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Port, Maritime and Logistics Development Unit Economic Development and Labour Bureau

The Government of the Hong Kong Special Administrative Region

Study for the Development of a Digital Trade and Transportation

Network (DTTN) System to Support the Development of Hong Kong as an International Logistics Hub

Final Report

November 2002

Table of Content Final Report

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Table of content 1 Executive summary...................................................................................................................................4

1.1 Why is a Digital Trade and Transportation Network necessary? ..............................................4 1.1.1 Background .................................................................................................................................4 1.1.2 Roles of the DTTN......................................................................................................................4 1.1.3 Benefits.........................................................................................................................................5

1.2 What is the DTTN? ............................................................................................................................7 1.2.1 Objectives and scope..................................................................................................................7 1.2.2 The DTTN model........................................................................................................................8 1.2.3 Functional blueprint...................................................................................................................9 1.2.4 Technical blueprint...................................................................................................................11

1.3 Summary of institutional framework ...........................................................................................12 1.3.1 A commercial entity .................................................................................................................12 1.3.2 A community-based company ...............................................................................................13 1.3.3 A government-led entity .........................................................................................................13

1.4 Next steps .........................................................................................................................................13 2 Background ..............................................................................................................................................16

2.1 Approach to the study ....................................................................................................................16 2.2 Overview of the current situation of the local trade and logistics industry............................17 2.3 Overseas experience in handling similar situations ...................................................................18

2.3.1 Brief overview of the port community systems ...................................................................19 2.3.2 Lessons learnt............................................................................................................................20

3 The DTTN model.....................................................................................................................................21 3.1 What is the DTTN? ..........................................................................................................................21 3.2 Guiding principles...........................................................................................................................22

3.2.1 Principle 1 – Improve overall competitiveness of Hong Kong ..........................................22 3.2.2 Principle 2 – Neutrality............................................................................................................22 3.2.3 Principle 3 – Non-exclusivity..................................................................................................22 3.2.4 Principle 4 – Transparent, accountable, and responsible operations................................22 3.2.5 Principle 5 – Minimum intervention to internal business processes and client

relationships ..............................................................................................................................23 3.2.6 Principle 6 – Facilitate and respect market forces................................................................23 3.2.7 Principle 7 – Easy to access and use.......................................................................................23

3.3 Three-layer model of the DTTN ....................................................................................................23 3.4 Roles of the DTTN ...........................................................................................................................24 3.5 Scope of the DTTN ..........................................................................................................................25

3.5.1 Community coverage...............................................................................................................25 3.5.2 Trade and logistics business processes to be facilitated by the DTTN .............................27 3.5.3 Key business requirements of the DTTN..............................................................................28 3.5.4 The DTTN access channels......................................................................................................29

3.6 Benefits of the DTTN.......................................................................................................................30 3.6.1 Strategic benefits.......................................................................................................................30 3.6.2 Operational efficiency improvement.....................................................................................32

3.7 Potential investment for stakeholders ..........................................................................................32 4 The DTTN architecture ...........................................................................................................................34

4.1 Standards and protocols .................................................................................................................36 4.2 Canonical approach.........................................................................................................................37 4.3 Single window access......................................................................................................................38


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4.4 Guaranteed delivery........................................................................................................................39 4.5 Security and trust.............................................................................................................................39 4.6 Audit trail and non-repudiation....................................................................................................39

5 Baseline financial analysis ......................................................................................................................40 5.1 Baseline costing estimation ............................................................................................................41

5.1.1 CAPEX .......................................................................................................................................41 5.1.2 OPEX ..........................................................................................................................................41

6 Institutional model ..................................................................................................................................42 6.1 Approach ..........................................................................................................................................42 6.2 Potential institutional models considered....................................................................................42 6.3 Requirements ...................................................................................................................................43 6.4 SWOT analysis .................................................................................................................................44 6.5 Overseas experience ........................................................................................................................45

6.5.1 Lessons learnt............................................................................................................................47 6.6 Summary assessment ......................................................................................................................47

6.6.1 A commercial entity .................................................................................................................47 6.6.2 A community-based company ...............................................................................................48 6.6.3 A government-led entity .........................................................................................................48

7 Baseline implementation roadmap .......................................................................................................49 7.1 Initiatives ..........................................................................................................................................50 7.2 Scope..................................................................................................................................................50 7.3 Key success factors ..........................................................................................................................53

7.3.1 Key success factors for the DTTN implementation .............................................................53 7.3.2 Key success factors for the DTTN adoption and on-going operation...............................54

8 Appendices...............................................................................................................................................56 8.1 Key business messages to be supported by the DTTN ..............................................................56 8.2 Service offerings of the overseas port community systems.......................................................58 8.3 Industry stakeholder participants in meetings/ workshops.....................................................60 8.4 Glossary of terms.............................................................................................................................62


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Executive Summary Final Report

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1 Executive summary

1.1 Why is a Digital Trade and Transportation Network necessary?

1.1.1 Background "With Hong Kong's excellent transportation facilities and the Pearl River Delta (PRD)'s high productivity, together we can develop into a logistics hub to link the Mainland with the world. We can promote the development of an inter-modal system and consider other supporting facilities to speed up the flow of goods and information. The provision of integrated services will also strengthen Hong Kong's competitive advantages as a supply-chain base."

The 2001 Policy Address The policy objective of the Government of the Hong Kong Special Administrative Region (the Government) is to strengthen the role of Hong Kong as the preferred international and regional transportation and logistics hub. The Hong Kong Logistics Development Council (LOGSCOUNCIL) was established in December 2001 to provide a forum for private and public sectors to exchange views and take forward joint initiatives to promote and strengthen logistics development in Hong Kong. The McClier Report was commissioned by the Hong Kong Port and Maritime Board in December 2000 and was completed in 2001. This called for the creation of a “Digital Trade and Transportation Network” (DTTN) to reduce inefficiencies arising from the "digital gap" and to facilitate data sharing amongst the trade and logistics industry stakeholders. The DTTN implementation was subsequently identified as one of the top priority initiatives of the Government. To take forward this initiative, the Port, Maritime and Logistics Development Unit (PMLDU) of the Economic Development and Labour Bureau commissioned a study to determine and recommend the options for developing the DTTN program that would enhance and facilitate data sharing and exchange amongst the existing and new communities in the supply chain industry. Specifically, the study was required to:

Develop a functional and technical blueprint of the DTTN

Recommend the standards and protocols to be supported by the DTTN

Estimate the baseline cost to develop and operate the DTTN

Determine the options for the ownership, management and governance structures of the DTTN During this study, over 100 meetings, workshops and interviews were conducted with the key industry representatives to solicit their views and obtain their inputs on the potential business and technical needs, institutional framework, business and social benefits of the future system. The following sections summarise the findings and recommendations derived from this study.

1.1.2 Roles of the DTTN With the key social objective established as being the need to enhance the overall competitiveness of the logistics industry in Hong Kong, the DTTN must play three major roles:


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To offer a neutral e-platform to facilitate information flow and service integration both in the region (especially with the PRD) and globally – making HK the e-logistics hub of choice. The DTTN as a secure and neutrally operated low cost common infrastructure can act as a conduit to streamline and automate data communications among the many players in the trade and logistics community both locally and internationally and so significantly improve the flow of both goods and information. The DTTN, when supported by both public and private organisations, can also facilitate the compliance of local businesses with overseas regulatory requirements. Having the DTTN as the focal point of logistics communication policy and global connectivity will ensure that changes in regulatory requirements and the effects of international trade initiatives can be more easily accommodated centrally with minimal compliance cost at the Small and Medium Enterprise (SME) business and social level.

To provide a stable and reliable environment and a state of the art technology platform for the exploration, development and delivery of innovative value-added services. The DTTN can facilitate the provision of an open shared common electronic infrastructure to enable the development of services to improve the competitiveness of players in the trade and logistics community. Being the market enabler, DTTN is not intended to replace or compete with the private sector or existing service providers but can rationalise the technology directions and ensure the provision of a shared user infrastructure to enable cost-effective electronic business-to-business interoperability. The DTTN will complement the business and Information Technology (IT) environment of Hong Kong to increase the efficiency of the processes and thus improve the flow of goods and information. The DTTN can effectively increase the scale of the market available to the trade and logistics industry in Hong Kong by the provision of a globally recognised communications infrastructure.

Catalyst to promote electronic business adoption, especially by SMEs. The marketing of the benefits and the associated efforts to manage the adoption of the DTTN will serve as a catalyst for the trade and logistics community, especially SMEs, to adopt information technology and take up electronic commerce to improve the overall competitiveness of the logistics industry and of Hong Kong. Education, training, general technology awareness programs, implementation assistance, and incentive schemes have all been identified as potential benefits to the SME sector.

1.1.3 Benefits The need for rapid development of the DTTN concept into a practical solution has been voiced repeatedly and unequivocally by the industry in the various E-logistics Project Group meetings and during the many interviews conducted as part of this study. The key benefits that will be delivered by the DTTN include:

Improved operational efficiency. The DTTN will improve the overall effectiveness and efficiency of the industry. Significant savings in terms of the reduction of paperwork, process time, and time spent in data re-keying will be realised. With assistance and input from the key industry representatives, the project team has conservatively estimated that the annual savings from operational efficiency improvement to the industry will be around HK$1.3 billion per annum.

Enable new business opportunities. The DTTN will strengthen Hong Kong’s capabilities in attracting foreign direct investment to establish value-added service businesses. The service offerings from value-added service providers are dependent on timely and seamless information flow across transportation modes and trade chain participants. The DTTN will provide an infrastructure to enable these service providers to make the best use of their physical


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assets and resources. The local IT industry will benefit from the DTTN as it will generate new demand for software and professional services. The DTTN will create an environment which will stimulate the development of the logistics and supply chain software sector and accelerate the transition of Hong Kong to a knowledge-based economy. As indicated by the E-logistics Project Group members, many software development companies in Hong Kong are eagerly awaiting the DTTN implementation so that they can provide value-added applications on top of this infrastructure. Many additional spin-off benefits including increased employment will result from the new business opportunities enabled by the DTTN across multiple trade business sectors.

Compete on value, not just cost. With China’s accession to World Trade Organisation (WTO) and the mushrooming of lower cost logistics service options in China, the Hong Kong trade and logistics industry is expected to transform into a league of premium service leaders offering high quality, value-added services rather than merely competing on cost. Efficient information flow is seen as the key. The provision of a neutral and secure infrastructure as envisaged for the DTTN will be a critical service enabler and market differentiator.

Integration with global initiatives. The DTTN will be a common tool for Hong Kong to leverage in order to rapidly address changes in the global logistics industry and to meet the requirements of global trade initiatives. Such a common information infrastructure in Hong Kong will facilitate compliance with changes of this type in a timely fashion, and more importantly, reduce the social cost since change can be negotiated, managed and implemented as a sector.

Integration with Mainland China. The DTTN can lead change. By helping Hong Kong lead the development of the PRD regional economy through the use of the DTTN as an anchor to secure market position and facilitate integration in the areas of logistics and supply chain management. The DTTN can become the de-facto standard for other emerging initiatives in Mainland China. Compatibility between Hong Kong and Mainland Chinese e-commerce infrastructures will be essential. With this common and neutral information infrastructure in place, Hong Kong businesses can leverage the DTTN to provide logistics services to the Mainland Chinese market.

Induce changes to improve IT literacy of the industry. The DTTN will change the way in which local businesses operate, and induce continuous improvement in the standard of IT literacy of the existing workforce. The consequences will be of particular relevance to SMEs. Traditional processes in the current paper-centric SME environment have effectively discounted the drive for change and made them unprepared for the demands of electronic transactions that are now being mandated in international trade. The DTTN can help to provide good business reasons, benefits and a persuasive argument for SMEs to adopt new and more efficient business practices. For example, use of the DTTN will offer a simple low cost means to extend their business reach and improve effectiveness and efficiency through the use of e-commerce in a global market. The need to achieve incremental growth in the use of IT and e-commerce is seen as a critical factor if the overall competitiveness of Hong Kong is to be significantly improved.

Response to competitive challenge. The concept of the DTTN is not unique to Hong Kong. Some neighbouring competitive economies (e.g., Mainland China, Singapore, etc.) have plans to implement, or have already implemented to various degrees, similar e-logistics infrastructures designed to maintain or enhance their competitive advantages and to reap potential benefits associated with improvement in operational efficiency. These developments leave little time margin for Hong Kong to hesitate about implementing the DTTN program.

Improve Hong Kong’s image. Complementing “Digital 21”, the Government’s e-Government blueprint, the establishment of the DTTN will unequivocally deliver a positive and assertive


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message to the public and the international business community that Hong Kong is committed to harnessing the benefits of IT. Hong Kong can promote e-commerce for global logistics as part of a clear strategy to be the leader in the adoption of IT in a cyber world.

Shield the industry from frequent upgrades. The DTTN will enable significant efficiency gains across the entire trade and logistics sectors by centralising, consolidating and managing around a defined set of standards and protocols for both technology and messaging. A centrally managed DTTN can effectively shield stakeholders in the trade and logistics sector from the effects of frequent upgrades in standards and protocols, and thereby reduce the in-house resources required.

1.2 What is the DTTN?

1.2.1 Objectives and scope The DTTN is a platform that provides interconnection among the industry stakeholders and related community systems to facilitate information flow and enhance efficiency. It will facilitate the Business Process Interconnect (BPI) requirements of industry and provide a platform to promote development of new business opportunities. The existence of a common and shared user platform with defined standards and protocols will attract existing suppliers and spawn the development of new businesses including logistics software development, value added services etc., which will contribute to the development of the Hong Kong economy and create employment. The scope of the DTTN will include nine major communities: (1) buyers/ importers, (2) sellers/ exporters, (3) freight forwarders including third party logistics service providers, (4) carriers (ocean, river, road, rail and air) including express integrators, (5) terminals, (6) government and its agencies, (7) banks and financial institutions, (8) insurance companies, and (9) inspection agencies. These industry stakeholders are involved at different stages in the trade chain and they are closely related to one another. The DTTN will co-exist with, and complement, offerings provided by the various service providers and existing community systems operating in Hong Kong. The DTTN is also not seen as a competitor to the commercial Application Service Providers (ASPs) or Internet Service Providers (ISPs), or of the global network providers since it will lead to a greater take up of e-commerce techniques in the region to the ultimate benefit of the commercial sectors. As a result of this study, a set of overarching principles have been identified and discussed with the Project Steering Committee and the E-logistics Project Group to guide the development approach for the creation of a DTTN for Hong Kong.

1. Improve overall competitiveness of Hong Kong. The DTTN should improve the overall competitiveness of the trade and logistics industry in Hong Kong. This should be in the form of improved efficiencies and effectiveness, and provide an infrastructure to enable new business opportunities. This objective can be facilitated by the provision of an effective and common low cost communications infrastructure.

2. Neutrality. The DTTN should be perceived by all the DTTN stakeholders as a neutral platform for its services to be performed. Neutrality in this context refers to the intention and ability of an entity to provide a level-playing field for all stakeholders without undue bias towards any particular players. The entity must therefore be perceived by the stakeholders as free from real or potential conflict of interest or sector influence.


