Market Leaders of Global Trade Management

Enter the Leaders of GTM

While many eyes are still on the consolidation of the mainstream enterprise resource planning (ERP) market, the end of 2004 and the beginning of 2005 also have seen the acquisition moves of two prominent players in the global trade management (GTM) market to streamline the entire life cycle of a global trade and make cross-border transactions more efficient. Providing solutions that integrate the physical and financial supply chains by more holistically optimizing the "procure-to-pay" and "order-to-cash" cycles for global corporations appears to no longer be mere buzzwords and concepts.

Two of these acquisitions are JPMorgan Chase Bank, N.A. (NYSE: JPM) and Vastera (NASDAQ: VAST) ; and TradeBeam Holdings, Inc., and Open Harbor.

Part four of the Will 2005 Validate the Realm of GTM—Unifying Financial and Physical Supply Chains? series

JPMorgan Chase Bank Acquires Vastera

On January 7, JPMorgan Chase Bank, N.A.(NYSE:JPM), a leading global financial services firm with assets of $1.1 trillion (USD) and operations in more than 50 countries signed an Agreement and Plan of Merger with Vastera (NASDAQ: VAST), the only publicly traded software company that focuses on global trade. With services including software, managed services, global trade content, education, and high-end consulting services, Vastera was deemed a desirable complement to the Logistics and Trade Services business of JPMorgan Chase's Treasury unit.

The Treasury Services unit is a top-ranked, full-service provider that meets the needs of corporations, financial services institutions, middle market companies, small businesses, governments and municipalities worldwide. Its services include innovative payment, collection, liquidity and investment management, trade finance, commercial card, and information solutions. With more than 50,000 clients and a presence in 36 countries, it is the world's largest provider of treasury management services. Under the Agreement and Plan of Merger, Vastera shareholders will receive $3.00 (USD) for each outstanding share of Vastera common stock they own, for a total transaction value of approximately $129 million (USD), about 50 percent premium over the annual revenue of Vastera.

Vastera's solutions automate the required trade management processes associated with the physical movement of goods internationally. The acquisition should further provide JPMorgan Chase clients with a "one-stop shop" service that addresses the increasing challenges and risks associated with international trade. The JPMorgan Chase solution currently facilitates the seamless management of information and processes to support the movement of physical goods and financial settlement of the complete global trade process. With the services of Vastera, JPMorgan Chase boasts it will be the first global financial institution to offer a complete, integrated cash, trade, and logistics solution across the physical and financial supply chains in a way that would maximize benefits to its clients.

Previous to the acquisition, Vastera had an extensive working relationship with JPMorgan Chase by providing GTM solutions. Now the two tout to be able to build on that relationship as part of the same firm, in a broader GTM infrastructure, to bring tangible benefits to clients of both formerly independent companies. This acquisition should give current JPMorgan Chase's clients the benefits of broader GTM solutions. In turn Vastera's clients will receive the benefits of JPMorgan Chase's comprehensive financial services platform and product set. Vastera will continue to independently market its software and services, but much more growth opportunity is expected from bundling Vastera's software and services with JPMorgan Chase's offerings.

This is Part Four of a six-part note.

Part One defined GTM.

Part Two discussed the tradeoffs.

Part Three addressed managing global trade flows.

Part Five will cover dealing with GTM complexity.

Part Six will present challenges and make user recommendations.

Completion of the merger is subject to Vastera shareholder, various banking, and other regulatory approvals. The transaction was approved by Vastera's board of directors recommending that Vastera shareholders vote in favor of the transaction. Two major shareholders representing approximately 28 percent of outstanding Vastera shares, Ford Motor Company and Technology Crossover Ventures, have reportedly committed to vote in favor of the transaction pursuant to voting agreements.

With approximately 650 professionals in 14 countries and with over 400 clients throughout the world, Vastera is the worldwide leader of GTM solutions. It serves an international client base, including companies such as Alcatel, Dell, Ford, General Electric (GE), Lucent, Fonterra, Goodyear, Nortel Networks, and Seagate. Vastera's clients use its solutions and services to manage their trade, worldwide by managing the information flows associated with the cross-border components of importing and exporting goods. The vendor's solutions and services enable clients to manage the complexities and inefficiencies inherent in global trading in a manner that allows them to capitalize on the large, highly fragmented, and rapidly growing opportunity that exist in the international market. These clients reportedly realize significant reductions in costs to manage their global trade operations while improving compliance with government regulations and service levels.

Vastera touts its trade experts to be the company's most valuable asset and they were certainly a key factor in JPMorgan Chase's acquisition decision. There appears to be a strong, global demand for trade consultants, because companies want to understand the impact of ever-changing regulations on their business strategy, network design, operations, and financial performance. Consequently, Vastera sells its products and services through its offices in the US and through subsidiaries and branch entities in the UK, Europe, Mexico, Canada, Brazil, and Japan. Its key strengths include comprehensive regulatory content, blue-chip clients, and its ability to merge technology with managed services. It has a strong presence in the automotive and high-tech industries, has in-depth expertise in Brazil, Canada and Mexico, and is currently targeting China. As the only GTM vendor with dedicated personnel and facilities in fourteen countries, Vastera continues to be recognized for its superior management systems and B2B best practices around the world, resulting in service that emphasizes compliance, efficiency, and effectiveness.

