure the provision of uniform service to all operators who will be able to communicate with C&ED directly and independently.

12. Save manpower : The proposed system will automate a number of tasks such as searching watch lists and target lists, compiling statistics and searching importer information as well as updating information in imports and consignment history. This will enable C&ED to speed up the cargo selection process with less manual efforts.

13. Increase workload capacity: The capacity of the proposed system will cater for processing a quantity of consignments which doubles that of 26 000 consignments per day in 1996-97. C of C&E estimates that the quantity of consignments that they will process will rise to 29 000 per day in 1997-98. ACCS will be able to cope with the growth in the air cargo industry well into the next century.

Implementation Plan

14. As we have mentioned in the preceding section, C&ED cannot perform air cargo clearance at the new airport without its own computer system. The proposed ACCS must commence operation by 1 April 1998 to tie in with the opening of the new airport.

15. Given the size and complexity of ACCS, DITS proposes to implement the project in three phases over a period of two and a half years. We will deliver the following functions by phases -

Non-recurrent expenditure

16. C of C&E estimates that the proposed system will give rise to a non-recurrent expenditure of $174,573,000 over a three-year period from 1997-98 to 1999-2000. This comprises $127,796,000 for the purchase of computer hardware, software, site preparation, implementation services, etc., and $46,777,000 for in-house development staff of Information Technology Services Department (ITSD) and C&ED. Details of the non-recurrent costs are as follows -

17. As regards paragraph 16(a) above, the cost of $32.3 million is for purchase of computer hardware to support 24-hour operation with a high level of resilience, system availability and security, e.g. mid-range computers, network file servers, resilience and disaster recovery equipment, and dataline installation.

18. As regards paragraph 16(b) above, the cost of $19.0 million is mainly for operating system software, database management software, network management software, distribution software and system development tools.

19. As regards paragraph 16(c) above, the cost of $26.0 million is for site preparation of two new computer rooms at the new airport, laying of cable and trunking, and installation of development and production equipment outside CLK prior to the readiness of the new airport office.

20. As regards paragraph 16(d) above, the cost of $34.1 million is for contract staff for system implementation and consultancy services on activities such as application design, data conversion, network management and system security management.

21. As regards paragraph 16(e) above, the cost of $4.9 million is for staff training, set-up consumable such as CD-ROM disc, magnetic tapes, printer toners, and transportation.

22. As regards paragraph 16(f) above, the cost of $11.6 million represents a 10% contingency on the cost items set out in paragraph 16 (a) to (e).

23. As regards paragraph 16(g)(i) above, the cost of $24.8 million represents the staff cost for the setting up of a C&ED project team. This involves 433.3 man-months of C&ED staff (two man-months of Superintendent, 31.3 man-months of Assistant Superintendent, 92 man-months of Senior Inspector, 125 man-months of Inspector, 114 man-months of Senior Customs Officer, 12 man-months of Assistant Computer Operation Manager, 12 man-months of Senior Computer Operator, 25 man-months of Computer Operator I and 20 man-months of Computer Operator II). Out of the 433.3 man-months, C&ED will provide 22.2 (two man-months of Superintendent, 1.2 man-months of Assistant Superintendent, and eight man-months of Senior Inspector and 11 man-months of Inspector) by internal redeployment. The project team will be responsible for liaison with the cargo operators, defining user requirements, site preparation, equipment installation, user acceptance tests, defining user procedures, user training and computer operation.

24. As regards paragraph 16(g)(ii) above, the cost of $22.0 million represents the staff cost for the setting up of an ITSD development team which involves 366.5 man-months of ITSD staff (ten man-months of Chief Systems Manager, 35 man-months of Senior Systems Manager, 67.5 man-months of Systems Manager, 161 man-months of Analyst/Programmer I, 51 man-months of Analyst/Programmer II and 42 man-months of Clerical Assistant). The development team will be responsible for procurement, system analysis and design, systems development, data conversion, technical services and system implementation.

Recurrent expenditure

25. The annually recurrent expenditure for the proposed system is as follows -

26. As regards paragraph 25(a) above, the annual expenditure is for hardware maintenance and dataline rental. As the warranty for the first year will not cover a 24-hour maintenance service, we will need a supplement of maintenance charges as from the first year of system production. Furthermore, there will be no discount on maintenance cost from the fifth year onward, leading to an upsurge in maintenance cost in 2002-03.