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3. Non-exclusivity. The DTTN should provide fair access to all relevant stakeholders without discrimination.

4. Transparent, accountable, and responsible operations. As the DTTN will be handling commercially sensitive information; it should be subject to the strictest scrutiny and control to ensure integrity, transparency, accountability and open responsibility for its operations.

5. Minimum intervention to internal business process and client relationship. The DTTN should not in any way alter or dictate the industry players’ internal processes and/ or customer relationships. The DTTN should be flexible enough to allow participants to leverage the information infrastructure at any point of the document/ data/ trade flow, according to their own business practices.

6. Facilitate and respect market force. The minimum intervention policy in business that has long been adopted by the HKSAR Government should continue to be observed. The DTTN should act as the neutral facilitator for market forces to develop business opportunities.

7. Easy to access and use. The design of the DTTN should be user-friendly, intuitive and participant centric. Multiple low cost choices of simple access channels should be provided to facilitate local and global communications for SMEs and larger corporations alike.

1.2.2 The DTTN model The DTTN environment can be illustrated as structured into three layers as shown in Figure 1-1. Layers 1 and 2 are the core elements of the DTTN. They lay the foundation of the DTTN and provide a conducive environment for the continued growth of the third layer – the value added services. Collectively, layers 1, 2 and 3 form the DTTN.

Standards and protocols

Core messaging infrastructure

Layer 3: Value- added services (e.g., solut ions for mult i- modal integrat ion, distribut ion & transportat ion management and inventory management, etc.) are primarily driven and provided by the private sector.

Layer 2: An open, neutral, secure, reliable and shared electronic infrastructure that connects validated part icipants using a set ofstandardised electronic business messages.

Layer 1: Standards and communicat ions protocols between the DTTN and its part icipants.

Value-added

services

Figure 1-1 Three-layer model of the DTTN

Layer 1 - Standards and protocols. The core foundation of the DTTN lies in a defined but flexible set of standards and protocols that the DTTN will support. This will cover the standards and protocols in different areas (e.g., message standards, coding standards, security standards, communications protocols, etc.), and will form the basis for the messaging infrastructure in the layers above. Rather than being exclusive, the DTTN will support a wide range of locally and internationally recognised “open” standards and protocols, as inclusive as practicable.


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Layer 2 - Core messaging infrastructure. An open, neutral, secure, reliable, accessible and shared electronic infrastructure that connects validated participants to facilitate BPI using a set of agreed electronic business message standards and communications protocols.

Layer 3 - Value-added services. The end – user service layer that will represent the interface for communication with existing and further development of third party services to users of the DTTN. Layers 1 and 2 are the DTTN basic common user functions that will provide a conducive environment for the continued growth of layer 3, that is driven and provided by the private sector.

1.2.3 Functional blueprint Any industry stakeholder with appropriate means (i.e., Web browser, system gateways and an e-mail application) can interface with the DTTN, either directly or indirectly. The industry can leverage the DTTN to explore business opportunities and develop new service offerings. The DTTN is an industry wide infrastructure that allows businesses to communicate electronically to support trade and logistics transactions. It is envisaged that the DTTN will support this objective through the provision of six services:

Electronic message routing services – facilitates communication among stakeholders by routing business messages and provides guaranteed delivery. For example, this includes the routing of payment instructions and payment confirmations among financial institutions, payers and payees for the settlement of trade related services.

Data inheritance services – supports both inter- and intra- company data inheritance. Participants can choose to reuse relevant business data wherever appropriate along the end-to-end trade and logistics business processes. Inter-company data inheritance is supported through electronic message routing and transformation services.

Electronic message transformation services – supports the transformation of commonly adopted message formats and character encoding from one standard to another such that the implementation and maintenance costs for individual companies are minimised. This is the “any to any” function where a message can be received by the DTTN as, for example, an Electronic Data Interchange (EDI) transmission in a particular standard, translated or converted to another standard, and delivered to the recipients choice of media as a Fax, EDI message, e-mail attachment etc.

Information security services – provides a secure communication environment such that participants will have mutual confidence. Messages sent through the DTTN can be encrypted and authenticated to ensure the confidentiality, integrity and non-repudiation of the messaging services.

Statistical and analytical reporting services – supports the reporting requirements (e.g., transaction log with audit information such as time of sending, recipients, status of the message) at both individual company level and macro level with proper privacy control.

Portal services

• Message management – provides a Web-based graphical user interface for participants to construct, send, receive and re-use their business messages in an interactive manner.

• User profile management – provides a set of administrative tools for participants to manage their own accounts and profile information stored in the DTTN.


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• Single sign-on – supports single sign-on capability such that participants can acquire services from multiple service providers by signing-on only once in the DTTN.

• Access to value-added services – allows participants to invoke services offered by service providers or other participants via the DTTN portal.

The functional blueprint of the DTTN is depicted in Figure 1-2 below.

. …

Community

The DTTNEl

ectr

onic

mes

sage

rout

ing

serv

ices

Portal services

Electronic message transformation services

Data inheritance

services

Statistical and analytical reporting services

Info

rmat

ion

secu

rity

serv

icesTradelink

INTTRA

Bolero

TradeCard

Other service providers

GT Nexus

CargoSmart

Government & its agencies

HK SAR Overseas


HK SAR Overseas

Terminals

Air Sea

Terminals

Air Sea

Freight forwarders

Insurance companies

Inspect ion agencies

Banks and financial

inst itut ions

Sellers/ exporters

Buyers/ importers

Carriers

Sea Air

Truckers Rail

Carriers

Sea Air

Truckers Rail

Figure 1-2 Functional blueprint of the DTTN

In addition to those communities and businesses involved in the trade and logistics processes, service providers will also be key stakeholders of the DTTN. Generally, service providers offer software solutions and services which assist customers to achieve better efficiency and effectiveness in their supply chain and logistics operation, as well as better integration with their business partners along the supply chain or trade flow. Third party service provision is a vital component of the DTTN model. The DTTN provides a flexible, neutral and open infrastructure to enable service providers to further extend their offerings and deliver additional value added services. Service providers will enjoy benefits from the DTTN in a number of ways:

By reducing infrastructure cost to deliver their services

By extending their business reach in terms of customers and business partners

By improving speed to market for their value-added offerings

By focusing resources on the development and delivery of value-added services


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Historically, messaging services were provided in closed and proprietary environments as Value Added Network (VAN) services usually associated with traditional EDI (store and forward) methods of conducting e-commerce. Since the emergence of the Internet, many service providers are now delivering their messaging services as “point to point” communications. These are offered together with other value added services delivered over the Internet as ASPs or ISPs. Since there is no network processing cost this latter form of Internet communications is significantly less expensive than the traditional VAN. However, since the DTTN can be accessed from a VAN or any ISP and can offer access to an ASP it can offer an alternative communications channel for these service providers. DTTN will offer non-exclusive access to a valuable community of users that will generate a competitive market for all service providers.

1.2.4 Technical blueprint The technical blueprint for the DTTN design is characterised by the following attributes:

Componentised and modular. The model technical architecture for the DTTN has been developed based on a modular and componentised architecture to protect investment, allow more technology choices, facilitate upgrades, and improve scalability.

Robust, secure and reliable. The proposed DTTN architecture balances proven technology options and new, emerging technologies. Security, reliability, high availability and other critical features (e.g., guaranteed delivery, non-repudiation, etc.) of the messaging infrastructure were taken into account in the architectural development.

Open and accessible. The architecture will support multiple standards and protocols in different areas (e.g., multiple message standards, multiple coding standards, etc.), and provide flexibility to accommodate convergence over time. To broaden usage and encourage adoption, multiple channels and open access mechanisms were emphasised. The details of the connectivity module of the DTTN will be open and published to encourage the integration and development of other value-added services for the DTTN.

Technically, the DTTN is a messaging hub that provides a transformation service and facilitates the communication among various trading parties through the exchange of messages conforming to a set of defined and agreed message standards. As illustrated in Figure 1-3, the DTTN leverages the Internet as the public network infrastructure to transfer information from the sender to the recipient.


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Inte

rnet

Inte

rnet

Com

mun

icat

ions

gat

eway

ser

vice

s

Information storage services

The DTTN

User profile management services

Message management servicesMessage

routing services

Message transformation

services

Message routing services


services Statistical & analytical reporting services

Information portal services

Info

rmat

ion

secu

rity

serv

ices

System gateway(Web server)

SMS gateway

System gateway(mail server)

System gateway(FTP server)

E- mail application

Web browser

SMS- enabled mobile terminal

Interact ive Web communicat ionover HTTP/ S

ebXML message over HTTP/ S

ebXML message over SMTP

E- mail message over SMTP

SMS message

File documentover FTP (leased line)

ebXML message

over HTTP/ S or SMTP

HTTP/ S

SMTP

Access channels

Figure 1-3 Overview of the DTTN architecture

1.3 Summary of institutional framework DTTN should be considered in the light of effective use of public resources against the Policy Statements that show the development of the Logistics Sector infrastructure as high priority for Hong Kong. A key consideration for the DTTN has been the definition of the options for the institutional governance models for effective neutral delivery of services to the industry. Three potential institutional models were considered for the establishment, funding, and ownership of the DTTN:

An entity entirely owned by commercial operators

A community-based company that may have Government as one of the stakeholders

A government-led model. This model can be implemented through either:

• A new statutory body owned by the Government

• A private company fully or partially owned by the Government initially but may be hived off to the private sector when circumstances permit

• A public corporation established by the Government to provide public services, either through transfer of assets or injection of equity

An analysis of the various options was conducted taking into account the results of a Strength, Weakness, Opportunities and Threats (SWOT) analysis, the confirmed guiding principles for the DTTN, and the experience of overseas operations. It was suggested that any of the institutional models considered would work for the DTTN if they can satisfactorily address the identified weaknesses through appropriate means, as discussed below.

1.3.1 A commercial entity

If a viable commercial entity can achieve a balance between the aims of maximising its shareholder value through profit and improving the overall competitiveness of Hong Kong and


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that entity is perceived by the industry stakeholders as neutral and non-exclusive, then the commercial entity can be a viable option.

• Neutrality in this context refers to the intention and ability of a commercial entity to provide a level playing field for all industry stakeholders without undue bias towards a particular sector. This entity must therefore be perceived by all stakeholders as free from real or potential conflict of interest which would otherwise compromise the stakeholders’ interests.

• Non-exclusivity relates to the provision of fair access to all stakeholders. This implies that no means or measures should be used by the DTTN’s operator to preclude particular groups of customers from using the DTTN in practice, and thereby create undue competitive advantage for some stakeholders.

1.3.2 A community-based company

This model is a proven model adopted for similar initiatives overseas (e.g., Australia’s Tradegate, the U.K.’s Felixstowe Cargo Processing System (FCPS)/ Destin8).

This model is predicated on gaining wide ranging industry support to the agreed solution. To achieve this will require strong neutral leadership with perceived neutrality to drive the DTTN program. This is a particularly important factor to be considered for the extremely fragmented logistics industry in Hong Kong that is largely an SME domain.

Funding is a key concern for this institutional model. SMEs, are the largest sector, weakest financially, and the most fragmented community in the logistics industry. As such they are unlikely to have the ability to contribute to the funding of the DTTN in the short term. Indeed it may be necessary to provide financial support, subsidy or incentive for the SMEs to participate in the DTTN.

1.3.3 A government-led entity

Some similar overseas initiatives that were studied are owned either fully or partially by the Government (e.g., the Netherlands’s W@VE1, the U.S.’s Freight Information Real-time System for Transport (FIRST)).

Be it in a form of statutory body, government-owned company, or public corporation, the key challenge for a government-led entity is to progress the DTTN initiative in the shortest possible time, given the time required for funding approval and possible legislation.

Public resources are always limited and must be used in an effective, accountable and transparent manner. Government will assess initiatives and allocate public funding appropriately to support those with high priority, i.e. initiatives that represent the most effective use of public resources and can only be implemented with the support of public funding.

1.4 Next steps During the study, a series of baseline estimates were developed including indicative benefits, implementation timeframe and investment requirement associated with creating the DTTN. These estimates were developed for two reasons: firstly to provide a perspective on the order of 1 Web Application voor Voormelden met EDI (English equivalent: Web @pplication for EDI)


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magnitude of a program of this nature; and secondly to provide a baseline against which the alternative options can be measured. The highlights of this baseline analysis are:

Benefits. The DTTN will deliver an estimated total benefit of HK$11.8 billion2 to the trade and logistics industry over a 17-year timeframe.

Implementation timeframe. Releases 1 and 2 of the DTTN development are both estimated to take around 12-15 months after the necessary funding approval and mobilisation.

Investment requirement. In total, the direct investment to develop and operate the DTTN over a 17-year timeframe is estimated to be around HK$3 billion.

During the Study, a number of industry participants and service providers expressed their interest or willingness to create, own and/ or operate the DTTN for Hong Kong. Indeed more than one commercial entity has claimed to be capable of doing so at less cost and in a shorter timeframe. Clearly, there is recognition of the need for, and a strong interest and willingness within the industry to create the DTTN. However, there remain two challenges that need to be addressed:

1. Industry acceptance. Any operator of the DTTN will require broad support from the logistics community as a whole to maximise the number of participants over time. They will need to demonstrate neutrality, integrity, financial standing and a commitment to comply with the guiding principles.

2. Involvement of SMEs. The full realisation of the DTTN value propositions is based on gaining SME involvement and active participation. Strategies and actions will be required to allow these important members to actively participate in the DTTN and reap the rewards accordingly.

To address these challenges and sustain industry support for the DTTN it is recommended that the Government continue to lead the next stages in the development of the DTTN. Specifically, it is recommended that the Government take the following immediate next steps:

Explore various collaboration approaches with the private sector to jump-start the DTTN program, and formulate an appropriate sourcing strategy for the program. Any solution must address both the supply side of the equation (i.e., delivery of the DTTN at the lower level of investment and in a quicker timeframe) as well as the demand side (i.e., adherence to the basic blueprint functions and business principles). This will require strong leadership and negotiation skills.

Determine the appropriate financial contribution, either direct or indirect, that the Government may be required to make. This financial contribution could take the form of direct cash injection as an investor in the DTTN or indirect contribution such as tax breaks or subsidies to the participants of the DTTN.

Develop and conduct a structured, transparent, and accountable process to invite business and technical proposals for the development and/ or operation of the DTTN. The process should be designed to ensure the DTTN addresses industry requirements on a minimalist, neutral, low cost basis with the necessary control mechanism to ensure compliance with the guiding principles. The baseline scenario developed will serve as the objective benchmark for comparing alternatives.

2 On a conservative basis, only benefits from operational efficiency improvements are included in the estimation with corresponding DTTN adoption rate assumption. Strategic benefits are not quantified here.


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Continue to engage the logistics industry to sustain the momentum of the initiative. The industry will need to be consulted on any proposals to develop and/ or operate the DTTN.

The role of the Government in this respect will be twofold: on one hand the Government will act as the negotiator on behalf of the industry to deal with potential DTTN operators, and to refine and produce a proposal acceptable to the industry at large; on the other hand the Government will act as the facilitator for the industry to select and obtain buy-in for an appropriate proposal for the DTTN program. The involvement of PMLDU should continue and be expanded as necessary to play these roles.

