International Trade Logistics Challenge Automated Global E-Trading

Introduction

Communications and transportation networks improved so dramatically over the last few decades, that even faraway regions and nations around the globe are now within the reach of a mere Internet connection. As a result, companies have jumped into international markets and outsourced their manufacturing and procurement operations to cheaper overseas manufacturers and suppliers, while some have established subsidiaries around the world. The Internet-based e-business promises to further shrink the world into a "global village" as people research, source, and procure products globally via the ubiquitous Web, buy and sell these via various e-commerce sites, storefronts, and marketplaces, and manage international supply chains with collaborative software and trading exchanges.

However, this kind of e-business has yet to surmount the challenge of global trade compliance and the diverse needs of international customers and trading partners. Simply put, many supply chain management (SCM), let alone enterprise resource planning (ERP) vendors lack strong international trade logistics (ITL) and global trade management (GTM) capabilities. Namely, while technology may be rendering a world that appears a lot smaller, the very same real-life world has become a lot more complicated in the process, as many barriers exist to conducting international business over the Internet and most businesses are not yet prepared for that.

The Internet has enabled a networked world and it has enabled a communication infrastructure and emerging enterprise applications, which have opened the door for international trade in earnest. But not many applications really offer multi-enterprise services and software to automate the transportation and Internet-based logistics management needs of a global trading network. In other words, web-based buy- and sell-side applications fall well short of providing automated global trade management and a traditional international trade logistics.

In addition to language barriers, and the fact that diverse countries use different formats for weights and other units of measures (UOM), dates, telephone numbers, addresses, and other commonly used information, other hurdles for e-business are GTM and ITL compliance issues. Collaborative e-business applications must be able to comply with a variety of complex regulations to engage in global trade, and the companies that cannot handle these regulations will leave a lot of money on the table.

There are some indications that almost half of international orders to US e-commerce sites remain unfulfilled because companies cannot handle the necessary customs and duty procedures. On the other hand, billions in US import duty refunds go unclaimed each year by companies that do not understand the trade laws. Enterprises with global operations cannot manage their transportation needs with generic sourcing and procurement applications any longer, and more astute transportation management systems (TMS) will have to help these enterprises address their ever more complex requirements, while the SCM functionality will have to continually enhance supply chain business relationships, transactions, and communication.

Definition of a True ITL and GTM System

As described in more detail in "International Trade or ITL Adoption", ITL and GTM, which are execution systems designed to automate the import and export business process, and whose basic functional components are trade documentation generation and transmission, and regulatory compliance validation, would hence include a complex exchange of information between multiple entities, including suppliers, carriers, freight forwarders, customs brokers, banking institutions, and other third party transportation and storage providers. A true ITL and GTM system is, in effect, an inter-enterprise resource management system, and requires a data model that takes into account the breadth and depth of information exchanged between these interrelated entities. Thus, ITL and GTM systems should support export and import borders-crossing processes, documentation and compliance, accounting, and financial reporting in a multi-currency, multi-language and multi-UOM environment.

Further, customs requires that all imports be coded and categorized, and, because these codes vary among countries, they must also be harmonized from country to country, while restricted-party screening regulations may apply to products that cannot be imported or exported between specific countries for national security, health, and environmental reasons. In addition, countries and localities have different licensing requirements and charge different duties, value-added taxes (VAT), and fees, which altogether amount to a major content-management challenge. Beyond these regulations, there might be many other financial and logistical considerations, since ITL has complex processes for financing, risk management, and financial settlement, prompting financial institutions and software vendors to continue ironing out the applications and services e-businesses require for automating international payments. Suppliers will want integration with their order management systems, whereas retailers will want integration with their sourcing and procurement systems. Alternatively, these functions may be embedded in the ITL solution.

Although global trade requires shipping goods across borders in a multimodal transportation manner, many international shippers do not yet have e-logistics software that provides the necessary visibility and flexibility to e-businesses that want to automate their global supply chains. They also do not have e-procurement software that can analyze the total landed cost (i.e., all the costs of sourcing and shipping a product internationally, including customs management, tariffs, transportation, cost of goods, etc.), although there have been a number of Internet-based logistics tools that are helping companies analyze and reduce costs by automating the processes of booking shipments, keeping customers informed, and making sure goods arrive on time.

On top of all this, the dreadful terror attacks of fateful 9/11 made it excruciatingly clear that companies that manage international supply chains confront additional risks. Namely, prior to that, ensuring shipment security mainly meant preventing theft and pilferage. Needless to say that post 9/11, the security concerns have shifted to clearing receiving parties, identifying who gets in touch with the shipment during its journey, and meeting new and evolving government requirements related to prior notification and documentation.

Security Regulations Compound the Problem

The US federal government has since completed its legislative agenda with congressional approval of a series of laws, including the Maritime Transportation Security Act and the creation of the Department of Homeland Security that has realigned twenty-two former federal agencies and 170,000 federal employees. Resulting from this legislation has been a need for shippers, carriers, and ports to introduce technology to better coordinate global trade processes. New transportation and trade security legislation has instituted far stricter compliance and asset tracking requirements, whereby technology has become vital to meeting the demands of these regulations.