For additional information see Merging Global Trade Management with Global Finance.

Vastera Certifications

At the end of 2004, Vastera announced that its eleven managed services operations in Mexico and its site in Bydgoszcz, Poland were certified in compliance with the International Organization for Standardization (ISO) 9001:2000 standard, and ISO 9001:2001, respectively. Founded in 1947, ISO facilitates the international coordination and unification of industrial standards. It has a network of national standards institutes from 148 countries, working in partnership with international organizations, governments, industry, and consumer representatives. ISO 9001:2000 and 9001:2001 certified organizations enhance customer satisfaction by not only meeting customer and regulatory requirements, but also by continually working to improve performance. The certification process includes a rigorous review of business processes, documents, work practices, data, and records by an independent third-party auditor. Thus, such certification indicates that these sites have an exemplary quality management system in place. In addition to participating in such reviews, Vastera employees were interviewed and on-site observations were held at its Mexico and Poland facilities. To date, Vastera has received ISO certification for fourteen managed services operations, including those in Mexico, Poland, US, and Canada.

In addition to being ISO 9001:2000 and ISO 9001:2001-certified, Vastera is

• Customs-Trade Partnership Against Terrorism (C-TPAT) certified, enabling expedited clearance through and reduced physical examinations at US Customs' checkpoints. The C-TPAT program was designed to ensure that proper security procedures are in place to protect the flow of global trade entering the US.
  
  
• Partners in Protection (PIP) certified in Canada, recognizing Vastera's dedication to enhanced border security in North America. Mid-2004, Vastera announced that it has been accepted as a member of the Canadian government's PIP program, a joint government-business initiative designed to enhance border security, combat terrorism and organized crime, increase awareness of compliance issues, and detect and prevent smuggling. Available to importers, carriers, brokers, warehouse operators and associations who work in international trade, the PIP program teams private industry with the Canadian Border Services Agency (CBSA). To be admitted to the program, eligible companies must complete a memorandum of understanding, conduct a thorough self-assessment of their supply chain security procedures, and meet periodically with CBSA representatives to exchange information and participate in awareness sessions that help detect illegal activities. In working with the CBSA, Vastera is building a working relationship with the Canadian government in relation to protecting the health, safety, and economic prosperity of Canadians. In return for acceptance into PIP, Vastera will offer support to its own clients throughout the application process. Once approved under the PIP program, Vastera clients can then consider participation in the Free and Secure Trade Program (FAST), a joint US-Canada cross-border program under which pre-approved carriers, importers, and drivers can leverage expedited clearance into either country, transforming the compliance obligation into an opportunity to streamline the supply chain. Additionally, Vastera is a certified customs broker, and an approved software provider of the Customs Self Assessment Electronic Data Interchange (CSA EDI).
  
  
• Simpler Trade Procedures (SITPRO) certified in the UK, whereby Vastera is an approved document supplier. It can produce and supply nearly seventy SITPRO standard documents for its customers operating in the UK and Europe.
  
  
• Wewntrzny System Kontroli (WSK) certified in Poland, recognizing Vastera's exemplary quality and compliance management systems. WSK is the Polish internal control system certification. Vastera's Managed Services operations in Poland received WSK certification from the Polish Center for Testing and Certification. The vendor is also IQNet certified in Poland recognizing that its Managed Services operations have implemented and are maintaining a management system which fulfills the requirements of the ISO 9001:2001 standard.

In addition to these certifications, at the end of January, Vastera announced that it is expanding its trade management consulting practice to the European Union (EU). Its management consulting practice complements the software and outsourced trade management solutions already offered by Vastera in Europe. Among the trade management consulting services being offered in the EU are import/export compliance program assessments, process design and implementation consulting, and consulting in areas such as global supply chain management (SCM), and trade lane redesign. Vastera hopes to leverage its strong in-country presence as it pursues new consulting opportunities in Europe, where it currently provides trade management operational solutions and software to companies such as Dell, Ford, Logica, Lucent, Nestle, Nortel Networks, Schenectady International, and Seagate Technology.

Thus, JPMorgan hopes to leverage all of Vastera's certification and prominence in international trade. However, one should note, that though Vastera is impressive, and JPMorgan has notable reach, Vastera, focuses more on the rules and regulations imposed by the many governmental bodies required in cross-border trade (such as product harmonization coding, customs clearance, duties, tariffs, and taxes). Ultimately, the acquisition agreement with JPMorgan will not compensate for what Vastera has always lacked—the technology to automate and manage global logistics tracking, goods movement, and the visibility part of the physical supply chain. JPMorgan Chase will thus have to continue its pursuit of solutions to round out a complete GTM product portfolio, as to reach a "breeze" to navigate international trading channels to place orders, send, and receive shipments and settle bills anywhere in the world.