Enlist participation from the industry in the establishment and ongoing operation of the DTTN. The Government should help secure participation from the industry in the DTTN during its establishment and ongoing operation. The Government should lead by example and demonstrate its commitment through:

• Offering to promote the DTTN to overseas countries through established official channels for trade related matters; and

• Taking actions to ensure the participation of SMEs in the DTTN including further education and if appropriate financial assistance to acquire necessary IT equipment/ training.

Background Final Report

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2 Background In June 2002, the Government, through the PMLDU commissioned a study for the development of the DTTN system to support the development of Hong Kong as an International Logistics Hub. The objective of the study was to determine and recommend the options for developing the BPI project that would enhance and facilitate data sharing and exchange amongst the existing and new communities in the supply chain industry. Specifically, the study was required to:

Develop a functional and technical blueprint of the DTTN

Recommend the standards and protocols to be supported by the DTTN

Estimate the baseline cost to develop and operate the DTTN

Determine the options for the ownership, management and governance structures of the DTTN The realisation of the DTTN will have far-reaching impacts on the trade and logistics industry and will provide what the industry has advocated in order to improve its overall competitiveness – an integrated, secure in terms of impartiality and confidentiality, and cost effective infrastructure supporting the exchange of information for the industry.

2.1 Approach to the study The study was conducted over a five and a half month period. The focus of the study was to develop a blueprint for the DTTN and engage the trade and logistics industry in developing the vision. To that end, the study involved over 100 interviews, workshops and meetings with representatives from each community. During those meetings, the participants provided their opinions and comments on their existing interactions with other industry players to perform trade-related processes, and how these interactions could be improved. In addition, the participants were asked for their expectations of how an information infrastructure such as the DTTN would make it easier for them to conduct business. This final report is a result of a number of working papers which address the following aspects in the course of this study:

The existing trade interactions between different trade and logistics communities were studied. Improvement opportunities associated with these interactions were identified and initiatives were proposed to capitalise on these opportunities.

The level of IT sophistication and e-readiness of the trade and logistics industry in general, covering both corporations and SMEs, were studied.

A review on six major international port community systems3 – Dakosy4 (Germany), FCPS/ Destin8 (The U.K.), FIRST (The U.S.), Portnet (Singapore), Tradegate (Australia) and W@VE (The Netherlands) was conducted. The focus of the review was to understand the community coverage, functionalities, access channel, and governance structure adopted by each of these systems.

Major technical standards and protocols were surveyed. An assessment was made to suggest appropriate standards and protocols to be incorporated in the DTTN.

3 A port community system is defined as an information system that provides application services to link up the port with other communities as defined in this study. 4 Datenkommunikationssystem (English equivalent: Data Communications System)


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A technical architecture was developed to support the business requirements articulated by the industry representatives and the proposed improvement initiatives. In addition, the baseline cost to develop and operate the DTTN was estimated and incorporated in an overall baseline financial case.

A set of value propositions for the industry stakeholders associated with the DTTN was set out. It described the business values created for stakeholders by using the DTTN. Strategic and operational efficiency improvement benefits associated with these initiatives were discussed and quantified as appropriate. Potential investment items (e.g., connectivity cost, hardware cost, implementation cost, etc.) that may be incurred for the use of the DTTN were also discussed.

A baseline business case was developed and high-level financial analyses were conducted. Indicative levels of service fees chargeable to participants were estimated based on a cost-recovery model.

A range of alternative institutional models were analysed and considered. The analysis of the various options took into account the results of a SWOT analysis, the confirmed guiding principles for the DTTN, and the experience of overseas operations.

2.2 Overview of the current situation of the local trade and logistics industry With its geographical position, Hong Kong has long been the principal gateway of Mainland China and the pre-eminent trading centre in the Asia Pacific Region. However, with the advancement of information technologies and the evolution of a global economy, Hong Kong needs more than its natural geographic advantage to compete effectively. In recent years, many neighbouring cities and countries have moved to create more open and efficient trading environments, at the same time upgrading their infrastructure capabilities to capture more trade and logistics activities. To remain competitive in Asia, it is imperative for Hong Kong not only to continue to leverage its excellent trade and transportation network, but to enhance the trade and transportation communities’ efficiencies as a whole and on a wider basis to include the PRD, China and the global trading community. Despite its strategic importance to our economy, the adoption of information technology for efficiency enhancement has not been popular among the trade and logistics industry, especially among the SMEs. Paper-based processes dominate and paper is still the prevailing channel of communication. Substantial time and resources have to be allocated in delivering physical documents, as well as in manual data re-input processes and reconciliation that are inefficient and prone to error. More importantly, critical information is not shared in an accurate and timely manner to ensure integrated and smooth execution throughout the value chain and to reduce wastage to the minimum. Companies in all links of the trade and logistics value chain have recognised that, inefficiencies in the existing trading processes must be reduced if they are to survive in an increasingly global and competitive market. For large-scale enterprises, dedicated EDI networks have been built to automate communication of critical data and to manage transactions electronically. Since the acceptance of the use of the Internet for business transactions numerous B2B exchanges and application service providers have attempted to streamline the processes and resolve inefficiencies with the help of new technologies. However, these improvements are not without constraints and are of limited value to the SME in particular:

The interchanges are usually through point-to-point connections using proprietary data communications standards. Substantial resources are required for operation and maintenance.


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SMEs are often neglected due to their limited purchasing power, making them unable to realise the savings associated with technology advancements.

The improvement initiatives usually require radical changes to the companies’ daily operational procedures to fit the particular solutions being used.

The initiatives are either with a single company focus or within a specific vertically focussed community such air transportation or the textile or toy traders. The inability to communicate with other logistics or service initiatives or platforms has led to a situation where electronic data interchange implementations in the Hong Kong logistics industry is piecemeal and fragmented. Data inheritance or sharing in an end-to-end trade flow is not feasible in most cases. The information and data flow is therefore sub-optimal, and consequently the expected efficiency gains are difficult and often impossible to achieve.

To encourage the application of information technology and to reap the full benefits of enhanced efficiencies, a central facilitator that can connect these islands of initiatives is critical. This fact has long been expressed by the Hong Kong trade and logistics communities. There is an urgent need for an integrated infrastructure to be established to provide a comprehensive end-to-end coverage of electronic trade document transmissions across companies and communities, and to address the needs for extended connectivity.

2.3 Overseas experience in handling similar situations Several regions have already developed an infrastructure to support the logistics industry. Their experience in establishing their respective infrastructures forms an important input to shape the DTTN model. Since the 1980s, several overseas countries started developing port community systems, with the target of enabling a more efficient trade and transportation flow using information technology. Most of them started with the idea of facilitating information exchange in a paperless way, as well as reducing re-keying of information involved in the trade and transportation flow. This was achieved through the setup of a communications system to connect with different communities usually starting with the Customs service. After achieving their objective of establishing connectivity, these systems evolved to provide more and more value-added services as required by different communities, to automate business processes and enhance supply chain visibility. The “track and trace” function is now a common feature provided in most systems. The following six major port community systems were examined as part of this study with particular focus on the community coverage, access channel and functionality, as summarised in Table 2-1.

Portnet of Singapore

W@VE of The Netherlands (Port of Rotterdam)

FCPS/ Destin8 of the United Kingdom (Port of Felixstowe)

Dakosy of Germany (Port of Hamburg)

Tradegate of Australia (National)

FIRST of the United States (Port of New York and New Jersey)


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Table 2-1 Summary table of community coverage, access channel and functionality supported by the overseas port community systems

2.3.1 Brief overview of the port community systems Singapore, The U.K. and Germany were the early-adopters of port community systems. These port community systems were established in the early 1980’s with proprietary technologies focused on the transmission of EDI messages through a local private network or VAN service providers. They proved to be very successful and experienced high adoption rates but were also expensive for participants to operate. With the advancement of Internet technology, these systems have been upgraded to support more open and less costly interfaces (such as Web-based technology). This allowed even more companies, especially SMEs, to participate. These systems provide seaport integration with other modes of transportation such as rail and road hauliers, etc. These systems cover six communities, including government and its agencies, buyers/ sellers, terminals, carriers, freight forwarders, and importers/ exporters. Tradegate of Australia was initially established as a community-based e-commerce facilitator in the late 1980’s to establish a nationwide “backbone” communications network for the electronic exchange of documents and information among members of Australia’s trade and transportation community. It also provides its participants with business applications, which can be accessible through a Web-based channel. From an integration perspective, Tradegate had set up an agreement with the Australian Customs Service for having exclusive access to a specific set of Customs-related value-added services on behalf of (at that time) the Customs Brokers Council of Australia5. In addition, Tradegate has wider community coverage than the other five case studies – it also includes the financial community (i.e., banks) to provide payment services for payment to logistics service providers. 5 The exclusive arrangement between Tradegate and the Australian Customs Service is being terminated and will be replaced with a more open access regime in 2003. (Source: Press release of 23 August 2002 at: http://www.tradegate.org.au/news-centre/press-release/press-release.htm).


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FIRST of The U.S. and W@VE of The Netherlands were established in 2001 and 2000 respectively with a Web-based platform that enables the interchange of EDI messages. They were designed with a more specific focus: W@VE mainly serves sea freight and road hauliers, whereas FIRST provides a specific set of services for integrating road hauliers, shipping lines and container terminals.

2.3.2 Lessons learnt There were several common characteristics exhibited by these examples. 2.3.2.1 Connectivity-focus The first objective of these systems was to create a connected logistics industry through a platform on which electronic information can be exchanged. This focus was achieved before trying to create value-added services in the trade cycle. 2.3.2.2 Neutrality Since most systems need to handle sensitive trade-related commercial information, neutrality is the primary concern of stakeholders to ensure that data stored within the systems will not be misused. This is usually accomplished by adopting an appropriate system ownership arrangement. As an example, for the cases of Australia, The U.K. and Germany, their systems are owned by community-based entities so as to ensure the neutrality of the systems through basically “not for profit” models where revenue surplus is re-employed in development. For the cases of Singapore, The Netherlands and The U.S., their systems are owned by a government-based entity. 2.3.2.3 Non-exclusivity All systems were designed to give access to all stakeholders without discrimination. This principle of non-exclusivity naturally extends to the avoidance of using various instruments/ mechanisms to deter usage in practice that leads to undue competitive advantages for some stakeholders. For example, these systems are designed such that corporations can directly interface with them, while SMEs can access through a Web-based interface. 2.3.2.4 Openness Openness is another important factor for stakeholders to send or receive information freely from the systems. For example, these systems provide a Web-based interface to allow participants to access them through an open and public medium – the Internet. Moreover, these systems support open message standards such as United Nations Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) and American National Standards Institute X12 (ANSI X12) to facilitate data exchange and sharing. Currently, conventional EDI is still the dominant messaging standard adopted in these systems. However, some of these systems are planning to incorporate the Internet standard eXtensible Markup Language (XML) in their future developments.

The DTTN Model Final Report

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3 The DTTN model

3.1 What is the DTTN? The DTTN is an open, neutral, secure, reliable and shared electronic infrastructure that connects validated participants using a set of standardised electronic business messages, as depicted in Figure 3-1:

The DTTN will facilitate communication and enable interoperability among its participants by:

• Receiving electronic messages from senders

• Processing the received electronic messages (including decryption/ encryption, authentication, data conversion and data inheritance, etc.)

• Forwarding electronic messages to recipient(s)

By reducing the investments in electronic infrastructure required by participants, the DTTN will free participants to more directly invest in building commercial competitive advantage.

. …

Community

The DTTN

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Portal services

Electronic message transformation services

Data inheritance

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INTTRA

Bolero

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GT Nexus

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HK SAR Overseas


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Terminals

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Freight forwarders

Insurance companies

Inspect ion agencies

Banks and financial

inst itut ions

Sellers/ exporters

Buyers/ importers

Carriers

Sea Air

Truckers Rail

Carriers

Sea Air

Truckers Rail

Figure 3-1 Functional blueprint of the DTTN

The DTTN will cover nine major communities: (1) buyers/ importers, (2) sellers/ exporters, (3) freight forwarders including third party logistics service providers, (4) carriers (ocean, river, road, rail and air) including express integrators, (5) terminals, (6) government and its agencies, (7) banks and financial institutions, (8) insurance companies, and (9) inspection agencies. These industry stakeholders are involved at different stages in the trade chain and they are closely related to one


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another. The DTTN will co-exist with, and complement, offerings provided by the various service providers and existing community systems and services operating in Hong Kong.

3.2 Guiding principles A set of overarching principles have been identified and discussed with the Project Steering Committee and the E-logistics Project Group to guide the development approach for the creation of a DTTN for Hong Kong.

3.2.1 Principle 1 – Improve overall competitiveness of Hong Kong This is one of the most frequently cited principles that must be observed. The DTTN should improve the overall competitiveness of the trade and logistics industry in Hong Kong, in the form of improved efficiencies and effectiveness. The DTTN should also provide an infrastructure to achieve this objective and enable new business opportunities with minimal cost to the industry. Further, time to market is regarded by the industry as a critical factor for the success of the DTTN especially as some overseas countries have already taken a lead in implementing e-logistics infrastructures.

3.2.2 Principle 2 – Neutrality Our study found that the DTTN will only attract participants if it is perceived to be a neutral platform for the conduct of services. Neutrality in this context refers to the intention and ability of an entity to provide a level-playing field for all stakeholders without undue bias towards particular players or industry sector. This consideration should be reflected in the context of the institutional arrangement, which must convince the industry stakeholders that the neutrality of the DTTN will be upheld and the entity must therefore be perceived by the stakeholders as free from real or potential conflict of interest.

3.2.3 Principle 3 – Non-exclusivity This principle is, to some extent, linked to the Principle 2 – Neutrality. The DTTN should provide fair access to all industry stakeholders without discrimination. This principle naturally implies that the operator of the DTTN should not preclude some segments of stakeholders from using the DTTN in practice, to avoid undue competitive advantages accruing to those industry stakeholders that do have access.

3.2.4 Principle 4 – Transparent, accountable, and responsible operations This was another frequently cited principle that must be adhered to if the DTTN concept is to be successfully implemented. This is understandably the case as commercially sensitive information will be passed through the DTTN, therefore the DTTN should be subject to the strictest scrutiny and control regarding its transparency, accountability and responsibility for its operations. The trade community must be assured that transactions involving confidential and mission critical information will not be misused in any way.


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3.2.5 Principle 5 – Minimum intervention to internal business processes and client relationships

Each industry stakeholder has its way of conducting business (the internal business processes) and of interacting with business partners (the established external business relationships). These are the competitive strengths that a stakeholder relies on in order to compete. The industry has clearly indicated that the DTTN should only provide data interchange capabilities and should not in any way alter or dictate internal processes and/ or customer relationships. As such, the disturbance and impact to business operations is required to be minimal. The DTTN should also be flexible enough to allow participants to leverage the information infrastructure at any point of the document, data, and trade flow, according to their own business practices.

3.2.6 Principle 6 – Facilitate and respect market forces The longstanding Government policy of minimal intervention in business should continue to be observed. The DTTN should act as a facilitator for market forces to develop business opportunities. This has two key implications:

The DTTN should be the basic infrastructure to facilitate or complement businesses and should not be in a position that competes with other existing private sector initiatives over the provision of value-added services; and

The DTTN should be considered as a value-added service provider only when there are industry segment needs that cannot be satisfactorily fulfilled by the commercial market, and that non-fulfilment may lead to adverse impact to the DTTN community as a whole.

