Global Trade Management Software Vendors Under-Perform, But Were Predictions Overly Optimistic?

  • Written By: Michael Bittner
  • Published On: November 11 2005



Background

The Internet has enabled a networked world. Communication infrastructures and emerging applications, coupled with global sourcing alternatives have dramatically opened the door for international trade. Unfortunately, as a direct result of the 9/11 terrorist attacks on the World Trade Center in New York (US), scrutiny and security, not e-commerce, have become the main themes for global trade today. By late 2001, customs officials made it clear that as far as cross-border trade was concerned, it would not be business as usual. As a result of increased security measures, compliance and risk management has become paramount to safeguard national interests, and the need for flexible systems and processes characterized by change management that can react to global trade regulations, has grown (See Fighting Terrorism with Global Trade Management for more information).

Consequently, within the months following the 9/11 attacks, stock in global trade management (GTM) companies rose, and analysts predicted that GTM growth would be double or triple the revenue from that of previous years, likely hitting 35% compounded annual growth rate (CAGR). Because of the terrorist attacks, GTM vendors were viewed as potential gainers from its fallout, as shippers needed software and technology that would provide them with tighter control of their trade operations. But while total global trade has expanded since 9/11, the revenues of GTM vendors has only modestly risen, and profits are virtually non-existent. So why has this disconnect between the analyst community's exuberance toward GTM vendor growth and the post 9/11 reality emerged?

Major hurdles facing GTM vendors prior to 9/11 are still daunting, and some hurdles have actually been compounded by the attacks.

GTM vendors were facing many challenges in selling their software and services before 9/11. Competition was fierce among vendors, startup costs for GTM software infrastructure were high for enterprises, and justifications based on return on investment (ROI) from compliance and other potential cost reductions were still an "evangelical sell" made by vendors. Moreover, vendors still face ever-changing laws, trade regulations, rules, and requirements hampered shippers. These issues continue to stall global trade creating inefficient processes and complexity, delaying the widespread use of GTM software.

Additionally, cross-border trade logistics throughput is also now hindered by a shortage of port infrastructure resources; this also overshadows the potential gains of GTM software. Shipment containers delayed at major ports like Long Beach, California or New Orleans, Louisiana (US) due to horrific weather, and expanded security, are not issues that GTM can resolve alone. Similarly, US federal security processes at the borders are not helping to alleviate delays, and in many cases may exasperate them.

Existing e-business applications still fall short in supporting automated GTM.

Now is the time for major shipping entities to automate and streamline their internal systems and processes for global trade. Unfortunately, few of today's packaged applications really offer multi-enterprise services and software that automates the transportation and e-logistics management needs of a global trading network because they do not meet cross-border requirements. Web-based buy- and sell-side applications fall short of providing automated GTM ,and partnering with a traditional international trade logistics (ITL) vendor is only a stop-gap measure because further software support and integration is still required.

Today's commercial applications fail to adequately address automated GTM, and this is true of a whole spectrum of software, be it enterprise resource planning (ERP) software from vendors like SAP and Oracle; buy- and sell-side software from vendors like Ariba and Commerce One; or software from logistics exchanges espousing global capabilities like DesCartes' Global Logistic Network (GLN) . Moreover, though e-commerce, international trade, and e-logistics software are converging through mergers and acquisitions that may potentially extend the GTM footprint, it will take time for them to be properly integrated and develop synergy.

Given these issues, currently there is no "silver bullet" that can tackle the many nuances of global trade. Existing software is only tactical in nature, and needs to evolve toward a full service oriented application (SOA) model.

E-commerce, international trade, and logistics software are converging though mergers and acquisitions to extend their GTM footprint.

All solutions should be striving for the "holy grail" in e-logistics: the global visibility of trade activities across all modes, on a real time basis, throughout the supply chain, regardless of the service provider involved. However, there are barriers to achieving this:

  • In the world of ITL, content is king, with compliance and trade documentation being major services.

  • Logistics requires shippers and carriers to communicate and collaborate, and today it is based mostly on long standing person-to-person relationships, not technology.

  • Financial services and settlement for global trade has been a backroom activity in finance organizations and financial institutions (FI) that lack the direct global logistics data and act as yet another service.

  • Most e-logistics applications alone cannot meet the requirements of global trade, because they require compliance, regulatory, and security controls from another source.

  • Global trade requires logistics execution capabilities as well as real time supply chain visibility in order to meet the anticipated needs of user in the Internet Age.

  • These functions lack convergence and will take considerable time in order to offer an effective, thoroughly extended, and collaborative supply chain..

Recent Market Convergence Not the Answer

Acquisitions by JP Morgan Chase Bank, North America of Vastera, a leading GTM player; TradeBeam Holdings Inc. of Qiva and Open Harbor; and Oracle's acquisition of G-Log have created good fodder for the analyst community touting the rapid growth of the GTM market; but, in reality, acquisitions have done little for the growth and profitability of the market overall. (For more information see Merging Global Trade Management with Global Finance; and TradeBeam Keeps Rounding Out Its GTM Set). However, while, recent merger and acquisition activity has not been the stimuli for growth, it has brought some synergy and has converged functionality that will benefit GTM software and encourage future sales. For now, services revenue still outshines licenses revenue in the GTM arena. Ultimately, the analyst community's high, initial expectations of the GTM vendor market was unfounded, but eventually the market will likely grow. Perhaps a 35 year timeframe is a more realistic when setting expectations about the growth and profitability of the GTM market, as federal and enterprise mandates for global trade push technology forward to meet security and regulatory compliance.

Summary

Global sourcing, procurement, Web-based buy and sell applications, transportation, and international trade logistics, financial services, and financial settlement are all major categories of trade functionality that are required to satisfy GTM's expanded footprint. The ante has clearly gone up on compliance and risk management. How well an enterprise is prepared for changes in trade statutes and regulations will directly affect the costs and efficiencies of an enterprise's supply chain.

Technology Evaluation Centers Inc. is committed to a more detailed examination of the many challenges facing global enterprises as they look to expand their global presence. GTM vendors and their suites of technology and functionality that streamline global trade processes are a critical part of the ongoing effort by major shippers navigate the global trade maze.

 
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