TradeBeam Keeps on Rounding Out Its GTM Set

Combined, JPMorgan and Vastera promise to deliver a holistic approach to global trade management; however, it may not be the one and only option for international traders. TradeBeam Holding Inc. is also vying to create an integrated physical and financial supply chain. Its solutions aim to streamline global trading processes for enterprises and their partners, including import and export compliance and global trade finance solutions, like open account and letters of credit (LC) management. It also offers solutions for inventory management, shipment tracking, and supply chain electronic management (SCEM), and has over 3,000 customers, and users in over 100 countries worldwide. At the end of 2004, TradeBeam announced that it acquired the assets of Open Harbor, a leading provider of international trade logistics solutions (ITL).The terms of the deal were not disclosed.

Founded in 1999, Open Harbor possessed deep expertise in trade compliance, including a comprehensive centralized repository of global trade content. This harmonization engine contains millions of trade rules from more than sixties countries, in a one-to-one relationship. The company was also considered a leading player in the landed cost management arena, and customers have leveraged its technology and experience to gain crucial accurate pricing for international orders based on an aggregate of product cost, shipping costs, and fees charged by the exporting and importing countries. However, based on its solution sets and market demand, Open Harbor has not seen the level of success that is should have. Its failure was primarily caused by poor management

Conversely, TradeBeam has focused more on the application side of trade management, such as creating shipment tracking, insurance, event management, and other applications central to the actual movement of goods. Because of the market demand for experts in trade regulations interpretation and application, Open Harbor became a logical acquisition choice for TradeBeam, thus the acquisition bid was made and accepted.

TradeBeam believes that Open Harbor will bring a logical extension to its current offering, since customers will now have enhanced access to the latest global trade content for more than 60 countries and to landed cost management. The move is a continuation of TradeBeams' strategic expansion of its product footprint, which covers the entire life cycle of global trade across order, logistics, and financial settlement activities. There should also be a complimentary vertical focus, since Open Harbor had developed solutions and attracted clients in the hi-tech and automotive markets.

For additional information on TradeBeam see TradeBeam Keeps Rounding Out Its GTM Set.

Other Potential GTM Vendors

Since many importing/exporting manufacturers rely on the shipper to handle the hassle compliance and regulation, logistics service providers, like airfreight leaders FedEx and DHL, are providing similar services and are providing the broader market access to technology and trade experts. FedEx, for example, has recognized that many customers simply wanted to rid themselves of the burdensome compliance chore, and in 2002 it formed a specialized division, FedEx Trade Networks, to do just that, thus becoming possibly the largest customs brokerage in the US. Some of its compliance services are free, or more accurately, are available from its Web site as part of its overall shipping service. Other services, such as the Harmonized Tariff Schedule (HTS), is available electronically for a fee. The company also offers the services of its consultants, which are trained in dealing with trade and compliance ambiguities, to categorize a manufacturer's entire inventory. To that end, FedEx acquired former content provider WorldTariff a few years ago, which covers the tariffs, taxes, duties, and preferential trade programs of nearly 120 countries.

Even smaller shippers can now leverage import/export software through third parties. Specialized software and managed service providers are now working behind the scenes make it possible for carriers and freight forwarders to offer selected services to their customers, such as landed-cost calculators, product classification, and document preparation, often on a fee-per-transaction basis. To that end, DHL has in the past partnered with Open Harbor, and FedEx Trade Networks has partnered with NextLinx, whose database carries nearly 20,000 HTS product classifications and more than 40 landed cost components for 100 countries and accounts for about 95 percent of the entire world's trade.

In addition to FedEx and DHL, other companies offer compliance services. For example, the sea freight company APL, and the global logistics software specialist G-Log offer such services. In the trade compliance space, there may even be a distinction between content-specific vendors and process-specific vendors, whereby FedEx and G-Log are examples of process-centric vendors, while content-specific vendors, which compile, maintain, and sell access to the data on tariffs, embargoes, and denied parties, include the likes of Vastera, NextLinx, and Open Harbor.

Also entering the global trade realm is the enterprise applications giant SAP. In February, SAP introduced an updated global trade solution that should help companies more easily conduct business under the North American Free Trade Agreement (NAFTA) and EU trade agreements with lower costs and easier regulatory compliance. Important new trade preference processing capabilities have been added to the latest version of SAP Global Trade Services (SAP GTS), a packaged composite application that enables businesses to standardize and streamline import and export processes to speed their global supply chains. Over 125 companies, including Advanced Micro Devices (AMD), a leading designer and producer of innovative microprocessors; ASML, a semiconductor manufacturer; and Teekanne Group, a tea trading company, are reportedly achieving new trade efficiencies and legislative compliance with SAP GTS.

For additional information on SAP addressing GTM see GTM Solutions -- Always Watch Out For SAP .

This concludes Part Four of a six-part note.

Part One defined GTM.

Part Two discussed the tradeoffs.

Part Three addressed managing global trade flows.

Part Five will cover dealing with GTM complexity.

Part Six will present challenges and make user recommendations.