The tragic events of Sept. 11, 2001, have forced many multinational companies to make investments in global trade software. Take Abbott Logistics BV. An arm of Abbot Laboratories based in Zwolle, the Netherlands, Abbott Logistics BV distributes pharmaceuticals, hospital products and nutritional supplements throughout Europe, the Middle East, Africa and the Far East. Heightened security requirements resulting from the war on terrorism—not a drive to promote efficiency or cut costs—prompted the company to purchase global trade software from XPORTA late last year. "We had been evaluating the software for several months prior to Sept. 11," says Jeff Barton, finance director for Abbott Logistics BV, "but the tragedy really forced us to make a decision."

Why the pressing need for trade management software? Barton points to the U.S. government's "denied party" list, which has been growing rapidly since last fall as the U.S. State Department identifies more people and organizations with suspected links to terrorism. (Issued by the U.S. Department of Commerce's Bureau of Export Administration, the "denied party" list contains names of customers and countries with which U.S. companies may not conduct trade.) "The list of prohibited parties is changing faster than ever before," Barton says. "Abbott Logistics BV ships to more than 1,500 customers all over the world and we want to be as certain as possible that we are not inadvertently dealing with the wrong people."

Although current events have sparked international shippers' interest in global trade software, the larger question is whether software vendors will be able to maintain this momentum when terrorist threats fade into the background. Many analysts have their doubts. Vendors will have to add analytical capabilities to their packages if they want to keep shippers interested, these analysts argue. The vendors, moreover, will have to demonstrate that their systems can save shippers money.

If vendors of international trade software were looking for ways to promote their solutions, the war on terrorism certainly handed them an excellent marketing tool. As the U.S. government clamped down on border movements, trade compliance quickly became a top concern for international shippers. Since the days of the Cold War, export control laws designed to prevent the sale of sensitive commodities and data that could be used against the United States and its allies had made certain goods and buyers off-limits for exporters. But heightened security requirements following September's terrorist attacks have brought compliance to the forefront as never before.

Shippers have a strong incentive to comply with these export control laws: Failure to comply can result in stiff penalties. Even before the security crackdown, courts had slapped multimillion-dollar fines on U.S. companies for violations, but the war on terrorism prompted the consideration of legislation to increase the civil penalties for violating export laws. (At press time, that legislation had passed the Senate, but not the House.) "There's a cop behind every tree now," says Bill Harrison, chief operating officer at software maker ClearCross of Reston, Va. "You want to make sure you have the right documentation."

It's no surprise, then, that the wartime atmosphere has proved a boon to global trade software vendors' marketing efforts. Although sales of most supply chain software applications slipped when the economy deteriorated following the attack on the World Trade Center last year, the one exception has been global trade software. Vendors report that interest in trade management applications picked up quickly after the attacks. "Before Sept. 11, we were fighting to [get top management's attention]," says Greg Stock, a spokesman for Vastera Inc. of Dulles, Va. "After Sept. 11, global trade management has become something CEOs are talking about."

Global trade software is not new to the market, of course. Long before Sept. 11, vendors were out there touting their software's ability to automate the trade documentation process. More recently, vendors began emphasizing a feature known as a "landed cost" engine, which proved attractive to dot-com merchants that had begun selling their goods overseas—oftentimes with little in-house logistics expertise. Landed cost engines calculate all of the duties and charges associated with importing or exporting a product so the buyer knows the exact cost of the merchandise ahead of time.

Though the landed cost feature is fast becoming widely available, some analysts have questioned the value of such a component for most shippers. "High-volume shippers with established trade lanes know their costs," says Jeff Woods, a senior analyst with the Gartner Group, a market research firm based in Stamford, Conn. "Trade is not as dynamic as the creators of the landed cost engine envisioned."

Besides determining landed costs, some software packages help exporters and importers devise alternative plans if a shipping problem arises. "We've seen a growing interest in international trade software because of the issue of disruptions," says Ian Williams, a vice president with Xporta of Santa Clara, Calif. "[Shippers] have to re-plan quickly if a problem arises. The last thing anybody wants to do today is to hold safety stock."

Given current events, analysts are bullish that international trade software vendors will report record sales in 2002. Adrian Gonzalez, an analyst with ARC of Dedham, Mass., says he expects the international trade software market to grow 24 percent this year, reaching $125 million in sales in 2002 compared with $101 million in 2001.

Analyst Michael Bittner has even higher expectations for trade software vendors. Bittner, the research director for supply chain strategies at the Boston-based market research firm AMR, predicts that international trade software providers will witness a 35-percent increase in revenue this year compared to a 15-percent hike for all other vendors of supply chain software.

Although security concerns will prompt many large international shippers to invest in global trade software, small and medium-sized shippers still may be hesitant. Wary of hefty license, implementation and integration costs, many small shippers continue to rely on customs brokers and freight forwarders to help them manage their shipments and comply with government trade regulations. In some cases, they may even do the paperwork themselves. "The real opportunity [for these vendors] lies in small companies that don't have the in-house expertise but are looking to overseas markets as a growth opportunity either for sourcing or for exports," confirms Gonzalez.

But if international trade software vendors want to emerge as major players in the supply chain market in the long run, they'll have to upgrade their products, say many analysts. For starters, the content itself tends to be narrow and limited. Most of the trade information included in the systems has a U.S. focus.

Furthermore, multinational shippers moving goods between countries outside the United States are likely to be disappointed. "You'll find gaps in the vendors' coverage of the world. They mainly can support export restrictions from the United States," says Woods of Gartner. "The reality is that these vendors are not ready to support complex business processes across many commodities and across many trading companies." Also likely to be disappointed are shippers looking for information concerning the less-traveled trade lanes. "The same effort is required to get information about exporting to Uganda as to Japan," notes Richard Wulwick, a partner at the Pangea Consulting Group of Cherry Hill, N.J. "But the volume of trade going to Uganda does not justify the effort to gather the content."

The addition of more global trade content would be just a first step, however. At the moment, the vendors are really selling databases that contain information like trade regulations and the names of companies on the "denied party" list. But analysts believe that international shippers want more than just trade regulation content—they want "process tools" that help them manage the complexities of trade and analyze business processes so they can weigh the merits of various sourcing and exporting scenarios. These tools could weigh alternatives for sourcing from a particular foreign location or the pros and cons of exporting to a new foreign market.

Although the vendors have just begun to develop the tools required for such in-depth analysis, their accumulation of regulatory information does give them an advantage over other supply chain software vendors eyeing this market. "To automate the process," Wulwick points out, "you need to know the content."

So, although homeland security measures may be prompting international shippers to investigate global trade software packages, the makers of those applications will have to enhance their offerings if they wish to attract more shipper business. Specifically, international trade management tools in the future will need to offer dynamic analysis capabilities to help shippers adjust shipping or sourcing plans if a problem arises. "The vendors have sold their packages on simplifying paperwork and reducing overhead," says Gonzalez. "There wasn't a message about the strategic value of the solutions. These vendors now realize that companies are not only looking for solutions that drive down costs but also for those that provide some kind of strategic benefit."

In the meantime, trade software vendors will have to convince potential customers that their products generate a payback through a reduction in paperwork, even in an era of heightened concerns over security. "Sept. 11 will push companies to invest in these solutions," says Eria Odhuba, an analyst with the market research firm Datamonitor Ltd. in London. "But the vendors won't be able to just rush into a company. They'll have to address the integration and ROI [return on investment] issues first."

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