3.2.7 Principle 7 – Easy to access and use The design of the DTTN should be user-friendly, intuitive and participant centric. Multiple options for low cost user choice access channel should be provided to facilitate communications for SMEs and corporations alike.

3.3 Three-layer model of the DTTN The DTTN environment can be illustrated as being composed of three layers as shown in Figure 3-2. Layers 1 and 2 are the core elements of the DTTN. They lay the foundation of the DTTN and provide a conducive environment for the continued growth of the third layer – the value added services. Collectively, layers 1, 2 and 3 form the DTTN.


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Standards and protocols

Core messaging infrastructure

Layer 3: Value- added services (e.g., solut ions for mult i- modal integrat ion, distribut ion & transportat ion management and inventory management, etc.) are primarily driven and provided by the private sector.

Layer 2: An open, neutral, secure, reliable and shared electronic infrastructure that connects validated part icipants using a set ofstandardised electronic business messages.

Layer 1: Standards and communicat ions protocols between the DTTN and its part icipants.

Value-added

services

Figure 3-2 Three-layer model of the DTTN

Layer 1 - Standards and protocols. The core foundation of the DTTN lies in a defined but flexible set of standards and protocols that the DTTN will support. This will cover the standards and protocols in different areas (e.g., message standards, coding standards, security standards, communications protocols, etc.), and will form the basis for the messaging infrastructure in the layers above. Rather than being exclusive, the DTTN will support a wide range of locally and internationally recognised “open” standards and protocols, as inclusive and flexible as practicable, for participants to interact with the DTTN.

Layer 2 - Core messaging infrastructure. An open, neutral, secure, reliable, accessible and shared electronic infrastructure that connects validated participants to facilitate BPI using a set of agreed electronic business message standards and communications protocols. The DTTN will provide conversion function that converts a message from one of the supported message formats (e.g., UN/EDIFACT, ANSI X12, etc.) to another during the routing process.

Layer 3 - Value-added services. The end-user service layer that will represent the interface for communication with existing and further development of third party services to users of the DTTN. Layers 1 and 2 are the DTTN basic common user functions that will provide a conducive environment for the continued growth of layer 3, that is driven and provided by the private sector. It is open to service providers to explore business opportunities and develop new service offerings by leveraging the messaging infrastructure. For example, value-added services for multi-modal transport arrangements can be developed to facilitate the movement of freight. Another example is the provision of advanced supply chain management services (e.g., distribution management and transportation management, etc) to companies in Hong Kong and the PRD region.

3.4 Roles of the DTTN With the key social objective established as being the need to enhance the overall competitiveness of the logistics industry in Hong Kong, the DTTN must play three major roles:

To offer a neutral e-platform to facilitate information flow and service integration both in the region (especially with the PRD) and globally – making HK the e-logistics hub of choice. The


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DTTN as a secure and neutrally operated low cost common infrastructure can act as a conduit to streamline and automate data communications among the many players in the trade and logistics community both locally and internationally and so significantly improve the flow of both goods and information. The DTTN, when supported by both public and private organisations, can also facilitate the compliance of local businesses with overseas regulatory requirements. Having the DTTN as the focal point of logistics communication policy and global connectivity will ensure that changes in regulatory requirements and the effects of international trade initiatives can be more easily accommodated centrally with minimal compliance cost at the SME business and social level.

To provide a stable and reliable environment and a state of the art technology platform for the exploration, development and delivery of innovative value-added services. The DTTN can facilitate the provision of an open shared common electronic infrastructure to enable the development of services to improve the competitiveness of players in the trade and logistics community. Being the market enabler, DTTN is not intended to replace or compete with the private sector or existing service providers but can rationalise the technology directions and ensure the provision of a shared user infrastructure to enable cost-effective electronic business-to-business interoperability. The DTTN will complement the business and IT environment of Hong Kong to increase the efficiency of the processes and thus improve the flow of goods and information. The DTTN can effectively increase the scale of the market available to the trade and logistics industry in Hong Kong by the provision of a globally recognised communications infrastructure.

Catalyst to promote electronic business adoption, especially by SMEs. The marketing of the benefits and the associated efforts to manage the adoption of the DTTN will serve as a catalyst for the trade and logistics community, especially SMEs, to adopt information technology and take up electronic commerce to improve the overall competitiveness of the logistics industry and of Hong Kong. Education, training, general technology awareness programs, implementation assistance, and incentive schemes have all been identified as potential benefits to the SME sector.

3.5 Scope of the DTTN The scope of the DTTN is described in the following dimensions:

Community coverage – describes the communities that are expected to be the stakeholders, participants and beneficiaries of the DTTN

Trade and logistics business processes to be supported – identifies the critical business processes underlying the trade and logistics business flows and BPI to be supported and facilitated by the DTTN

Key business requirements of the DTTN– describes the key business requirements which shape the design of the DTTN

The DTTN access channels – describes the access channels for the participants to connect to the DTTN

3.5.1 Community coverage A number of industries are involved in the end-to-end trade and logistics business flow. The players in these industries are expected to be the stakeholders, participants and beneficiaries of the DTTN. They can be broadly grouped into nine categories:


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1. Sellers/ exporters - the seller/ exporter may be: (a) a shipper, (b) an exporter, or (c) the actual manufacturer/ supplier of cargo, depending on the role in the trade and logistics flow. This fragmented community consists of a mixture of SMEs and large corporations.

2. Buyers/ importers – the buyer/ importer may be: (a) a consignee, (b) an importer, or (c) the actual buyer of cargo, depending on the role in the trade and logistics flow. This is also a fragmented community that consists of a mixture of SMEs and large corporations.

3. Freight forwarders – act as agents for the carriers, shippers or consignees to handle the movement of goods on behalf of end-shippers and end-consignees. This community, including third party logistics service providers, has a mixture of SMEs and large corporations.

4. Carriers – include air, ocean, river, rail, road carriers and express integrators

• Air carriers are the airlines that offer air cargo services.

• Sea carriers include shipping companies, Non Vessel Owning Common Carriers (NVOCCs) barge and river trade operators which offer International (ocean going vessels) and Mainland China (mainly barges and river trade vessels) freight services.

• Rail carrier refers to the Kowloon-Canton Railway Corporation (KCRC) that provides freight services between Hong Kong and Mainland China.

• Road carriers refer to trucking companies which move goods and containers to and from assigned locations. It mainly consists of very small companies.

• Express integrators offer door-to-door express delivery services (International Couriers).

5. Terminals – include sea and air terminals operators, which provide container loading and discharging services for carriers.

6. Government and its agencies - the Government is the regulatory body to govern and develop the policy of Hong Kong’s import, export and transhipment businesses. To ensure safety in Hong Kong and overseas compliance, licences, permits and certificates issued by the Government are required for controlled articles. Government agencies refer to government-recognised agents which provide services to businesses for transactions related to the Government, for example, Tradelink.

7. Banks and financial institutions – provide trade finance services to traders. Most of them are medium to large corporations including banks.

8. Insurance companies - brokers – issue insurance certificates and open policies to buyers and sellers to provide insurance coverage for consignments.

9. Inspection agencies – independent testing and inspection organisations that perform testing and issue inspection certificates as attestation to the specification of the goods that have been or are to be shipped. This community consists of a mixture of SMEs and large corporations.

In addition to those communities and businesses involved in the trade and logistics processes, service providers will also be one of the key stakeholders of the DTTN. Generally, service providers offer software solutions and services which assist customers to achieve better efficiency and effectiveness in their supply chain and logistics operation, as well as better integration with their business partners along the supply chain or trade flow. Service providers form a unique component of the DTTN model. The DTTN provides a flexible and open infrastructure to enable these providers to further extend their offerings and deliver additional value added services. Service providers will enjoy benefits from the DTTN in a number of ways:


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By reducing infrastructure cost to deliver their services

By extending their business reach in terms of customers and business partners

By improving speed to market for their value-added offerings

By focusing resources on the development and delivery of value-added services Historically, messaging services were provided in closed and proprietary environments as VAN services usually associated with traditional EDI (store and forward) methods of conducting e-commerce. Since the emergence of the Internet, many service providers are now delivering their messaging services as “point to point” communications. These are offered together with other value added services delivered over the Internet as ASPs or ISPs. Since there is no network processing cost this latter form of Internet communications is significantly less expensive than the traditional VAN. However, since the DTTN can be accessed from a VAN or any ISP and can offer access to an ASP it can offer an alternative communications channel for these service providers. DTTN will offer non-exclusive access to a valuable community of users that will generate a competitive market for all service providers.

3.5.2 Trade and logistics business processes to be facilitated by the DTTN The end-to-end trade and logistics business flow to be facilitated by the DTTN can be categorised into ten major processes:

Establish sales/ purchase contract – covers the interactions between buyer and seller in establishing the sales contract (or purchase order), which is the basis for the subsequent trade-related interactions.

Apply and obtain insurance coverage – covers the interactions between buyer/ seller and insurance company in establishing the insurance coverage for the execution and fulfilment of the sales contract. The trade terms in the sales contract determine the responsibility for initiating the insurance coverage and the corresponding cost.

Letter of Credit (L/C) application and processing (for documentary credit only) – covers the interactions between buyer/ seller and banks for L/C application and processing when trade payment is settled through documentary credit arrangement.

Prepare goods for delivery - an internal process for the seller to prepare the goods for delivery which also produces critical commercial documents including commercial invoice, packing list and bill of exchange, etc.

Arrange inspection & issue certificate – the process is usually triggered by the buyer to ensure that the goods are properly prepared before the goods can be shipped or to ensure that the received goods are in the expected condition.

Apply and obtain licence/ certificate/ permit and submit notification for both exportation and importation - the process is applicable when the goods to be exported or imported are subject to control under the legislation of the Government. Appropriate export or import licences/ certificates/ permits must be obtained from relevant government departments before any exportation or importation can take place.

Arrange and execute transportation (both single mode and multi-modal arrangement) – the process covers the preparation and execution of the movement of goods into and out of Hong Kong through air, sea, rail, river or road transport arrangements.


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Present and verify trade documents for financial settlement – covers the interactions between buyer/ seller and banks for processing the L/C settlement. This process is only applicable when trade payment is settled through documentary credit.

Submit trade declaration – the submission process of the trade declaration from exporter or importer to the Census and Statistics Department within 14 days after exportation or importation.

Payment and receipt management (for the provision of trade and logistics services) – the invoicing, payment processing and confirmation process for settling the provision of trade and logistics service charges including insurance premium, inspection services, freight charges, transportation charges, etc.

The basic list of key business messages to be supported by the DTTN in each of the above mentioned trade and logistics business processes can be found in Section 8.1. DTTN participants can use these business messages to streamline and automate their day-to-day communication with their business partners whereas service providers can leverage these business messages to offer value-added services to their customers.

3.5.3 Key business requirements of the DTTN A number of key business requirements for the DTTN are identified to enable its participants to streamline communication and enable interoperability to facilitate the BPI. These key business requirements, which shape the design of the DTTN, are summarised as follows:

Electronic business message routing – The DTTN should facilitate communication among participants by providing a cost-effective mechanism to route electronic business messages with guaranteed delivery.

Data inheritance – The DTTN should support both inter- and intra- company data inheritance. Participants should be able to choose to reuse or share relevant business data wherever appropriate along the end-to-end trade and logistics business processes. As an example for intra company inheritance, a small manufacturing/ exporting enterprise with limited technical capability is enabled to submit its shipping orders to different freight forwarders through Web browser via the DTTN. The data in the electronic shipping order can then be re-used by the small enterprise for the preparation of other documents along the trade and logistics business flows (e.g., licence application and insurance application). The DTTN should also support inter-company inheritance, which occurs when a company (e.g., a freight forwarder) receives electronic business messages (e.g., an electronic booking instruction) from upstream business partners (e.g., a shipper) routed through the DTTN and returns it as a booking confirmation.

Electronic message transformation – The DTTN should provide a mechanism to alleviate the efforts spent by individual companies in implementing and maintaining multiple interfaces to communicate with their trading partners, who frequently adopt different message standards and/ or different versions of the standard. The DTTN should support the transformation of commonly adopted message formats (in multiple versions) and character encoding from one standard to another such that the implementation and maintenance costs for individual companies are minimised

Information security – The DTTN must provide a secure communication environment such that participants will have mutual confidence in the security of all transmissions. In accordance with the nature of the transaction, (e.g. financial transaction) messages sent through the DTTN can be


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encrypted and authenticated to ensure the confidentiality, integrity and non-repudiation of the transaction.

Statistical and analytical reporting – The DTTN should support reporting requirements at both the individual company level and the macro level with proper privacy controls. This is to enable participants to acquire timely information in order to react rapidly to the fast-changing business environment. At the individual company level, reporting requirements relating to daily operations and continuous business improvement should be supported. At the macro level, generation of trade statistics and audit trails should be supported.

Portal services

• Message management – provides a Web-based graphical user interface for participants to construct, send, receive and re-use their business messages in an interactive manner.

• User profile management – provides a set of administrative tools for participants to manage their own accounts and profile information stored in the DTTN.

• Single sign-on – supports single sign-on capability such that participants can acquire services from multiple service providers by signing-on only once to the DTTN.

• Access to value-added services – allows participants to invoke services offered by service providers or other participants via the DTTN portal.

3.5.4 The DTTN access channels

The DTTN will provide a number of access channels, which are easy, open and flexible, to enable participants, who possess different levels of IT sophistication, to connect to the DTTN.

Web browser - this access channel is most suitable for the DTTN participants having limited IT resources and sophistication. Data can be sent and received in an interactive way over a Web-based graphical user interface, which is provided by the DTTN, through the Internet. Any user can access the DTTN infrastructure at any time from anywhere with Web access.

E-mail application - this access channel is applicable for the DTTN participants with e-mail access via their own mail servers, or ISP mail servers such that the DTTN participants can access the e-mails through the very common Post Office Protocol Version 3 (POP3). Business messages, in standardised data format, as text or file attachments, can be sent via the DTTN via e-mail.

System gateway - this access channel will be more suitable for those DTTN participants with more sophisticated IT resources. The participants need to equip themselves with a Web server, mail server or File Transfer Protocol (FTP) server and may have a dedicated communication channel to DTTN.

Short Message Service (SMS)-enabled mobile terminal – this access channel is mainly for truckers to receive information from the DTTN through their mobile terminals such as mobile phones.


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Web browser

E- mail application

System gateway

Web browser

E- mail application

System gateway

Sender Recipient


DTTN

Figure 3-3 The DTTN access channels

Upon receiving business message(s) from the sender, the DTTN will automatically identify the access channel(s) adopted by the recipient(s) and deliver the business message(s) accordingly. This delivery mechanism enables all participants to choose their preferred access channel(s) to communicate with their business counterparts via the DTTN, without concern for the IT sophistication of, and access channel(s) adopted by, the receiving party.

