Trade software takes aim at security compliance
International trade software vendors say their solutions ensure compliance with new security requirements. But so far, response from shippers has been mixed.
By Bridget McCrae -- Logistics Management, 6/1/2003
The 24-hour advance manifest rule. C-TPAT. FAST. Those are just three out of a slew of new government security initiatives affecting U.S. importers and exporters. Though formulated with the best of intentions, they present a mind-boggling array of new responsibilities for shippers.
Under those programs, for example, shippers now file data for U.S.-bound containerized cargo at least 24 hours before a vessel is loaded (the 24-hour advance manifest rule); step up their own security efforts (C-TPAT); and participate in a border-security agreement between the U.S. and Canadian governments (the FAST initiative).
These programs aren't yet set in stone, so it's a challenge for importers and exporters to keep up with the fast-changing security scene. Many have turned to consultants, customs brokers, and freight forwarders for help. But there's another source of help available: global trade management software.
Today, vendors of these packages, which manage import and export transactions, are heavily promoting their security capabilities. Yet it appears that only the largest shippers are taking advantage of those capabilities, while smaller companies continue to manually work through security requirements.
Vendors Answer the Call
Global trade management software is a relatively young product category that's dominated by a handful of vendors, including Vastera, NextLinx, Precision Software, TradePoint, and Open Harbor. Several other vendors have either abandoned that space or gone out of business in the last two years.
Analysts disagree on the size of the global trade management software market. Senior Analyst Jerry McNerney of Boston-based AMR Research, for one, estimates annual sales at just over $51 million. Adrian Gonzalez, director of logistics at ARC in Dedham, Mass., had not finalized his numbers for 2002 as of this writing, but believes sales were considerably higher. He says that although sales did not grow as originally forecast, there still was positive growth in the high single digits or low double digits in 2002.
Regardless of the actual size of the market, the recent spate of security rules has been good for business. "Customs agencies around the world are looking for more information sooner," says Ty Bordner, vice president of product management for Vastera in Dulles, Va. Over the last 18 months, he says, he's seen more shippers turn to his company's software to help them provide information to customs authorities more quickly and accurately.
Vendors like to point out that their products have always included security and regulatory compliance capabilities. But most of them have upgraded their products to help shippers comply with quickly changing conditions. "A law can surface overnight, but the implementation, procedures, and guidelines within an organization don't happen overnight," says Greg Lloyd, CEO of Precision Software Ltd. in Chicago. "To answer the call, software vendors like ourselves are providing out-of-box solutions companies can use to meet the new compliance and security demands."
For instance, Precision Software, like its competitors, allows users to screen their customers against government lists of "sanctioned individuals or organizations" (i.e., terrorist organizations). Such checks also ensure that shippers don't violate export restrictions or send shipments to embargoed countries.
At Open Harbor in San Carlos, Calif., CEO and President Chris Erickson says he's seen shippers' interest in his company's products grow over the last year or so. Because of security concerns, he says, they are looking for software that includes product verification, denied-party compliance, and establishment of business rules and documentation in systems that can be verified and audited by customs authorities.
To help ensure compliance with internal business rules and procedures, Open Harbor's Trade Automation Suite lets shippers "embed" rules that apply to specific shipments, destinations, and other variables. "It's a self-adjusting system that doesn't let the process continue unless the rules are followed," Erickson says.
Vastera's XML-based Internet solution, meanwhile, lets companies share information with customs organizations as well as with carriers, freight forwarders, and customs brokers, Bordner says. The product makes it easier for shippers to comply with the 24-hour advance manifest rule because the Harmonized Tariff System product codes that Customs requires prior to shipment are built right into the solution.
Another vendor that has upgraded its application to facilitate security compliance is Rockville, Md.-based NextLinx. To add a new trade document to its Trade Collaborator platform, NextLinx used to code and then embed it in the software—a method that resulted in frequent re-releases and upgrades. Changing trade and security regulations would have exposed users to a steady stream of upgrades, so NextLinx created an XML-based system that separates the document technology from the rest of the application. Now, says Chief Operating Officer Darren Maynard, his company can update document templates as needed and generate the updated version on demand.
Like other vendors, Nashua, N.H.-based TradePoint Systems includes an export compliance system in its products. Shippers can use the application to check embargo, licensing, and other pertinent information about the countries and business partners they're dealing with. Joe Cowan, vice president of compliance systems, says TradePoint is continuously adding new country information. "Our system can check for the rules that are specific to the country of origin, the country to which the goods are being exported, or to other countries in general," he says.
Why Don't They Buy?
Shippers that use global trade management software say those products have indeed helped them improve their compliance with security rules. Yet many potential customers still haven't shown a high degree of interest in the software.
For the most part, says AMR's McNerney, large multinational firms that were already getting results from these solutions have also embraced them for security purposes, but small to mid-sized firms still prefer to put out the fires as they come along. "Users haven't committed themselves as readily as one might think to actually take advantage of the solutions on the market," he observes. "We're seeing short-term approaches, like companies throwing people at the issue to make sure it gets done effectively."
That's probably because few companies have allocated enough resources to acquire the technology to do the job effectively, McNerney continues. That reluctance may be fueled by companies' inability to see regulatory compliance as producing a tangible return on investment.
But when it comes to trade and security compliance, it's a different world today than it was just a year or two ago. That's why McNerney doesn't see the low-tech approach as a sustainable model for the future. "I think we're going to reach a point where we'll see a much more rapid period of adoption of these technologies," he predicts. "But for companies to respond, it will probably take that first, high-profile situation in which goods are held up because of non-compliance."
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