E-commerce, Cost Engines Spur Interest in Global Trade Solutions
With the addition of landed-cost engines and logistics partnerships, global trade software is moving beyond its traditional role of ensuring import/ export compliance and adding significant value to web-enabled supply chains.
The rise of e-marketplaces and a growing corporate interest in strategic sourcing have thrust the issue of international trade management into the spotlight.
Any company with internet access instantly can become a global trader today, but the hidden costs, restrictions and regulations surrounding international freight movements make it much more difficult for purchasers to know if a deal should be made. For the same reasons, companies selling over the internet often have difficulty fulfilling foreign orders. Typically they either decide to forego this potentially lucrative market altogether or are faced with unacceptable levels of returns, as customers refuse products with a higher-than-expected delivered price.
The evolution that we see beyond ASP, is where companies want to turn over this whole area to someone with domain expertise.
Greg Stock of Vastera
The latter was the case for Bruce Pettijohn, CEO of CD World.com, a web retail store for CDs, movie videos, laser discs, DVDs and entertainment software. After five years in business, 42 percent of its sales originate outside the U.S. One of the things we have been faced with is that the cost of product delivered to a customers door in another country varies with the current economic conditions and with import regulations, says Pettijohn. So what happens is we ship it and then the customer wont claim it at customs, so we are out the shipping costs and the product, whose value usually is too low to have it sent back.
To combat this problem, Pettijohn is in the process of implementing the total-landed-cost engine from ClearCross of New York City (formerly Syntra Software.) This will allow customers to see what the delivered price will be for a product including all taxes, tariffs and duties before placing the order.
We are still going through final validation and working out the bugs, but we have great hopes this will allow us to answer customers questions up front, he says.
Landed-cost engines have quickly become a must for leading software vendors in the global trade management space, which also include Vastera, Dulles, Va.; NextLinx, Silver Spring, Md.; Capstan, San Francisco; and RockPort Trade Systems, which recently was purchased by QRS Corp. of Richmond, Calif.
ARC Advisory Group describes the trend as a gold rush to deliver robust engines that include tariffs, shipping fees and financial fees. These engines will make international trade more predictable, according to a recent ARC report. ARC does not find the first generation of solutions to be very robust, however, asserting that estimates of total costs usually are off by 10 percent to 15 percent. Accuracy will improve as more cost buckets are added, it predicts, a view shared by Forrester Research. By 2003, says Forrester, vendors will partner to create landed-cost engines that include all required components, at which time they will guarantee rates given to users.
Such partnerships already are occurring, as vendors link up with transportation providers and race to form networks that provide single-source solutions for global commerce. The ClearCross Network, for example, was launched in June. Danzas AEI, the worlds largest airfreight forwarder, is an anchor member of the network, which also will include freight forwarders, e-commerce and enterprise application providers and government agencies. In the future you will see us establishing relationships with banks, insurance companies and other carriers, says Steve Cole, vice president of marketing. There are many other directions where we think the network can expand.
Managed Services
In an agreement that blazes new trails in the global trade management sector, Vastera of Dulles, Va., is taking over the U.S. Customs operations of Ford Motor Co. in exchange for shares of Vastera stock. The two companies have signed a 10-year agreement under which Vastera will provide Ford with global trade managed services, including managing Fords import and export trade processes in the United States.
Ford is the first company to fully give us the reins and to say, you guys have the technology, you have the domain expertise, you have the process knowledge, and we want you to take over the whole operation, says Greg Stock, vice president of marketing at Vastera. We are really excited about it.
And no wonder. As the No. 4 company in the Fortune 500 list, Ford is one of the worlds largest importers. In SEC filings prior to its upcoming IPO stock offering, Vastera says minimum revenue from the Ford deal will be $11.6m in 2001 and 2002. The deal also includes gain-sharing payments of from 10 percent to 15 percent of savings. After Vasteras public offering, Fords share in the company should represent a 23 percent stake.
The agreement also gives Vastera the opportunity to leverage Fords technology and expertise in the automotive industry. There are certain preferential trade programs in the world that have a very large effect on automotive much more than on other industries and Ford has built some expertise and technology around those preferential programs that we are going to roll into our products, says Stock.
Vastera plans to expand this concept of managed services beyond the Ford contract. We think there is a market among companies that want to have their global trade processes managed as a comprehensive service, says Stock. We are planning to take this model to other auto companies, to high-tech companies, to any company where it applies.
The deal appears to have helped Vastera in the market. It recently raised the opening range share price for its upcoming IPO to between $11 and $13, a $2 increase over its original estimate.
Capstan was launched as a web-native product with the concept of a global network in mind one that also connects customers and suppliers. Steve Zocchi uses Capstan client Bechtel to illustrate. Bechtel has to spontaneously generate a supply chain for each of its huge infrastructure projects around the world and we are the backbone for that, he says. We have to make it as easy as possible to get a supplier from wherever they are in the world into this process. All that supplier has to do is pull up a web browser and log into the Capstan Network. Once we have connected all the suppliers, we then bring into the equation all the logistics service providers that are in middle of this space for things like transportation, warehousing, customs brokerage, and customs clearing. What is really important, Zocchi adds, is that everyone is working off a common data repository.