For example, a small enterprise with limited technical capability can submit its shipping order to a freight forwarder through Web browser via the Web graphical user interface provided by the DTTN. The freight forwarder, being a large corporation, can receive the electronic shipping order and feed the data into its internal system directly via the interface connected to the system gateway of the DTTN. The DTTN will provide an open and non-exclusive model to facilitate effective business interactions among the DTTN participants in the nine communities, and their service providers. Depending on their own cost/ benefit analysis, the DTTN stakeholders can choose one of the following options:

1. Connect to the DTTN directly

2. Connect to the DTTN through service providers, who will in turn connect directly to the DTTN

3.6 Benefits of the DTTN

3.6.1 Strategic benefits The need for rapid development the DTTN concept into a practical solution has been voiced repeatedly and unequivocally by the industry in the various E-logistics Project Group meetings and interviews. The key strategic benefits areas that will be enabled by the DTTN include:

Enable new business opportunities. The DTTN will strengthen Hong Kong’s capabilities in attracting foreign direct investment to establish value-added service businesses. The service offerings from value-added service providers are dependent on timely and seamless information flow across transportation modes and trade chain participants. The DTTN will provide an infrastructure to enable these service providers to make the best use of their physical assets and resources. The local IT industry will benefit from the DTTN as it will generate new demand for software and professional services. The DTTN will create an environment which will stimulate the development of the logistics and supply chain software sector and accelerate


31

the transition of Hong Kong to a knowledge-based economy. As indicated by the E-logistics Project Group members, many software development companies in Hong Kong are eagerly awaiting the DTTN implementation so that they can provide value-added applications on top of this infrastructure. Many additional spin-off benefits including increased employment will result from the new business opportunities enabled by the DTTN across multiple trade business sectors.

Compete on value, not just cost. With China’s accession to WTO and the mushrooming of lower cost logistics service options in China, the Hong Kong trade and logistics industry is expected to transform into a league of premium service leaders offering high quality, value-added services rather than merely competing on cost. Efficient information flow is seen as the key. The provision of a neutral and secure infrastructure as envisaged for the DTTN will be a critical service enabler and market differentiator.

Integration with global initiatives. The DTTN will be a common tool for Hong Kong to leverage in order to rapidly address changes in the global logistics industry and to meet the requirements of global trade initiatives. Such a common information infrastructure in Hong Kong will facilitate compliance with changes of this type in a timely fashion, and more importantly, reduce the social cost since change can be negotiated, managed and implemented as a sector.

Integration with Mainland China. The DTTN can lead change. By helping Hong Kong lead the development of the PRD regional economy through the use of the DTTN as an anchor to secure market position and facilitate integration in the areas of logistics and supply chain management. The DTTN can become the de-facto standard for other emerging initiatives in Mainland China. Compatibility between Hong Kong and Mainland Chinese e-commerce infrastructures will be essential. With this common and neutral information infrastructure in place, Hong Kong businesses can leverage the DTTN to provide logistics services to the Mainland Chinese market.

Induce changes to improve IT literacy of the industry. The DTTN will change the way in which local businesses operate, and induce continuous improvement in the standard of IT literacy of the existing workforce. The consequences will be of particular relevance to SMEs. Traditional processes in the current paper-centric SME environment have effectively discounted the drive for change and made them unprepared for the demands of electronic transactions that are now being mandated in international trade. The DTTN can help to provide good business reasons, benefits and a persuasive argument for SMEs to adopt new and more efficient business practices. For example, use of the DTTN will offer a simple low cost means to extend their business reach and improve effectiveness and efficiency through the use of e-commerce in a global market. The need to achieve incremental growth in the use of IT and e-commerce is seen as a critical factor if the overall competitiveness of Hong Kong is to be significantly improved.

Response to competitive challenge. The concept of the DTTN is not unique to Hong Kong. Some neighbouring competitive economies (e.g., Mainland China, Singapore, etc.) have plans to implement, or have already implemented to various degrees, similar e-logistics infrastructures designed to maintain or enhance their competitive advantages and to reap potential benefits associated with improvement in operational efficiency. These developments leave little time margin for Hong Kong to hesitate about implementing the DTTN program.

Improve Hong Kong’s image. Complementing “Digital 21”, the Government’s e-Government blueprint, the establishment of the DTTN will unequivocally deliver a positive and assertive message to the public and the international business community that Hong Kong is committed to harnessing the benefits of IT. Hong Kong can promote e-commerce for global logistics as part of a clear strategy to be the leader in the adoption of IT in a cyber world.


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Shield the industry from frequent upgrades. The DTTN will enable significant efficiency gains across the entire trade and logistics sectors by centralising, consolidating and managing around a defined set of standards and protocols for both technology and messaging. A centrally managed DTTN can effectively shield stakeholders in the trade and logistics sector from the effects of frequent upgrades in standards and protocols, and thereby reduce the in-house resources required.

3.6.2 Operational efficiency improvement In addition to strategic benefits, the DTTN will significantly improve the effectiveness and efficiency of the industry. Substantial savings in the form of reduction of paperwork processing, travel time, and data re-keying will be realised. With assistance and input from the key industry representatives, the project team has conservatively estimated that the annual savings to stakeholders from operational efficiency improvements will be around HK$1.3 billion per annum6. Table 3-1 Operational efficiency improvements identified by the DTTN stakeholders

Operational efficiency improvement to the DTTN stakeholders

Selle

rs/ e

xpor

ters

Buye

rs/ i

mpo

rter

s

Frei

ght f

orw

arde

rs

Car

rier

s

Term

inal

s

Fina

ncia

l ins

titut

ions

Insp

ectio

n ag

enci

es

Insu

ranc

e co

mpa

nies

Gov

ernm

ent a

nd it

s ag

enci

es

Cost and effort savings in data re-keying, reconciliation and errors handling

Cost and effort savings in handling paper-based documents

Cost and effort savings in cheque handling

Faster trade settlement

Improvement of customer service effectiveness through dissemination of status electronic

3.7 Potential investment for stakeholders The use of the DTTN will require participants to implement some internal changes in terms of technology, process enhancement and human resources. To minimise the cost of access, the DTTN will use standard equipment (e.g., PC) with basic Internet Browser configuration and ISP connectivity. An SME, who already has a PC and Internet access, will not need to incur major cost for equipment, software, etc. to gain access to the DTTN.

6 This figure represents the annual benefits generated when all stakeholders adopt the DTTN.


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An indicative list of potential investment items required for a new Internet E-Commerce participant to reap the full benefit of the DTTN are provided below:

Purchase of hardware equipment, software applications and network equipment, if necessary

Setup of Internet access channel and/ or direct connection to the DTTN with new system interface, if necessary

Changes in operational processes and alignment of resources, if any

Internal staff and trade counterparts readiness The actual level of investment will be a benefit-driven business decision for each individual stakeholder. It will vary depending specifically on their IT readiness and the level of functional sophistication that the individual stakeholder would like to achieve. The other major variable is in the deployment to their trading partners which is where the DTTN design is expected to offer a major advantage in that all the partner will need is a similar Internet access and browser capability.

The DTTN Architecture Final Report

34

4 The DTTN architecture The architectural design of the DTTN is illustrated in Figure 4-1. It is built on an open systems and open standards architecture, with the incorporation of high availability and resilience, performance, scalability, interoperability, and reliability throughout the design. It is also flexible and extensible to allow multiple interfaces and delivery channels to integrate the nine communities and their service providers in the logistics industry.

Inte

rnet

Inte

rnet

Com

mun

icat

ions

gat

eway

ser

vice

s


The DTTN


Message management servicesMessage

routing services


services



services Statistical & analytical reporting services

Information portal services

Info

rmat

ion

secu

rity

serv

ices

System gateway(Web server)

SMS gateway

System gateway(mail server)

System gateway(FTP server)

E- mail application

Web browser


Interact ive Web communicat ionover HTTP/ S

ebXML message over HTTP/ S

ebXML message over SMTP

E- mail message over SMTP

SMS message

File documentover FTP (leased line)

ebXML message

over HTTP/ S or SMTP

HTTP/ S

SMTP

Access channels

Figure 4-1 Overview of the DTTN technical architecture

The backbone of the DTTN infrastructure is the core messaging platform. The platform will serve as a single hub for the provision and management of messages, format conversion, data storage, user profile, access control, logging, single sign-on and additional basic value-added services. Administrative and management back office services are also included in the DTTN infrastructure to provide information and assistance that will facilitate the internal operation of the DTTN. Specifically, the service offerings provided by the DTTN architecture are summarised in Table 4-1:


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Table 4-1 Summary of service offerings provided by the DTTN architecture

Service offering Description Communications gateway services

Provide a centralised layer for sending/ receiving information over different communications channels (including HyperText Transfer Protocol (HTTP) and HTTP over SSL7 (HTTP/S), Simple Mail Transfer Protocol (SMTP), and FTP), through different access channels:

• SMS-enabled mobile terminal: one-way communication for receiving SMS messages by first routing the corresponding content to an SMS gateway

• Web browser: an interactive means of sending/ receiving messages (through a Web browser) by utilising the DTTN portal message management services

• E-mail application: an interactive channel (through a mail client) that sends/ receives messages through an Secure Multipart Internet Mail Extensions (S/MIME)-enabled mail server (either their own mail server or ISP mail servers such that the DTTN participants can access the e-mails through POP3)

• System gateway (Web server): an automatic means of sending/ receiving messages, over HTTP/S, through the utilisation of Electronic Business using XML (ebXML) message service handler

• System gateway (mail server): an automatic means of sending/ receiving messages, via SMTP, through the utilisation of ebXML message service handler

• System gateway (FTP server): an automatic means of sending/ receiving documents, via FTP, through the use of FTP server and client

Information security services

Ensure end-to-end security at different levels of the DTTN architecture (i.e., application level, message level, transport level, system level, network level and physical level), through the adoption of public key infrastructure, and provision of identification, authentication, authorisation and access control, confidentiality, digital notarisation, integrity, non-repudiation, and intrusion detection services


Offer a centralised hub such that all senders route messages to the single hub, and all recipients receive messages from the single hub, with the following features:

• Reliable messaging (for particular access channels using ebXML Messaging Service (ebMS))

• Flexibility in communications protocols and message formats • Adoption of open standards

Message transformation services

Perform two rounds of transformation for both message format and character encoding: • The message from the sender is transformed to a canonical message format and character

encoding (many-to-one transformation) • The message in canonical form is then transformed to a format and character encoding as

accepted by the recipient (one-to-many transformation)

Message management services

Provide functions that are required for sending, receiving and managing messages through the Web browser access channel, such as:

• Creating a message through form-filling or attachment-uploading • Inheriting data from pre-defined Web form templates or related messages (i.e., inter and

intra company inheritance such that participants can choose to reuse relevant business data wherever appropriate along the end-to-end logistics business processes)

• Create, edit, copy, save and delete Web forms in a “draft” and “final” status • Retrieve, view and save received messages • Querying messages sent and received by participants (e.g., message status queries,

message transaction history, etc.)

7 Secure Sockets Layer


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Service offering Description Information portal services

Establish a Web portal for the provision of various information services, including: • Publishing data dictionary, message content standard and implementation guidelines, and

coding standard (with query functions for searching particular identification standard code values)

• Downloading standards from the DTTN portal • Publishing useful trade-related information and links • Invocation of Web services offered by application systems of external service providers • Passing authentication and authorisation information to websites of affiliated service

providers for single sign-on


Offer services within the DTTN portal for participants to manage their account and profile information stored in the Lightweight Directory Access Protocol (LDAP) server of the DTTN


Supply relevant information (through report generation in various formats) to participants (by specifying different reporting criteria) for decision support purposes (e.g., operation reporting, performance management reporting, etc.)


Establish a dedicated, scalable and high performance storage network that offers any-to-any connectivity between hosts and storage systems for centralised data storage, data backup and recovery, and data archiving and retention

4.1 Standards and protocols The DTTN will support established and commonly adopted industry standards, along with emerging standards that are applicable in the trade and logistics industry. Table 4-2 provides the recommended list of key standards and protocols that will be supported by the DTTN. This list is derived from a suitability analysis in which the factors of functionality, adaptability, interoperability, maintainability, setup costs and operating costs were considered. Table 4-2 Supported standards and protocols for the DTTN

Message format standard

Character encoding standard

Identification standard

Communications protocol

Security standard

Application integration

standard • UN/EDIFACT • ANSI X12 • Cargo-IMP8 • XML v1.0 • Microsoft Excel • Text in CSV9

format • SMS10

• ASCII11 • ISO8859-1 • Big5 • GB2312-1980 • GB18030-2000 • ISO10646 • HKSCS12

• DUNS13 • GLN14 • GTIN15 • SSCC16 • SITC17

• HTTP • SMTP • FTP

• SSL • TLS18 • LDAP • XML

Encryption • XML Signature • S/MIME • PKI19

• ebMS v2.0 • SOAP20 v1.1

8 Cargo Interchange Message Procedures 9 Comma-Separated Values File 10 SMS messages are generated by an SMS gateway, which receives ebXML messages from the DTTN. 11 American Standard Code for Information Interchange 12 Hong Kong Supplementary Character Set 13 Data Universal Numbering System 14 Global Location Number 15 Global Trade Item Number 16 Serial Shipping Container Code 17 Standard International Trade Classification


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An industry representative DTTN standards committee should be formed to constantly assess evolving standards and protocols and to decide the version and scope of each standard or protocol for adoption by the DTTN.

4.2 Canonical approach Many message “standards” exist in the trade and logistics industry. This factor has significant cost implication in terms of implementation time and effort required for each trading partner in order to achieve a bilateral or multilateral data interchange arrangement. To provide interoperability and to lower the implementation cost, the DTTN will allow various message standards to co-exist. Central to the interoperability is the transformation of multiple standards to/ from a common standard within the DTTN, such that the associated implementation effort for incorporating a new standard in the DTTN is minimised. This arrangement is illustrated in Table 4-3 and Table 4-4. Table 4-3 Supported message format transformation in the DTTN

Supported message format (sender)

Canonical message format (the DTTN)

Supported message format (recipient)

• XML v1.0 • Microsoft Excel • Text in CSV format • UN/EDIFACT • ANSI X12 • Cargo-IMP

• XML v1.0

• XML v1.0 • Microsoft Excel • Text in CSV format • UN/EDIFACT • ANSI X12 • Cargo-IMP • SMS

18 Transport Layer Security 19 Public Key Infrastructure 20 Simple Object Access Protocol


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Table 4-4 Supported character encoding transformation in the DTTN21

Supported character encoding (sender)

Canonical character encoding (the DTTN)

Supported character encoding (recipient)

• ASCII

• ASCII • ISO 8859-1 • Big5 • GB2312-1980 • GB18030-2000 • ISO 10646

• ISO 8859-1

• ISO 8859-1 • Big5 • GB2312-1980 • GB18030-2000 • ISO 10646

• Big5 • HKSCS for Big5

• Big5 • ISO 10646 • HKSCS for Big5 and ISO 10646

• GB2312-1980

• GB2312-1980 • GB18030-2000 • ISO 10646 • HKSCS for Big5 and ISO 10646

• GB18030-2000

• GB18030-2000 • ISO 10646 • HKSCS for Big5 and ISO 10646

• ISO 1064622 • HKSCS for ISO 10646

• ISO 10646 • HKSCS for ISO 10646

• Big5 • GB2312-1980 • GB18030-2000 • ISO 10646 • HKSCS for Big5 and ISO 10646

4.3 Single window access The DTTN architecture will also enhance interoperability among the nine communities and their service providers through the provision of a single window access:

SOAP v1.1 is adopted in the DTTN architecture for participants, via the DTTN portal, to invoke Web services offered by service providers for value-added services such that the results will be returned back to participants, via the same DTTN portal, through real time, synchronous communication.