For example, the new 24-Hour Rule from December 2002 requires ocean carriers to provide the new Department of Homeland Security, Bureau of Customs and Border Protection (CBP) with a cargo manifest twenty-four hours before a ship sails from its original port to a US port. Given that manual keying of manifest information can take a few days, which in the past would mean the US Customs receiving cargo data only after the ship has sailed, the rule has ramifications on shippers' contract management, streamlined collaboration with customers, and delivery scheduling. Namely, while even before 9/11 for shippers it was all about getting as much work done as possible prior to reaching the border, the importance thereof nowadays goes without saying, given that most work now needs to get done before the ship even sails.

Also, the Department of Transportation and US Customs have launched Operation Safe Commerce, which is intended to enhance security for international container cargo, and which will make global logistics systems even more dependent on timely, accurate data collection regarding shipment contents and movement. Since manual data entry is time-consuming and prone to errors, global logistics systems operate much better when supported by data collection based on automatic identification technologies such as bar code labels and radio frequency identification (RFID) tags, which can be scanned at strategic locations between point of origin and destination.

RFID is one of the emerging technologies that will drive increased supply chain visibility, control, and compliance. Additionally, the RFID mandate to suppliers from Albertsons, Target, Wal-Mart, and the US Department of Defense proves that RFID will have a significant impact on future supply chain operations (see RFID—A New Technology Set to Explode?).

Conclusion

To recap, exporters continue to struggle to coordinate old-fashioned international freight, financial, and regulatory processes. While these manufacturers might isolate production from inbound logistics, increasing market pressures keep on forcing better coordination. The help might come from their adoption of a new crop of web-based applications aimed at improving intricate multiparty coordination.

One of these, founded in September 1999, is Arzoon Inc. (www.arzoon.com), a San Mateo, CA-based privately-held provider of integrated logistics and GTM technology. Recently acquired by SSA Global, Arzoon, with its operations and offices located throughout North America and Europe, was one of a few dot-com era TMS start-ups that has not only weathered the enterprise applications storm so far, but has also stayed ahead of the curve. Namely, when it acquired From2, Inc., a provider of trade compliance content and automation software in March 2001, it became possibly the first software vendor to provide an integrated TMS and GTM solution. The move has availed Arzoon with a web-based ITL and GTM capability for regulatory compliance, cross-border landed costing, and global trade document generation to its then existing suite for procurement, inventory management, and transportation management.

While many TMS and logistics resource management (LRM) vendors provide a multimodal product, the options for rail have typically been limited, and that is where Arzoon has also excelled. The company has developed Internet transportation technology (logistics exchange) to help companies procure, monitor, and manage services that involve one or more modes of transportation—rail, highway, air, or water.

Global logistics systems should also be well equipped to classify shipments, identify denied parties, collect and disseminate data electronically, and provide the visibility needed to ensure shipment security. To that end, Arzoon LIFE software suite takes the item-level data from the purchase order and then records each movement of the shipment to document who exactly has touched it. The system, which incorporates a database of trade regulations, tariffs, and duties from more than twenty-five countries, lets user companies correct shipping document inaccuracies before goods reach the border, heading off potential problems at border-crossing. The system also lets companies track shipments by multiple reference numbers in a single lead of cargo, providing them with much greater visibility into shipment status. This visibility into individual shipments—via pre-inspection of purchase orders—also makes it possible for the companies to move the freight they absolutely have to and to conversely hang on with less urgent shipments.

Arzoon's acquisition by SSA Global might again indicate that more accelerated restructuring in the logistics services market is inevitable, given a plethora of point solution providers that specialize in narrow areas, from land cost calculation, visibility, collaboration, export compliance, trading document generation, hazardous material handling, to more complete transportation management capabilities. Some of the remaining players would be Vastera, NextLinx, Open Harbor, Precision Software, Nistevo, MercuryGate, G-Log, Xporta, Tarrific.com, Bolero.net, TradePoint (which has recently acquired ClearCross), GT Nexus, LOG-NET, Qiva, BridgePoint, etc. But none of these vendors handles all the requirements of automating global e-business, and some of these vendors have already merged with or acquired other companies to provide more complete offerings. For example, in addition to the above-mentioned intra-market mergers, Qiva, which had originally only sold transportation and supply chain event management (SCEM) software, acquired Capstan in 2002 to strengthen its ability to handle import and export compliance, landed cost calculations, and trade document generation.

Also, a vast majority of the leading ERP and SCM vendors still lack GTM functionality, but considering the continued increase in global sourcing, they are likely to pursue filling this gap via an acquisition of one—or even more—of the above providers.

On a more general note, to know true total landed costs, ensure compliance with customs regulations and denied parties restrictions, and properly record the relationship between buyer and seller, source of supply and product related restrictions, the ITL and GTM system should be able to track all the activities and incremental costs as the shipment is processed from point of origin to final point of receipt. Customs duties and tariffs, as well as associated rates of exchange and transportation costs should be available to accurately calculate total cost of goods, which requires a data model and integration at the product and item level between the ITL system and the order management, warehouse management, and transportation systems. As mentioned earlier on, hardly any vendor handles all the requirements of automating global e-business. While SSA Global stands a chance of achieving that down the track, all of the above issues and requirements should be taken into account during an ITL and GTM system selection, either stand-alone or within a broader SCM framework.