Zocchi says he already is starting to see the network effect, where the network becomes more valuable as more people sign on. Financial institutions have come to us to say they would like to provide the financing that surrounds global trade execution and there are consultants who help minimize duties and taxes who want to be on the network, so you get this derivative benefit, he says. Its like an internal flywheel that begins to spin out services.
Partnership Pays Off
One way to quickly multiply the network effect is to partner with logistics exchanges, whose many participants need capabilities for international trade. NextLinx, for example, recently joined forces with G-Log to provide a Global Enterprise Transportation solution. Participants in G-Logs exchange will have access to NextLinxs transaction services and online content for landed costs and import/export trade regulations. NextLinx customers, through G-Log, will be able to take advantage of lower transportation costs and improved visibility and control of international shipments.
There are several such partnerships. Vastera is the global trade solution for RightFreight.com and GoCargo.com while Capstan is the embedded solution in i2 Technologies FreightMatrix, for example. Partnerships also are occurring between global trade logistics vendors and the software companies that power e-marketplaces. Capstans relationship with i2 extends to i2s TradeMatrix platform for e-markets and Ariba has adopted ClearCross as its standard for global commerce management.
Many public exchanges separately have incorporated global trade solutions: USBid.com and ShipChem are using NextLinx, for example, while Vastera is the choice for apparel marketplaces Fasturn, CatalogCity.com and CapacityWeb. The latter allows members to buy and sell excess industrial manufacturing capacity at plants around the world. When companies are looking at potential third-party manufacturers, they want to pick the one that will give then the best profitability, says Stock. Vastera helps them make that decision because it allows them to consider the total cost to move those products into the destination country.
Private exchanges also are turning to global trade solutions. Sears Roebuck, for example, is using RockPort Trade Systems to build its global trade community. Sears, which went live Sept. 3, will be using RockPort to manage all of its global sourcing, says Susan Welch, head of the RockPort unit at QRS. This includes the placing of orders around the world, the dynamic tracking of those orders, workflow and exception alerts. We also will be bringing their vendors on so vendors can communicate with them as far as status of orders.
This increasing new market for international trade solutions reflects the continued growth in global e-commerce, predicted by Forrester to reach $6.8tr by 2004, and the fast pace at which web-based transactions occur. If you think about what is going on in the new economy and think about the buying and selling that has to get done on line … you can see that all of a sudden you are making transaction decisions that really are decisions around whether to do trade, says Marylou Fox, COO of NextLinx. These decisions must be supported by reliable, real-time information, she says.
The landed-cost engine is an integral part of making these exchanges work, because it allows buyers and sellers to talk in a common currency or in common terms, says Cole of ClearCross. In the old days it used to be that you would call up your supplier, order 100 tons of steel, and it would be up to you to figure out whether you had the quota for it, what the tariffs were going to be, how you were actually going to transport it from the mill to your stamping plant, and all of that was essentially hidden behind the transaction. Now, because transactions in the virtual marketplace move so quickly, you have to be able to do those calculations in real time and the results have to be both dynamic and sensitive to all components. If you are buying DRAMS [dynamic random access memory chips], you could be talking to two or three different suppliers, perhaps one in Japan, one in Singapore and another in Taiwan. Now as the buyer, how do you intelligently compare those three offers without a landed-cost engine, because I guarantee you the tariffs and duties will be different for each country?
Intelligent decisions also require the other functions of global trade management software, such as checking regulations to make certain that a particular shipment is allowed. Lets say you want to source a product in China to your distribution center in the U.S., from where you ship to destinations in the U.S., Canada and Mexico, says Welch. The system may tell you no, you cant transship these goods through the U.S. to Mexico. You might then decide to reroute the goods going to Mexico, but the burden for informing you of this issue is on the system.
Restricted-party screens also are important, even for products like music CDs. We have some products that may not be allowed in countries like Iran, says Pettijohn. We need to know that.
Compliance and documentation needs were behind the decision by Air Products Corp. to implement Vasteras export solution, says the companys Karen Drahushuk. Our exports were increasing 33 percent a year and there was no way we could keep up using our old manual system, she says. Air Products exports to 55 different countries and has many products that could be used for nasty things like nerve gas, so it is especially concerned about compliance with licensing requirements and restricted parties lists. The Vastera system stops you unless you have all the appropriate information, such as a license number, she says. It also has helped the company control costs while growing its international business. Since 1966 exports have quadrupled, but only 2 people have been added to staff. To further increase efficiency, Air Products is building a link with its freight forwarder so it can feed flat files from Vastera directly into the forwarders system.