The DTTN supports Security Assertion Markup Language (SAML) for single sign-on in passing the authentication and authorisation information to different SAML-compliant websites of affiliated service providers, allowing authenticated participants to seamlessly surf to the other

21 Some characters cannot be mapped from one character set to the other (e.g., seven Big5 characters cannot be mapped to Unicode properly), and need to be mapped to some other characters. The exact mapping will be determined in the detailed design phase and published in the DTTN portal. 22 Note that this mapping is valid only when the message consists of characters that can be included in the target character set. As a counter example, if the message from the sending party consists of both simplified and traditional Chinese characters, it is not valid to translate to GB2312-1980.


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websites without additional login actions (subject to the alliance negotiation agreement with affiliated service providers).

4.4 Guaranteed delivery The DTTN can guarantee the delivery of electronic messages with the ebMS v2.0 protocol for those participants using a system gateway (i.e., Web server/ mail server only). When the sender transmits a message, the DTTN acknowledges the receipt immediately and then forwards the message (transformed to a form as specified) to the recipient. When the recipient receives the message, it automatically acknowledges receipt to the DTTN. The DTTN can then notify the sender that the message has been received by the recipient. Failure to receive an acknowledgment message within the timeout period will trigger successive retries until such time as an acknowledgment message is received or the predetermined number of retries has been exceeded at which point the sender will be notified of the delivery failure. The DTTN can also guarantee that the recipient receives the message once-and-only-once, using a duplicate detection and elimination mechanism.

4.5 Security and trust The DTTN provides the highest level of security and trust to satisfy the service level agreement it offers to each participant. These features provide protection against system failures, against network equipment attacks and attacks on participants’ data, to establish a secure communication environment, and establish a business environment in which the participants have mutual confidence. To secure trade documents sent through the core messaging platform, the DTTN relies on advanced cryptographic techniques, commonly known as PKI. The DTTN and its participants will be able to establish their respective identity in electronic transactions, authenticate electronic messages received, ensure that the confidentiality and integrity of electronic messages have not been breached and safeguard against the repudiation of electronic transactions. The DTTN adopts LDAP as a centralised DTTN user profile and security-related data repository. Participants can maintain their own user profile through the DTTN portal.

4.6 Audit trail and non-repudiation As a neutral and trusted third party, the DTTN maintains full logs of all messages that are received and sent. These logs are stored online for two years and then archived to tape for up to seven years. The log of each message includes the digital signature, date, time and content for audit trail and non-repudiation in case of dispute. The DTTN portal provides online query functionality for participants to view selected transactions and drill down to a single transaction to see more details, e.g., parties involved, status, creation date and time. Details of the digital certificate associated with the party that signed the message can also be provided.

Baseline Financial Analysis Final Report

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5 Baseline financial analysis A baseline financial analysis was developed including investment requirement and benefits associated with creating the DTTN. This analysis was developed for two reasons. Firstly to provide a perspective on the order of magnitude of a program of this nature; and secondly to provide a baseline against which any alternative commercial options can be measured. The key findings of the analysis are:

The total direct investment to develop and operate the DTTN over a 17-year timeframe is estimated to be approximately HK$3 billion. Figure 5-1 depicts the cumulative direct investment required for the DTTN compared against the estimated tangible benefits to the industry over the same period of approximately HK$11.8 billion.

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-1 -2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year of Operation

Amou

nt (H

K$

Bill

ion)

Cumulative total costs (DTTNdirect investment)Cumulative stakeholder benefits

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-1 -2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year of Operation

Amou

nt (H

K$

Bill

ion)

Cumulative total costs (DTTNdirect investment)Cumulative stakeholder benefits

Figure 5-1 Cumulative cost and benefits analysis

It is estimated that the DTTN’s adoption rate in the first three years will be around 27%. By the 15th year of operation, this adoption rate is estimated to grow to around 72%.

The analysis also developed a cost recovery model for the DTTN. Based on a monthly subscription fee, the potential charges to the participants are summarised below:

• To recover the Operating Expenditure (OPEX) of the DTTN only, the average monthly charge to SMEs is approximately HK$200; and to large enterprises, it is approximately HK$1,000.

• To recover both the Capital Expenditure (CAPEX) and OPEX, the average monthly charge to SMEs is approximately HK$420; and to large enterprises, it is approximately HK$2,100.

• This analysis is intended to provide an indication of the magnitude of the possible charges only. Other pricing schemes such as message-based or lower upfront charges can be explored during the implementation of the DTTN. Some of the basic premises for the pricing scheme for the DTTN are:

o User pays

o Differentiate charge on usage

o Devise a simple to follow charging mechanism

Baseline Financial Analysis Final Report

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o No duplicate charging with service providers, etc.

5.1 Baseline costing estimation To develop the baseline cost estimate for the DTTN, both the capital investment and the operating costs have been estimated. The major cost components are summarised below.

5.1.1 CAPEX

The major CAPEX comprises both the initial establishment costs as well as regular refresh and expansion costs. These include:

Hardware and software set up costs – including the purchase and installation of physical hardware and software for the DTTN.

Network and storage set up costs – including the purchase, installation, and implementation of network and storage related hardware and software.

Project implementation costs – including the costs to develop or buy the DTTN infrastructure, based on the scope defined in the DTTN model and the DTTN architecture sections.

Facility and office automation establishment costs – including the property fittings, furniture, and office equipments that are required by the DTTN organisation.

The 17-year cumulative CAPEX for implementing the DTTN is estimated to be around HK$1.5 billion.

5.1.2 OPEX

The major categories of OPEX for the DTTN are:

Personnel costs – this includes the management and operational personnel, including call centre agents and customer service support.

Facility and office automation maintenance costs – this includes servicing and upgrade of office equipment and the required software applications, and facility maintenance such as office rental, utilities, and management fees.

Legal/ professional services costs – the legal/ professional services budget is set up to perform legal due diligence for the overall DTTN operation, as well as to resolve potential legal issues among participants and service providers.

Marketing promotion costs – the marketing promotion expenditure has been budgeted to raise the awareness of DTTN among the trade and transportation communities in Hong Kong as well as overseas.

Hardware, software, network and storage maintenance costs – this includes licence and upgrade, service and repair, and network charges.

Data centre operations – this includes hosting services, and disaster recovery services.

The OPEX required to operate and manage the DTTN is estimated to be around HK$90 million per annum on average.

Institutional Model Final Report

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6 Institutional model

6.1 Approach A key consideration for the DTTN is the institutional model to be adopted for delivering services to the industry. A systematic approach was adopted to identify an appropriate institutional model for the DTTN. Three possible institutional models were studied. A SWOT analysis of each identified institutional model with reference to a list of institutional requirements for the DTTN was then conducted. Finally, an assessment of the various options was conducted to identify the feasible institutional model for the DTTN, taking into account the results of the SWOT analysis and the experience of similar overseas operations.

6.2 Potential institutional models considered Three potential institutional models were considered for the establishment, funding, and ownership of the DTTN:

An entity entirely owned by commercial operators will establish, fund and own the DTTN. Commercial organisations (or private companies) are formed under the Company Ordinance (Cap. 32) with private ownership. They are by far the most common commercial entities in Hong Kong. Private companies are governed by Memorandum and Articles of Association, which specifies the business objects (optional), authorised capital, management and administration of the company (e.g., resolution procedures), etc., for each company. A majority of these companies formed are limited by shares and are operating on commercial principles (e.g., for profit operations).

A community-based company (which may have the Government as one of the stakeholders) will establish, fund and own the DTTN. This is another form of private company provided for under the Company Ordinance. As its name implies, the ownership of this form of company is structured around “a group of companies that belongs to a community”. Although governance and management structures are similar to those “limited companies”, these companies are generally limited by guarantee and must satisfy certain conditions as set out in the Company Ordinance. They are usually used for clubs or associations formed for charitable, religion, social, education, community and/ or professional purposes, etc. (e.g., Hong Kong Exporters’ Association). Similar to the for-profit private companies, each of these community-based companies has a Memorandum and Articles of Association specifying its management and administration.

The Government will establish, fund and own the DTTN. This model can be implemented through either:

• A new statutory body fully or partially owned by the Government. It will operate on a commercial prudence principle or it will operate with subvention from the Government (e.g., Hospital Authority).

Statutory bodies, sometimes referred to as “non-departmental public bodies”, are independent organisations established or constituted by or under the authority of an ordinance by the formal approval of the LegCo. Very often the essential aim of these statutory bodies is to support the implementation of ordinance under which they are created, but at arm’s length from the Government. The terms of reference, as well as the composition of these bodies (e.g., number of board members appointed by the Government), are laid down in the ordinance. Although statutory bodies vary widely in their functions,


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responsibilities and their relationship with the government, it is ultimately the Government which is answerable for the activities of those bodies.

• A new company, initially fully owned by the Government but that will be hived off to the private sector when circumstances permit or a company owned by a public sector organisation with or without initial private sector ownership (related e.g., Tradelink, Hong Kong Applied Science and Technology Research Institute Co. Ltd. (ASTRI), etc.).

This model is a special form of commercial organisation established under the Company Ordinance with the Government as a shareholder, whether as a sole shareholder or one of the major shareholders (others being private shareholders). The governance and management structures of a government-owned company are very similar to that of a commercial organisation.

• A public corporation established by the Government to provide public services, either through transfer of assets or injection of equity (e.g., KCRC).

This is a corporate entity established by law that engages in commercial activities in actual or potential competition with the private sector. A public corporation can be established through two possible routes. It may be created by transferring the assets of a government department into a company structure, e.g., KCRC was established in this way and is still fully owned by the Government. Alternatively, it may be a newly created body such as the Mass Transit Railway Corporation (MTRC), which was then spun off for public offering.

These models represent a spectrum of possible institutional models, spanning from a fully government-owned entity to an entity fully owned by the private sector. Between these two ends of the spectrum are some “hybrid” institutional models with both government and private sector participation. The Government will no doubt wish to explore these and other commercially viable options for the early establishment of the DTTN for the benefit of Hong Kong.

6.3 Requirements Potential requirements related to the ownership, governance and operational management aspects of the DTTN are listed in Table 6-1. These requirements were considered in the SWOT analysis for the proposed institutional models. Table 6-1 Requirements to be considered in the SWOT analysis

Requirement Description Ownership and governance Supporting the objective The institutional arrangement should facilitate the achievement of the desired social

objective of the DTTN, i.e. “To enhance the overall competitiveness of Hong Kong, through the provision of a neutral and non-exclusive electronic platform to facilitate secured data interchange for the logistics industry. In particular, the DTTN is tasked with the objective of helping SMEs to be more competitive (but not at the expense of other players in the industry).”

Perceived neutrality, accountability and confidentiality

A party, which is perceived as neutral, accountable and having no conflict of interest with relevant stakeholders, is required to own and govern the operations of the DTTN, as well as to ensure proper data security. Neutrality in this context refers to the intention and ability of a commercial entity to provide a level playing field for all industry stakeholders without undue bias towards particular players or sector. This entity must therefore be perceived by all stakeholders as free from real or potential conflict of interest which would otherwise compromise the stakeholders’ interests.


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Requirement Description Non-exclusivity The DTTN should be non-exclusive and allow fair access to all stakeholders. This

implies that no means or measures should be used by the DTTN’s operator to preclude some particular groups of customers from using the DTTN in practice, and thereby creating undue competitive advantage for some stakeholders.

Minimum intervention to business

The usual principle of “minimum intervention in business” and “preferably leading by business for business matters” should be observed. Therefore, if the private sector can implement the DTTN, then the private sector is preferred to undertake this activity.

Speed to market Time is of the essence in the logistics industry, and therefore the DTTN’s institution should be set up and made operable as early as possible.

Involvement of the industry Representatives from the logistics industry shall be involved in the overall management of the DTTN, given that the DTTN is an initiative for the community to improve their overall competitiveness.

Assurance of service continuity

The DTTN, as a central electronic trading platform for the logistics industry in Hong Kong, has to be reliable and stable. Service stability and continuity are therefore the keys to ensure that trade activities can be conducted using the DTTN without interruption.

Capability to fund/ finance The institution of the DTTN should have the financial strength to fund/ finance the implementation and operations of the DTTN with lowest possible financing costs.

Operational management Business autonomy and operational flexibility

The governing body of the DTTN will need to have sufficient autonomy to decide its business direction, formulate business strategy, develop business partnership and alliances, commercialisation of products, etc. Moreover, the DTTN should have sufficient operational flexibility including the ability to set operational procedures and develop innovative ways to deliver services. Other aspects include the authority to recruit staff, decide remuneration package, etc.

Response to customer demands

The institution should be able to respond quickly to customer demands. The business models and operational procedures of the DTTN should be able to change reasonably quickly to address customer needs.

6.4 SWOT analysis The strengths and weaknesses associated with each of the institutional models were studied against the set of requirements as discussed in Section 6.3. Table 6-2 below summarises the observations on key strengths, weakness and potential strengths associated with each institutional model.


45

Table 6-2 Summary of strengths, weaknesses of various institutional models

Government-led entity

Requirement Commercial entity

Community-based

company Statutory

body

Government owned

company

Public corporation

Supporting the objective

Perceived neutrality, accountability and confidentiality

Non-exclusivity

Minimum intervention to business a a a

Speed to market b

Involvement of the industry c c

Assurance of service continuity

Capability to fund/ finance d

Business autonomy and operational flexibility e e e

Response to customer demands e e e

Notes: a. This is subject to a consideration that value-added services are provided by the private sector. b. A government-owned company, among other government-led institutional models, probably needs the shortest time to be

established. However, this is unlikely to be as quick as establishing a private commercial entity. c. A proper engagement of the industry stakeholders in various governing body/ committees is required to ensure involvement of the

industry. d. A commercial entity will unlikely achieve the same financial strength and the ability to access relatively lower cost of financing as that

of the Government. e. Although the government-led models are intended to explore business autonomy and operational flexibility, the actual extent thereof

is subject to relevant rules and regulations governing the operations of the DTTN. Legends: - strength, - weakness

6.5 Overseas experience The experience of overseas operations was also considered and referenced during the analysis. A summary comparison on the governance models of these overseas systems in terms of sponsorship, ownership, operation and business models is shown in Table 6-3.