27. As regards paragraph 25(b) above, the annual expenditure is for software maintenance and licence fees. Similar to hardware maintenance, we will need a supplement of maintenance charges in the first year and additional funds for maintenance charges in 2002-03.

28. As regards paragraph 25(c) above, the annual expenditure is for contract staff for routine system maintenance and minor enhancements, and for support services such as network management and system security management.

29. As regards paragraph 25(d) above, the annual expenditure is for miscellaneous items such as on-going user training, consumable and transportation.

30. As regards paragraph 25(e)(i) above, the annual expenditure is to meet the staff cost of 17 posts (two Senior Inspectors, three Inspectors, one Senior Customs Officer, one Assistant Computer Operation Manager, one Senior Computer Operator, five Computer Operators I and four Computer Operators II) in the C&ED for system administration, computer operations, help desk, liaison with the cargo operators and user training upon the full implementation of ACCS.

31. As regards paragraph 25(e)(ii) above, the annual expenditure is to meet the staff cost of 7.6 posts (0.08 Chief Systems Manager, 0.5 Senior Systems Manager, two Systems Managers, three Analyst/Programmers I, one Analyst/Programmer II and one Clerical Assistant) in ITSD for on-going technical support, minor enhancements, and normally seven-hour on-site support upon the full implementation of ACCS.

32. C of C&E estimates that upon completion of the project, the total non-recurrent cost will be $175 million, and the annual recurrent costs will be $40 million from 2002-03 when the recurrent cost will become constant. Apart from a one-off notional saving of $2 million as cost avoidance of installation of CCS terminals, there will be other realisable and notional recurrent savings of $16.4 million in 1998-99 rising to $18.6 million in 1999-2000. A breakdown of the savings is at the Enclosure. Although the savings will not be sufficient to offset the cost of the system, we should note that C&ED can no longer rely on the computer system of a cargo operator at the new airport as it does at Kai Tak free of charge. The proposed computer system is essential on operational and security grounds - to perform air cargo clearance for the prevention and detection of illicit import and export of dangerous drugs, firearms and ammunitions, strategic commodities, pirated goods, dutiable commodities and other prohibited and restricted items through the airport.

33. The proposal will not have any impact on fees and charges. The ACCS is necessary to enable us to discharge our statutory and/or international obligations in connection with customs controls.

OTHER ALTERNATIVES CONSIDERED

34. There are only two alternatives - either to use the computer systems of each of the six operators or to extend the manual system. The former is not practicable as C&ED will have to operate seven different computer systems in total, including the CCS. The need to train C&ED staff to use all the computer systems will present substantial staff training problems. Besides, the tracking of movement of cargo from one operator to another will be difficult and time-consuming.

35. Taking the latter alternative will be a retrograde step and will impair C&ED’s enforcement capability. The Department will not be able to maintain its service pledges for flight clearance and cargo examination. Air cargo clearance will take a much longer time and errors are more likely to arise. It will be a setback to the growing air cargo industry. C of C&E estimates that applying the manual system at the new airport to a standard much lower than that envisaged under the proposed computerisation project would require additional manpower resources of 60 staff with an annual staff cost of $16.4 million.

BACKGROUND INFORMATION

36. At present, HACTL is the only franchised cargo operator at Kai Tak. Upon relocation of the airport to CLK, Asia Airfreight Terminal Company Limited will become the other one of the two franchisees. In addition, there will be four express air cargo operators: DHL International (HK) limited, Federal Express, TNT Express Worldwide (HK) Limited and UPS Parcel Delivery Service Limited. The six cargo operators will operate in three separate cargo terminals.

Trade and Industry Branch
February 1997

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Enclosure to FCR(96-97)112

A breakdown of the realisable and notional savings

Upon the implementation of the Air Cargo Clearance System (ACCS), the Customs and Excise Department no longer requires to handle manual procedures such as search of watch lists and target lists, logging of activities in cargo selection and examination. Other tasks such as compiling statistics or searching of information in imports can be simpler and more efficient. Additional features such as automatic updating of consignment information and history in the Customs Control System (CCS) will not only improve the efficiency of the service, but also save manpower resources. The development of the ACCS will also avoid the need for additional staff and computer linkage with the CCS for implementing a totally manual customs air cargo clearance system. The realisable and notional savings are as follows -

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