A handful of small software companies are angling to capitalize on the complexities of cross-border commerce and automate what are traditionally time-consuming manual processes.
Aerospace company Pratt & Whitney last month agreed to pay a $150,000 penalty to settle charges that it exported controlled items to various countries without obtaining the required licenses from the U.S. Department of Commerce.
A few months before, Morton International, based in Chicago, agreed to pay a federal fine of $647,500 for shipping protected chemicals to Mexico, Singapore and Taiwan. And in December, Sun took a $291,000 hit for charges involving illegal exports of computers to military end users in China and Egypt.
It’s not hard for companies like these to find themselves astray of federal global trade regulations. In the U.S., multiple government agencies oversee pieces of the regulatory puzzle, determining how and with whom companies may conduct business. Additionally, buying and selling goods overseas requires staying on top of foreign countries’ myriad trade rules and tariff structures.
These days, a handful of small software companies are angling to capitalize on the complexities of cross-border commerce and automate what are traditionally time-consuming manual processes – such as identifying shipments according to international product classification conventions, making sure trades comply with foreign import and export rules, and providing proper shipment documentation.
Vendors with so-called global trade management wares include specialists GT Nexus, NextLinx, Open Harbor, TradeBeam and Vastera, and business software giant SAP.
For the most part, the processes these vendors are working to automate involve three-ring binders full of pricing information and disparate spreadsheet applications. Not only are these manual processes time-consuming and error-prone, but they make it hard for companies to analyze data and share it with partners such as international shipping companies and customs brokers.
Plenty of opportunity
There’s plenty of opportunity to streamline global transactions, says Beth Peterson, vice president of product solutions at Open Harbor, which specializes in trade compliance and documentation services. According to industry estimates, a single shipment can require about 35 documents, be touched by 15 parties and require 200 data elements to be keyed in multiple times, Peterson says. Automation can eliminate some of that redundancy.
Backed by $49 million in venture funding, Open Harbor tackles trade management with a team of 25 experts who track more than 60 countries’ trade policies and feed a database of more than 8,000 rules.
Open Harbor customers subscribe to a service, which ties into their ERP systems. For example, when the ERP system receives a purchase order, it feeds customer and product information to Open Harbor, which analyzes the content before validating, warning against or blocking the transaction.
Peace of mind is a key benefit, says Stan Yamamoto, president of AMAC in Cypress, Calif. The Panasonic subsidiary started using Open Harbor’s restricted party screening and trade compliance services a year ago when keeping up with international trade rules became too much for one full-time person to handle.
Now instead of worrying whether every new policy from every international regulatory body has been addressed, AMAC executives are confident their global trade operations are protected, Yamamoto says.
“We’ve always been aware that there’s a need for very-tight export control,” he says. With Open Harbor’s software, “unless we follow the rules, we can’t process a transaction.”
Additionally, AMAC has been able to improve the efficiency of its operations with global trade management software. For example, in the past AMAC didn’t always take advantage of a U.S. trade rule that excludes certain exports valued at less than $2,500 from requiring a license.
“Open Harbor takes into account a lot more aspects of a transaction than we were able to with our old system,” Yamamoto says.
An emerging market
About 10% of U.S. companies have invested in global trade management software, according to Aberdeen Research. But the research firm expects that figure to hit nearly 40% over the next two years.
Some early adopters include hardware vendor U.S. Robotics and software maker BEA Systems, which use restricted-party screening software from Vastera and Open Harbor, respectively, to block transactions with people on restricted party, embargo and sanction lists. Neiman Marcus Group uses TradeBeam’s software to ensure its international shipments comply with import regulations, and Phillips-Van Heusen uses a hosted service from GT Nexus to manage its global transportation logistics.
One reason for the increased use is the enactment of broader, more complex trade rules in the last few years. For example, the Container Security Initiative, which went into effect last year, requires shippers to provide the U.S. government with detailed manifest information about ocean container freight being shipped from foreign ports to the U.S., 24 hours before loading at the foreign port.
The threat of terrorism, in particular, has affected global trade operations. As countries have become more vigilant about safeguarding their ports, businesses have had to change the way they operate, says Bruce Lovett, vice president of marketing and product management at Vastera. “The number of organizations that issue regulations, laws and procedures is almost overwhelming,” Lovett says.
Within the U.S., multiple government agencies publish lists of restricted parties with which companies may not conduct business. The Department of Commerce’s Bureau of Industry and Security maintains denied persons and denied entities lists, while the State Department has its debarred persons list, and the Office of Foreign Assets Control tracks “specially designated nationals and blocked persons,” such as known terrorists and drug traffickers.
Additionally, supply chains are expanding. The market for trade management software is widening as more companies look to conduct business with overseas suppliers and sell their goods to offshore customers. As companies outsource aspects of their business, such as manufacturing, trade management becomes more unwieldy, says Greg Aimi, a research director at AMR Research.
Governments also are putting pressure on businesses to embrace automation. Over the past 12 months, there’s been a huge movement among governments to modernize their IT systems, says Neetin Datar, director of trade and compliance applications at SAP. For example, there’s the New Computerised Transit System in Europe, based on electronic declarations and processing, and Australia’s Integrated Cargo System.
“These entities don’t want to be receiving paper and fax documentation any more,” Datar says.