46

Table 6-3 Summary table of governance models of the port community systems

For the case of Singapore, its system implementation was initiated and funded by the Singapore Government. PSA Corporation Ltd., which is the owner of the Portnet system, was formerly the Port Authority of Singapore. It changed its role from a statutory board of the Singapore Government to a corporation in 1997. Currently, the sole shareholder of PSA Corporation Ltd. is Temasek Holdings, which is the investment arm of the Singapore Government. Portnet.com Pte. Ltd., a subsidiary of PSA Corporation Ltd., is responsible for operating Portnet system. For the case of Rotterdam, W@VE is owned by Port CommunITy Rotterdam – Rotterdam Internal Logistics (PCR-RIL), a non-profit organisation formed by government and the business community. It was initially fully funded by the government, with its operating cost covered by the users. The roles of PCR-RIL are to promote, coordinate and manage information technology applications development in and around the Port of Rotterdam. The board of PCR-RIL consists of representatives from the government and business community, including Rotterdam Municipal Port Management, Rotterdam Customs and SVZ Port Industries Associations. FCPS/ Destin8 of The U.K. are owned and operated by Maritime Cargo Processing Plc. (MCP plc), a profit-making company. Initial development of FCPS came in 1983 in an attempt to streamline administration through computerisation, with funding from the Port. The port communities of Felixstowe and Harwich (including freight forwarders, shipping lines, terminals and hauliers, etc.) own the shares of MCP plc. The board of the company has representatives from the Port of Felixstowe as well as port user associations in Felixstowe and Harwich. Dakosy of Germany was initially started as a subsidiary company of the GHBG Hamburger Gesamthafenbetriebsgesellschaft mbH (a private company owned by five port employers associations in Hamburg) in 1982. After a one-year development phase and a three-year trial phase, Dakosy was taken over by the main user groups of the Hamburg Sea Transport Industry. It is now jointly owned by DIHS (a limited company formed by a group of forwarders in Hamburg), DHU (a limited company formed by a group of cargo-handling firms and quay operators in Hamburg) and DIHLA (a limited company formed by a group of liner agents in Hamburg). Each of the three companies owns 33% share of Dakosy.


47

Tradegate system of Australia is maintained in a way that the system itself is owned and operated by a non-government, not-for-profit user organisation called Tradegate ECA. The interests of different transport and trade business sectors such as terminals, regulatory bodies, financial institutions, freight forwarders, carriers, importers, exporters, etc., are represented in the board of Tradegate ECA. Tradegate was set up and funded initially by a mix of government and industry bodies, as a non-profit community based e-commerce association in 1989. In 1997, Tradegate merged with the EDI Council of Australia – known as “Electronic Commerce Australia (ECA)” – and changed its name to Tradegate ECA, with service extension into other areas such as development of Australian EDI standards for different industries. As a result, the nature of the organisation was changed and the initial loan funds used to create Tradegate were fully paid back. The FIRST system in the United States was initiated, implemented and operated by the US Port Authority of New York and New Jersey, a port agency under the state government. The Port Authority actually subcontracted a company to operate the system on its behalf. FIRST was designed by the intermodal freight industry, in cooperation with public sector partners. An advisory committee of trucking firms, terminal operators, forwarders, customs brokers and others developed the specifications for the project. Several port terminals with proprietary systems, including American Stevedoring, Maersk Sealand, and Howland Hook, participated in project development.

6.5.1 Lessons learnt The overseas experiences indicate that in most cases (four out of six), the government was involved at least in the initial phases of development. This involvement took several forms. In one extreme, the government owned and managed the system. In the other situations, the government provided seed money for the establishment or in the case of Tradegate provided exclusive rights to accept government transactions, thereby providing a set of anchor messages for the system to develop further. For the subsequent operations of these community systems, different modes have been implemented including community-based company with government as a stakeholder, government-owned corporation, or privately owned company controlled by industry players.

6.6 Summary assessment The institutional models considered have their respective strengths and weaknesses as shown in Table 6-2. Any of these models will work for the DTTN if the weaknesses are addressed through appropriate means. A summary assessment is presented below.

6.6.1 A commercial entity

If a viable commercial entity can achieve a balance between the aims of maximising its shareholder value through profit and improving the overall competitiveness of Hong Kong and that entity is perceived by the industry stakeholders as neutral and non-exclusive, then the commercial entity can be a viable option.

• Neutrality in this context refers to the intention and ability of a commercial entity to provide a level playing field for all industry stakeholders without undue bias towards a particular


48

sector. This entity must therefore be perceived by all stakeholders as free from real or potential conflict of interest which would otherwise compromise the stakeholders’ interests.

• Non-exclusivity relates to the provision of fair access to all stakeholders. This implies that no means or measures should be used by the DTTN’s operator to preclude particular groups of customers from using the DTTN in practice, and thereby create undue competitive advantage for some stakeholders.

6.6.2 A community-based company

This model is a proven model adopted for similar initiatives overseas (e.g., Australia’s Tradegate, the U.K.’s FCPS/ Destin8).

This model is predicated on gaining wide ranging industry support to the agreed solution. To achieve this will require strong neutral leadership with perceived neutrality to drive the DTTN program. This is a particularly important factor to be considered for the extremely fragmented logistics industry in Hong Kong that is largely an SME domain.

Funding is a key concern for this institutional model. SMEs, are the largest sector, weakest financially, and the most fragmented community in the logistics industry. As such they are unlikely to have the ability to contribute to the funding of the DTTN in the short term. Indeed it may be necessary to provide financial support, subsidy or incentive for the SMEs to participate in the DTTN.

6.6.3 A government-led entity

Some similar overseas initiatives that were studied are owned either fully or partially by the Government (e.g., the Netherlands’s @WAVE, the U.S.’s FIRST).

Be it in a form of statutory body, government-owned company, or public corporation, the key challenge for a government-led entity is to progress the DTTN initiative in the shortest possible time given the time required for funding approval and possible legislation need to be taken into consideration.

Public resources are always limited and must be used in an effective, accountable and transparent manner. Government will assess initiatives and allocate public funding appropriately to support those with high priority, i.e. initiatives that represent the most effective use of public resources and can only be implemented with the support of public funding.

Baseline Implementation Roadmap Final Report

49

7 Baseline implementation roadmap An implementation roadmap for the DTTN has been developed as a baseline for comparison of alternatives. This is not provided as the recommended approach; rather, it highlights the tasks and activities required for establishing the DTTN. This is illustrated in Figure 7-1. The highlights from this implementation plan are:

The implementation of the DTTN is not simply a technology implementation project. It is a change management program that requires strong program and project management. The main activities will focus on delivery of the technology and business solutions and management of the industry stakeholders to ensure they are committed, kept informed of progress, and their expectations are satisfied. Some of the key tasks involve invitation of key industry stakeholders to join the DTTN working committees for stakeholder buy-in, management of the chosen standards for the DTTN, development and execution of a market readiness and transition program, and initiatives to ensure awareness and adoption.

The implementation should focus on delivering early benefits through small and manageable releases. This approach will also allow individual releases to be launched quickly to sustain participants’ momentum to continued use of the DTTN. In addition, the content of the releases for the DTTN was determined with reference to factors such as prioritised industry demand, focusing on high benefit functions, and balancing of resources.

The implementation roadmap as discussed below is derived on the premise that the DTTN is created from scratch using off-the-shelf software tools and packages with appropriate customisations. Alternative sourcing options such as leveraging existing solutions of a similar nature could be investigated during the next stages of the program as the business requirements are confirmed in more detail. These options may further accelerate the development of the DTTN.

Program management and architecting

Technology implementation

Organisation and operation implementation

Adoption management

Market readiness

Back office implementation

Integrated detailed design &

prototyping commences in start

of month 7- 10

Release 1 (core implementation)

Release 2 (enhancement)

Release 1public rollout commences in start of month

22- 28

Release 2public rollout commences in start of month

35- 43

t ime

Release 1pilot rollout

commences in start of month

19- 25

Release 2pilot rollout

commences in start of month

32- 40

Integrated detailed design & prototyping

Release 1 commences in start of month

13- 16

Mobilisation

The DTTN program

mobilisat ion commences in

start of month 1 Figure 7-1 High-level baseline implementation roadmap of the DTTN implementation program


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7.1 Initiatives

The DTTN implementation program is composed of multiple initiatives:

Mobilisation – establish the DTTN organisation and the operational infrastructure, and identify solution provider(s).

Program management and architecting – oversee all initiatives of the DTTN implementation program. It ensures the overall program will be able to complete within time and budget, and also ensures different initiatives will be able to fit into the overall application and technology blueprint.

Integrated detailed design and prototyping – establish the detailed design of organisation and operation implementation, technology implementation, adoption management, market readiness, and back office implementation. In particular, the content and structure of information flow for each message type, as well as the canonical form and associated data schema, will be agreed as a basis for automation throughout the trade and logistics industry. Moreover, the prototyping of the DTTN will be developed to facilitate a more concrete comprehension of the DTTN concept and functionality.

Organisation and operation implementation – finalise the DTTN organisational structure, business policies and associated processes. Before the DTTN institution is fully operational, supporting staff will be recruited and office equipment will be set up.

Technology implementation – build technical architecture services of the core messaging platform to enable message routing among participants through various access channels. Some support services such as statistical and analytical reporting and profile management functionalities will also be developed. To ensure a smooth public rollout, a stabilisation period will be introduced for pilot rollout testing and platform fine-tuning.

Adoption management – develop and execute the participant acquisition strategy through specific recruitment programs, awareness building activities, marketing campaigns, etc.

Market readiness – ensure the readiness of participants both functionally and technically.

Back office implementation – implement call centre, customer billing and customer relationship management capabilities. Day-to-day internal operational capabilities such as financial accounting, human resources, payroll, etc., will also be implemented.

7.2 Scope In view of its complexity, its time-critical nature, and its large-scale involvement of participants (both local and overseas) in different communities, the technology implementation initiative will be rolled out in two releases:

Release 1 (core implementation). In this release, the foundation will be established by developing the necessary technical architecture services that enable core business functions. The objective of this release is to eliminate inefficiencies associated with the import/ export trading cycle and payment settlement. Major standards and access channels will be covered to reduce technical constraints for participants to use the DTTN services.

Release 2 (enhancement). The objective of this release is to enhance the core messaging platform by supporting more standards and access channels. More importantly, the rest of identified business messages will be implemented to enable participants to fully realise the estimated


51

benefits and eliminate inefficiencies during the trade process through the use of the core messaging platform.

The major tasks and activities of each initiative are highlighted in Table 7-1. Table 7-1 The major tasks and activities of the DTTN implementation program initiatives

Initiative Major tasks and activities Mobilisation • Government sponsor and committee

member identification • Funding request preparation

• Solution provider(s) identification • Governance setup • Key staff recruitment

Program management and architecting

• Communications management • Contract and vendor management • Dependency management • Financial management • Integration management • Quality management • Performance management

• Resources management • Risk and contingency management • Timeline management • Application architecting • Technology architecting • Legal due diligence/ authorities

endorsement and negotiation

Integrated detailed design and prototyping

• Scope confirmation • Detailed design of organisation and operation implementation: o Business planning o Registration policy and pricing scheme setup o Organisation and operation design o Role and job design

• Detailed design of technology implementation: o Technical architecture design o Canonical form/ data schema confirmation o The DTTN prototyping development o Detailed core messaging design

• Detailed design of adoption management: o Detailed potential customers profiling and segmentation o Adoption management planning

• Detailed design of market readiness: o Market readiness planning o Setup of community work groups o Technical standards issuance o Prototype demonstration for community work groups and the public

• Detailed design of back office implementation: o Technical architecture design o Business process definition o User roles and authorisation design

Organisation and operation implementation

• Organisation, governance and operation process setup • Staffing and recruitment for initial operations • Data centre/ call centre and office equipment setup • On-going operations


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Initiative Major tasks and activities Technology implementation

Release 1: • Six message format standards: XML v1.0, UN/EDIFACT, ANSI X12, Cargo-IMP,

Microsoft Excel, text in CSV format • Five character encoding standards: ASCII, ISO8859-1, Big5, ISO10646, HKSCS • Five identification standards: DUNS, GLN, GTIN, SSCC, SITC • Five access channels: Web browser, e-mail application, system gateway (Web

server), system gateway (mail server), system gateway (FTP server) • 40+ business messages (please refer to Section 8.1 for the list of supported messages

in Release 1) Release 2:

• One message format standard: SMS • Two character encoding standards: GB2312-1980, GB18030-2000 • One access channel: SMS-enabled mobile terminal • 20+ business messages (please refer to Section 8.1 for the list of supported messages

in Release 2)

Adoption management • Customer acquisition • Other events (e.g., marketing campaign execution and management for both local

and overseas)

Market readiness Overall tasks: • Brochure preparation and distribution • Customer registration for pilot and initial rollout • Computer-based training material preparation • Simulation tool and connectivity/ readiness test package preparation • Market readiness test preparation and execution • Help desk support for community readiness during the implementation phase

Additional tasks for 50 pilot groups (five companies per community + five service providers):

• Hardware and connection setup coordination for pilot group • Communities training workshop/ seminar for pilot group • Connectivity/ readiness test for pilot group • Pilot group site visit during stabilisation period

Back office implementation • System implementation of call centre, customer billing, customer relationship

management, financial accounting, human resources, payroll, procurement, management reporting, office automation and knowledge management


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7.3 Key success factors A number of key success factors are identified, which should be observed during the implementation and on-going operation of the DTTN.

7.3.1 Key success factors for the DTTN implementation 7.3.1.1 Overall coordination and management Given the complexity and time-critical nature of the DTTN implementation, a centralised Program Management & Architecting Office should be established to

Co-ordinate various efforts from public and private sectors and manage the associated inter-dependencies

Identify and resolve issues that may hinder the implementation

Co-ordinate with stakeholders and push for timely consensus on the design of various trade and logistics documents

Ensure appropriate resources are available and allocated properly

Identify and mitigate implementation risks

Communicate proactively with the relevant authorities, stakeholders and the Government for ongoing support and endorsements

Communicate with other logistics initiatives to capture additional integration requirements

Align with strategic intent and comply with functional and technical architectures 7.3.1.2 Scope control Because of the tight program schedule, the complexity and wide coverage of the DTTN program (over 60 message types, 19 message format standards/ encoding standards/ identification standards, as well as multiple access channels targeting to serve all the stakeholders’ communities in Hong Kong), it is important that the intended program and project scope be tightly controlled. Resource deployment should be focused accordingly on delivering the desired results. A successful scope control will require in-depth understanding of the intended requirements, application architecture and technical architecture, so that trade-off decisions can effectively be made and impact on the architecture is understood in case of any exigencies. 7.3.1.3 Market readiness for pilot rollout Successful pilot rollout symbolises a major milestone of the DTTN implementation. On top of the internal readiness of the DTTN (e.g., the well-designed and tested DTTN platform, properly trained DTTN operational/ support staff, etc.), the readiness of pilot companies is also a critical success factor. To ensure the pilot companies will be ready to participate and transact in the DTTN during pilot rollout, both operational and technical readiness of the pilot companies should be regularly assessed and verified. Their staff should be well trained for operation through the use of the DTTN, and a simulation tool should be adopted for readiness test to ensure smooth rollout in future, which can also be reused for subsequent rollout of the DTTN to the larger participant segment.