Ensuring compliance with the many rules governing import/export operations around the world, including various trade agreements, continues to be at the core of most global trade management solutions. Vendors in this space emphasize the depth, quality and currency of their content and their ability to translate this content into accurate documentation and fewer customs delays.
Our strategy has been from the beginning that content is king; everything has to be about content, says Vasteras vice president of marketing, Greg Stock. He notes that Vastera hires many in-country experts and has numerous employees that previously were officials with U.S. Customs, including former commissioner George Weiss. The question companies should ask is whether a system provides enough information about enough countries to allow you to create all the documents you need for import and export, he says. We have the New Zealand Dairy Board doing business in 120 countries using our content and documentation.
Gaps in Content
NextLinx is the market leader today in terms of the size, breadth and depth of online content, says Fox. The COO notes that NextLinxs Global Knowledge library includes more than 19,000 classifications included in the Harmonized Tariff Schedule.
Others make similar claims, but the truth is there are some gaps still to be filled in all the content libraries. Users simply have to make sure their vendor of choice covers their particular needs.
One thing is certain: By making content a core competency, these vendors maintain far more complete and up-do-date global trade information than even large companies could do on their own.
And keeping up on global government regulations is no easy task. I think a lot of people have the misconception that all of these country-specific regulations are just available to the public, that you go to their Library of Congress equivalent and grab these books off the shelves and there are all the regulations, says Stock. But in a lot of cases youve got to license that information directly with the government and you need in-country experts who have relationships with people in agencies around the world. Then, once you get the information, its not merely a matter of hiring a bunch of data entry people to codify it. You have to very carefully interpret these regulations and then codify them with intelligence in a software solution that can automate your business processes.
Zocchi of Capstan believes that other types of content will be made available by these vendors as the market matures. Say there was a big fire in Indonesia and a third-party logistics provider in the network has made arrangements with the port authority about how their traffic will be handled at the port while the fire is causing reduced visibility, he says. You could have a web broadcast over the network to talk about that.
The internet has made keeping content up to date immensely easier. Vendors that were traditionally client/server and license-based increasingly are marketing their content as a web-hosted service. With the content all in one place, it is much easier to update.
Traditional client/server applications had worked very well for us in the past, but there always were problems around managing content, says Cole. Rules and regulations around international commerce change all the time. The internet has really transformed that. Our new products are all network-based, which means all the content sits in a single place where we can manage it every day and update it every day, so our customers always are assured of dealing with the latest information.
TradeSphere is Vasteras set of web-based applications, which are available as an ASP or through its portal, TradePrism.com. This is a place where all the partners in a global exchange can come together to collaborate, whether it is to view documents online or calculate landed costs or check restricted parties list, Stock says. TradePrism also enables even the smallest company to become global immediately, he says. If I am a small mom-and-pop shop and I put up a web site and I want to sell my product in other countries, I can use Tradeprism.com to guide me through the process and help me execute an export or import transaction, at a very low entry cost.
The landed-cost engine is an integral part of making these exchanges work, because it allows buyers and sellers to talk in a common currency or in common terms.
Steve Cole of ClearCross
Fox says NextLinx see its web-hosted service becoming a place where companies can come to do a whole range of global trade activities. We see global corporations increasingly interested in using NextLinxs ASP as an environment for managing the whole global trade process, where they can bring together their import/export departments, all their subsidiaries, their forwarders and their transportation providers.
Vastera already sees the market moving beyond the application service provider model to something that it calls managed services. The evolution that we see beyond ASP, which is manifested in our deal with Ford (see sidebar), is where companies want to turn over this whole area to someone with domain expertise, says Stock. They are saying, Look, we are leveraging your technology and your content, but we still have to keep a staff of in-house trade experts, who are very hard to find and very hard to keep and very hard to keep educated on the rules and regulations of country after country after country. They want someone else to provide that infrastructure.
Another way in which some global trade management vendors are enhancing their service is by providing full electronic filing capabilities with customs, an activity that previously was available only through customs brokers. ClearCross is the first to offer full Automated Broker Interface capabilities with U.S. Customs. Using ABI to file documents electronically helps clear those shipments through customs much more rapidly, says Cole.
RockPort has built a direct link to U.S., Canadian and European Customs, says Welch, but the links still need to go through government testing.
Logistics services, such as booking transportation, tracking shipments, and providing ship/receive acknowledgments and delay alerts also are in demand and are part of most vendors product.
Metrics are being offered as well. RockPort allows users to compare vendors using historical information on how often they deliver full orders, on-time performance and other factors.
The combination of more functionality and rising demand from e-commerce businesses is creating a strong market for global trade management vendors. Coles comments are representative. “We see interest in this space increasing almost geometrically by the day,” he says. “There is a lot of interest, not just on the part of customers but from the financial community in terms of venture capital. I think this is directly related to our customers ability to have a global presence, particularly through the internet and e-marketplaces.”