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E-Business Report

Automate Your International Trade or Risk Falling Behind

by Russ Doak

Along with the rapid growth of E-commerce also grows the challenge of international trade logistics. As we move into the new millennium, the Internet is generating an ever-increasing number of transactions. At the same time, governments are shifting the burden of customs compliance onto importing and exporting companies. These two facts taken together make it a necessity for companies to automate International Trade Logistics (ITL), or risk falling behind.

Today, it is difficult to imagine not doing some form of business via E-commerce and the Internet. Business-to-business activity is growing rapidly and has opened up global trade and added a new dimension to logistics. This impact, seen in the demand for speed and number of import and export transactions, is expected to continue to increase exponentially.

A strong statement made last year by a senior official of U.S. Customs Service reinforced this change. Essentially, what he declared was that customs was not there to facilitate trade but there to make sure companies comply with the law.

A recent broadcast letter from the Council of Logistics Management (CLM) quoted a Forrester Research study, finding that online sales to businesses and consumers in the U.S. will more than double in 2000, to about $330 billion, and could nearly double again in 2001. Similarly, the Globe and Mail recently reported a Boston Consulting Group study finding that Canadian intermediary and E-commerce transactions generated more than $5.5 billion in revenue in 1998.

The sheer volume of transactions from this revolution in business process is fostering a need for systems to automate international trade logistics. There is an illusion that with the advent of the Internet and E-commerce, that global trade has become easier. The reality is, expectations for delivery are speeding up while documentation and processing across numerous borders add to the complexity of the logistics challenge. Systems access is no longer nice to have, but is fast becoming a necessity of doing business in a new global economy.

At the same time, the government’s strategy to shift the burden of proof and compliance for individual import and export transactions onto companies is coming into play.

In the early 1990s, government agencies in North America were facing increased workloads, tight budgets and growing complexity with the speed of international trade. The solution, from their perspective, was to reengineer the trade compliance process so that they would share responsibility and download some of these activities onto companies.

The result was customs took on the responsibility for informing companies of the rules and regulations, and making them ultimately responsible for compliance. Their role shifted from evaluating individual import/export transactions to focusing on compliance performance. A strong statement made last year by a senior official of U.S. Customs Service reinforced this change. Essentially, what he declared was that customs was not there to facilitate trade but there to make sure companies comply with the law.

This is a reverse illness that puts a heavy burden on companies to fully maintain the accuracy of all transactions. For instance, a global leader and manufacturer of computers recently confirmed to me the importance of maintaining detailed and accurate customs records. This company must, through its historical records, demonstrate in mini-audits that they are compliant with the rules and regulations. The impact of failing to do so would lead to a full customs audit that ties up valuable human resources and can, if found non-compliant, lead to hefty fines. Maintaining records accuracy and keeping on top of the ever-increasing speed and quantity of individual import/export transactions becomes a critical challenge. Under a paper-based system, this may be difficult and you may be at risk.

These two events, which may be seen in isolation, jointly can have a major impact on companies doing international trade. Most companies are well aware of the pending growth in the number of transactions from E-commerce, and the Internet, and have taken actions to adapt to this change. Their initial focus has been on automating the sales and financial aspects of the global supply chain. The result is that E-commerce and the Internet, has made the sales administration side of the equation easier between the buyer and seller.

Electronic Data Interchange (EDI) has improved the exchange of information between shippers, third party providers, freight forwarders, customs and carriers to facilitate movement and clearance of goods at ports and boarder crossings.

Moreover, Internet software and XML language has also opened up global trade to small- and medium-size business. This was previously the domain of large companies using EDI. Only the larger companies could put the resources behind setting up EDI protocols and dictionaries to exchange global information. Now the Internet puts large and small companies on a more even footing, with the ability to exchange real time data on a global trade basis. Information is now exchanged over large global distances and multiple time zones and the entire selling process has been sped up.

An increasing number of companies have installed automated systems to execute supply chain management (SCM). Embodied within these systems are major modules called transportation management systems (TMS) and warehousing management systems (WMS). Together, they integrate the logistics operations into the front end through the company’s enterprise resource planning (ERP) systems.

Rarely, however, can these systems handle the problems that go with the complexities and interrelationships of international trade logistics. Simply put, they cannot cross borders effortlessly. This is the next challenge for delivering in an e-commerce society to be conquered.

The Internet does not lend help to companies’ E-commerce strategies in two fundamental areas. The first is actually physically transporting goods from the point of purchase to their delivery destination. The second is meeting the ever-growing complexity of customs rules and regulations from governments and developed trading blocs. This latter area is critical to delivery.

The solution is an integrated system that supports international trade logistics (ITL). An International Trade Logistics system will automate your existing process so you can handle the exponential growth in transactions for global logistics/delivery operations and, at the same time, give you the capability to ensure accuracy and controls for customs compliance. It provides the needed management control systems over the myriad of events and documents involved in completing import or export transactions and meeting customs requirements.

Companies can take three approaches to automating their international trade logistics processes. They can develop in-house their own custom-built system, use a forwarder’s existing ITL system or purchase a proven ITL system from a software supplier. Each of these approaches has their own advantages and disadvantages.

The main advantage in developing your own in-house ITL system is that it can be customized and tested based on your specific operations and product need. You utilize your own internal resources when developing and integrating your ITL processes and the final product is specific to you and your business. The disadvantage is then having to keep your system current with all the changes that impact your own legacy system, and competing demands for internal information technology resources.

Many forwarders have existing ITL software that you are allowed to use if you become a customer. The costs for developing and maintaining their systems are spread over a number of customer users. The forwarder’s internal information technology group interfaces with your own to get you up to speed, and your company gets the constant upgrades that go with a working system, without the same investment required to maintain a custom system. However, you are tied into that forwarder, which may or may not be consistent with your overall logistics and supply chain strategy.

Software suppliers of international trade logistics systems offer E-commerce companies a suite of integrated solutions within their own legacy system for supply chain execution or enterprise resource planning (ERP). Today, a number of available ITL systems components are Web-based. Some are capable of managing sourcing, purchasing, costing, logistics and international finance processes.

The new ITL systems on the market today offer the right controls and abilities for a Web-based environment. Some of these systems can select the right suppliers who can deliver the specified goods and time frame. And because they are Web-based, they also have the advantage of opening up the sourcing and supplier base for many large companies because of the ability to access and transfer information via the Internet with smaller-sized suppliers. After the goods are shipped, the systems generate trade documentation, issue letters of credit, track the status of shipments across countries and between modes of transportation. They can also calculate actual landed costs, and alert users of exceptions/reporting.

The ITL systems on the market today are very advanced. The challenge is in identifying the right one for your needs, given your own budgets, resources and timelines.

Companies that are implementing systems to automate their ITL process can expect to benefit from a major reduction in paper work, as well as improved access and visibility of information across departments. In addition, they will have a system structure in place to demonstrate continued compliance for customs and international logistics to support the expediting of their goods through ports and boarder crossings to the ultimate delivery destination.

Companies who do not automate the international trade logistics (ITL) process will risk being buried by sheer amount of increasing transactions, customs compliance demands and higher cost for shipping their goods in the new global marketplace. This fact alone may undermine the gains made by the company in the new global trading environment.

Worldwide delivery may be the last leg of an E-commerce order’s journey, but it is the final touch with the customer. It is important to get it right. By incorporating an automated system within your international trade logistics process, companies are integrating the final step for worldwide delivery. With this type of system in place, a company is well positioned to expand its global market share with the capability of competing in the new global trade and E-commerce environment.