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7.3.2 Key success factors for the DTTN adoption and on-going operation 7.3.2.1 Adoption facilitation – awareness and adoption The adoption of the DTTN is a complex change journey. The success of the DTTN is directly linked to the adoption rate of stakeholders. Before stakeholders consider adopting the DTTN, they must be made aware of the availability of services. They may elect to see the proven stability and actual operation of the DTTN initiative before joining. IT literacy of companies may also impact the adoption, in particular for those SMEs. In order to arouse the awareness of industry stakeholders, the DTTN organisation must convey the following messages to the stakeholders (i) what benefits the DTTN can bring to their businesses; (ii) what the timeline is for the DTTN implementation; (iii) how the DTTN works and interacts; and (iv) the Government’s strategies for the trade and logistics industry. Such communication can be effected through collaboration with industry associations and organisation of different promotional events such as marketing campaigns, seminars and road shows, etc. Details of the technical effort required by industry stakeholders to connect and integrate with the DTTN, detailed documentation on integration specification, and other hardware and software requirements for connection to the DTTN, will be published. In addition, a help desk will be set up to answer queries from industry stakeholders. The Government/ DTTN operator will need to consider the following initiatives and play an active role in promoting the IT literacy of SMEs to increase adoption:

An SME IT investment subvention programme or low interest loan scheme for technical equipment (PC, network) procurement and installation

IT seminars to provide free training on Internet usage

Market readiness team to help SMEs verify if their PCs, connectivity, operations and error handling procedures are ready to transact using the DTTN

7.3.2.2 Adoption facilitation – international promotion With overseas participation, benefits of the DTTN can be further realised as less paper based trade and transportation documents will need to be handled and processed. To arouse international awareness on the implementation of the DTTN, promotional activities and marketing campaigns such as participation in international conferences and trade fairs should be conducted to promote the benefits of the DTTN. Apart from the direct overseas promotion, indirect promotion to local stakeholders such as setting up referral programs for overseas partners (e.g., rebate on service fee, special discounts on subscription fee when subscribing with overseas partners, etc.) can also be used to encourage local stakeholders to persuade their overseas counterparts to adopt the DTTN. 7.3.2.3 Adoption facilitation – retention and on-going support Initial adoption of the DTTN cannot be considered as a measure of successful change of a stakeholder’s processes, nor can it guarantee the future usage by stakeholders of electronic transactions. To ensure the continuous success of the DTTN, it is imperative that stakeholders can continuously realise added value in functionality and improvement in service quality.

Satisfaction with service offerings and quality customer service are important factors that will ensure customer retention. Customer services can be continuously improved by:


55

Organising customer liaison group meetings to gather feedback and suggestions from customers and to foster continuous service improvements. Apart from improving the level of customer satisfaction, this will also facilitate the Government and service providers to identify demand for new services;

Offering technical assistance through a help desk and responsive call centre;

Establishing account management teams to serve different communities; and

Publishing periodic communication materials. Performance of services should be measured to maintain the service quality using key performance indicators. Transparent and efficient management processes should be in place to specify the performance measurement responsibility (e.g., what and who should be measured), performance review process (e.g., half-yearly review), actions to be taken if targets are missed (e.g., corrective actions), and arbitration procedures, etc. In addition, the financial key performance indicators of the DTTN should also be assessed periodically to continuously align the future investment direction with the needs of the industry and to identify any need for tactical action (e.g., introducing new services to attract more participants, retiring of rarely used messages type, etc). 7.3.2.4 Management of the evolution of standards The commonly used message standards will be covered under the proposed DTTN program scope. However, updates on EDI standards or implementation guides (such as UN/EDIFACT) will still need to be issued to the market on a regular basis. On top of these technical standards, new business requirements and international trade requirements or initiatives will also arise. A DTTN standards committee, comprising representatives from the nine communities, government agents, expert advisors and the DTTN architects, should be formed to manage the standards maintenance process such as standards version upgrade and additional standards adoption after the initial implementation. The committee will periodically examine change requests and approve the change requests according to a set of agreed criteria (which should be defined during the implementation of the DTTN). Once the change requests are approved by the committee, they will be published to the DTTN participants and value-added service providers, while the DTTN will also be enhanced internally to support the new or revised standards. 7.3.2.5 Integration with other logistics initiatives The DTTN implementation is only part of the overall “Logistics Hong Kong” master plan. The benefit of the DTTN could be further enhanced by complementing initiatives from other groups of the LOGSCOUNCIL (e.g., P-logistics Project Group concerns with the necessary physical infrastructures to support the logistics industry, H-logistics Project Group concerned with the aspect of human resources, M-Logistics in Marketing the DTTN and S-Logistics to work closely in serving the SME sector). Regular communication and co-ordination with other logistics initiatives is therefore essential to ensure that any cross initiatives integration requirements, issues or dependencies will be identified and managed.

Appendices Final Report

56

8 Appendices

8.1 Key business messages to be supported by the DTTN Table 8-1 summarises key business messages to be supported by the DTTN by release in each trade and logistics business process. Table 8-1 Key messages supported by the DTTN

No. Trade and logistics business processes to be supported by the DTTN

Key business message

1 Establish sales/ purchase contract

Release 1 • Sales order/ purchase order

2 Apply and obtain insurance coverage

Release 1 • Insurance application form • Insurance policy/ certificate • Open/ floating insurance policy • Declaration on shipment details and insured amount against open/

floating insurance policy

3 L/C application and processing (for documentary credit only)

Release 1 • L/C application form • L/C • L/C amendment request

4 Prepare goods for delivery

Release 2 • Packing list • Commercial invoice

5 Arrange inspection and issue certificate

Release 1 • Inspection arrangement request • Inspection arrangement notice • Inspection certificate

6 Apply & obtain licence/ certificate/ permit and submit notification for both exportation and importation

Release 1 • Licence/ certificate/ permit application form • Licence/ certificate/ permit • Notification

7 Arrange and execute transportation (both single mode and multi-modal arrangement)

Release 1 • Advance shipping notice • Shipping instruction/ order form • Confirmation of shipping instruction/ order form • Shipping order/ booking request • Booking confirmation notice • Cargo receipt/ cargo reception slip • Empty container order/ transport set • Licence/ certificate/ permit • Notification • Draft master bill of lading • Manifest • Master air waybill • House air waybill • Pre-alert package • Cargo arrival notice


57

No. Trade and logistics business processes to be supported by the DTTN

Key business message

• Shipment arrival notice Release 2 • Container inventory information • Container maintenance status • Trucking company information • Equipment interchange receipt • Export consignment details form • Reception check list • Bill of lading • Sea waybill • House bill of lading • Surrender notice for telex release • Telex release • Departure notice • Company guarantee • Detention notice 1 • Detention notice 2 • Delivery order (D/O) • Release order • House D/O • Transhipment notification

8 Present and verify trade documents for financial settlement

Release 1 • L/C • Master air waybill • House air waybill • Licence/ certificate/ permit • Notification • Certificate of origin • Inspection certificate • Insurance policy/ certificate

Release 2 • Bill of lading • House bill of lading • Sea waybill • Commercial invoice • Bill of exchange • Packing list • L/C collection letter • Document arrival notice

9 Submit trade declaration

Release 1 • Trade declaration

10 Payment and receipt management (for the provision of trade and logistics services)

Release 1 • Invoice from insurance company • Invoice from inspection agency • Invoice from freight forwarder • Invoice from carrier • Invoice from trucker • Invoice from terminal • Payment instruction • Payment confirmation


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8.2 Service offerings of the overseas port community systems

Service offerings Singapore (Portnet)

• Provide various applications that help users in the logistics industry to streamline their day-to-day operations, which include: o A web-based workflow system that enables transactions and electronic documentation

exchange between the shipping community and the port system o A container terminal enterprise resources planning solution and empty container

management solution for the terminal operators and shipping lines respectively o An online global exchange platform for shipping lines to sell or buy empty containers as

well as to trade empty vessel slots o Information provider services for the shipping community to check the arrival/ departure

status of vessels via Internet or SMS o A maritime portal for ship owners and shipping agents to book marine services o An online service for shippers to check the status of various shipping and vessel services

The Netherlands (W@VE)

• Provide Web-based applications for trucking companies to pre-notify the container terminals of the information about container pick-up and delivery, as well as to exchange electronic transport documents with shipping agents

The U.K. (FCPS/ Destin8)

• Provide a mainframe-based information exchange system (FCPS) that provides applications for the port community to facilitate exports, imports, transhipments, consolidations, hazardous cargo and maritime statistics reporting processes

• Provide a Web-browser based application (Destin8 – a portable version of FCPS) for the port community to facilitate exports, imports, transhipments, consolidations, warehousing, government declarations, and dangerous goods handling processes

Germany (Dakosy)

• Provide an EDI network for the port community that links with terminal operators, shippers and manufacturers via shipping lines, brokers, forwarders, tally firms, regulatory bodies, hauliers and warehouse keepers, and final consignee

• Provide application systems for the port community with connection to the Dakosy network including: o Applications for carriers such as a transport-ordering system for shipping lines and

shipping agents; a port railway operating and information system that offers real time on-line document exchange between freight operators and agents involved in rail and road transport; a universal communication interface system for interchanging transport orders between carriers (railway, truck, feeder, and river barges); a road hauliers’ communication system for supporting hauliers and terminals in container handling around the port; and an inland waterway transportation handling and disposition management system

o Applications for forwarders such as a seaport documentation system and an air cargo documentation processing system

o Applications for customs to handle import and export documentation o Applications for the port and government agencies to handle and monitor dangerous

goods


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Service offerings Australia (Tradegate)

• Serve as a central point to provide electronic trade and transport services that links and facilitates information sharing between business and government organisations by providing the following applications: o A Web-based application for lodging export declarations and receiving export clearances o A Web-based application for lodging import manifests o A Web-based export documentation system for exporters, packers, forwarders, terminals

and carriers (including road, rail and sea) to create and exchange export and logistics documents

o An import documentation system for importers, freight forwarders, customs brokers and shipping lines to exchange import and logistics document

o A payments system that integrates with other application services (such as payment to logistics services providers)

o A rail cargo system for rail users to interact with rail carriers, terminals/ wharves and ocean shipping companies

• Provide a secure and virtual private network for the trade and transport community

The U.S. (FIRST)

• Provide a Web-based system that provides online trucker booking services and real-time information on carriers status, container cargo status, and traffic status at terminal entry gates


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8.3 Industry stakeholder participants in meetings/ workshops The follow public and private organisations have been consulted in various meetings and workshops during the course of this study. Their kind cooperation and support is hereby gratefully acknowledged.

Community Stakeholder Board of Airline Representatives E-Logistics Group – Task Force for IT Education for SMEs Hongkong Association of Freight Forwarding and Logistics Ltd. Hong Kong Article Numbering Association Hong Kong Association of Aircargo Truckers Ltd. Hong Kong Liner Shipping Association Hong Kong Logistics Association Hong Kong Watch Manufacturers Association Ltd. Internet Professionals Association The Chartered Institute of Logistics and Transport in Hong Kong The Hong Kong Shippers’ Council

Associations/ Organisations

The Institute of Purchasing and Supply of Hong Kong Edward Keller Ltd. J.C. Penney Purchasing Corporation Philips Electronics Hong Kong Ltd.

Buyers/ Sellers23

TAL Apparel Ltd. Cathay Pacific Cargo Chu Kong Agency Co. Ltd. COSCO (H.K.) Shipping Co., Ltd. DHL Worldwide Express FedEx Express Kowloon-Canton Railway Corporation Maersk Hong Kong Ltd. Mid-stream Holdings Ltd. Orient Overseas Container Line Ltd. Orient Trucking Hong Kong Ltd. TNT Express WorldWide (HK) Ltd.

Carriers24

United Parcel Service Singapore Pte Ltd. ATL Logistics Centre Hong Kong Ltd. BALtrans Logistics Ltd. Cosco Container Line Agencies Ltd. Danzas AEI (HK) Ltd. Jardine Logistics Ltd. Kerry Logistics Network Ltd.

Freight forwarders25

Sun Hung Kai Super Logistics Ltd. Asia Container Terminals Ltd. CSX World Terminals Hong Kong Ltd. Hongkong International Terminals Ltd. (HIT)/ Logistics Information Network Enterprise Ltd. (LINE) Hong Kong Air Cargo Terminals Ltd.

Terminals

Modern Terminals Ltd. Airport Authority Hong Kong Customs & Excise Department

Government and Government-related

Hong Kong Productivity Council

23 Also act as importers/ exporters 24 Include express integrators and truckers 25 Include third party logistics


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Community Stakeholder Hong Kong Trade Development Council Innovation and Technology Commission Legislative Council (Transport Constituency)

Tradelink Electronic Commerce Ltd. AON Risk Services Ltd. Grande Insurance Brokers Ltd. Insurance agents Sun Hing Insurance Brokers Ltd. Intertek Testing Services Hong Kong Ltd. Inspection agencies McLarens Hong Kong Ltd. Standard Chartered Bank The Hong Kong and Shanghai Banking Corporation Ltd. Relevant

Financial institutions The Securities and Futures Commission of Hong Kong Atos Origin (Hong Kong) Ltd. DigiLogistics.com Ltd. Hopewell Holdings Ltd. OnePort Tradeport

Miscellaneous

Traxon Asia Hong Kong


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8.4 Glossary of terms ANSI X12 American National Standards Institute X12 ASCII American Standard Code for Information Interchange ASTRI Hong Kong Applied Science and Technology Research Institute Co. Ltd. BPI Business Process Interconnect CAPEX Capital Expenditure Cargo-IMP Cargo Interchange Message Procedures CSV Comma-Separated Values File Dakosy Datenkommunikationssystem (English equivalent: Data Communications System) D/O Delivery Order DTTN Digital Trade and Transportation Network DUNS Data Universal Numbering System ebMS ebXML Messaging Service ebXML Electronic Business using eXtensible Markup Language EDI Electronic Data Interchange FCPS Felixstowe Cargo Processing System FIRST Freight Information Real-time System for Transport FTP File Transfer Protocol GLN Global Location Number GTIN Global Trade Item Number HIT Hongkong International Terminals Limited HKSCS Hong Kong Supplementary Character Set HTTP HyperText Transfer Protocol HTTP/S HTTP over Secure Sockets Layer IT Information Technology KCRC Kowloon-Canton Railway Coporation L/C Letter of Credit LDAP Lightweight Directory Access Protocol LegCo Legislative Council LINE Logistics Information Network Enterprise LOGSCOUNCIL Hong Kong Logistics Development Council MCP plc Maritime Cargo Processing Plc. MTRC Mass Transit Railway Corporation OPEX Operating Expenditure PCR-RIL Port CommunITy Rotterdam – Rotterdam Internal Logistics PKI Public Key Infrastructure PMLDU Port, Maritime and Logistics Development Unit POP3 Post Office Protocol version 3 PRD Pearl River Delta S/MIME Secure Multipart Internet Mail Extensions SAML Security Assertion Markup Language SITC Standard International Trade Classification SME Small and Medium Enterprise SMS Short Message Service SMTP Simple Mail Transfer Protocol SOAP Simple Object Access Protocol SSCC Serial Shipping Container Code SSL Secure Sockets Layer SWOT Strength, Weakness, Opportunities and Threats


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TLS Transport Layer Security UN/EDIFACT United Nations Electronic Data Interchange for Administration, Commerce and Transport VAN Value Added Network W@VE Web Application voor Voormelden met EDI (English equivalent: Web @pplication for EDI) WTO World Trade Organisation XML eXtensible Markup Language

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