Insourcing Global Trade Management

With increasing government fines and liability being imposed, companies often don't want to entrust a third party for trade compliance.

Most importers and exporters are careful to manage inventory, tariffs and compliance. In a recent survey of trade consultants conducted by Integration Point, every respondent (100%) indicated that their client companies perform denied party screening and recognize foreign trade zones. However, most outsource this work to consultants, freight forwarders or other third party service providers. The cost of internal automation and process control has been too high for most importers and exporters to do on their own. Acquiring and maintaining a trade management system and data has been too much of a burden for smaller companies to adopt on top of their core business needs within manufacturing, sales and marketing and supplier relations.

Now however, with increasing government fines and liability being imposed, companies often don't want to entrust a third party for all compliance requirements. In a recent case, Cabela's, an outdoor equipment outfitter based in Nebraska, agreed to pay a $680,000 civil penalty to settle allegations that it committed 152 violations of the Export Administration Regulations. The law stipulates that even jail time may be imposed on offenders. As such, compliance failure is just too risky for any sized importer and exporter.

To avoid such liabilities, importers and exporters must be able to clearly prove that they applied "reasonable care" to all traded goods. While third party (outsourced) solutions can do this, many importers and exporters want tighter control of the process and paperwork. For example, every respondent in the Integration Point survey indicated that they want to store product certificates for future reference, even if the compliance checks are being done by a third party.

Traditional global trade management (GTM) systems require users to have their own systems in-house or on-site. The systems need to be acquired, installed and maintained. This involves hardware, software and data which all become obsolete and require frequent updates. New system features or add-ons must be integrated and coordinated using valuable IT resources and time.

On the opposite end, a complete outsourced solution means that an importer or exporter gives the entire task to a third party to run the appropriate checks to ensure that the client's goods are ready to ship with the necessary paperwork done and tariffs paid. While outsourcing is usually the easiest way to handle trade, it hands over all of the control (and faith) to the third party provider. Just like an accountant who can prepare your income taxes, you trust that they do the proper work and have the appropriate knowledge to do the best job. If you ever get audited, you must have the proof of this (and most likely the accountant by your side) to explain the submitted claims. This is the same situation if your trade is ever questioned by CBP or other agencies concerned with national security. By outsourcing, you gain convenience in the short term, but may pay a high price for the hands off ignorance you will have about the compliance effort done if you are ever questioned by a government authority.

The good news is there is a best of both worlds. Software as a Service (SaaS), leverages the ease and reduced cost of outsourcing with the control of an in-house solution. With SaaS, the solution provider manages the trade system including the hardware, software and data. They ensure the entire system is upto- date and functional. Users log on to the remote system from a standard web browser and access the system via the Internet. This frees the importer/exporter from worrying if the latest free trade agreements or tariff schedules are loaded. It also frees them from system maintenance and upgrades.

SaaS GTM systems can tie to their own ERP and other such enterprise systems while it also is tied to the hundreds of others systems externally that automatically feed it the latest information about denied parties/products, tariff schedules and other such dynamic content.

"Logistics is a business particularly suited to SaaS, because many concerns are small and lack the resources to invest in onpremises IT. Supply chains consist of a constantly changing cast of manufacturers, agents, logistics companies and freight firms that have very different IT capabilities and approaches to industry standards," noted John Lamb of SupplyChainStandard.com.

Because the system is used as a service, costs are lower, lease-like payments which can be included in a monthly operating budget rather than a capital one. And an additional benefit of using a SaaS solution is that the system collects and maintains the compliance information which can be accessed anytime by the users as it is needed. By "insourcing" global trade management, companies have better control of the details of company specific variables such as product classifications, established trading partnerships and the auditing of supply chains.

"Going on demand or SaaS means that lots of knowledge, information, and connectivity can be leveraged across multiple users, customers, and partners," observes Josh Greenbaum, from Enterprise Applications Consulting. "That leverage is enhanced by the entirely new things you can do once all that data and process have been organized under a single roof -- things, such as sophisticated goods tracking and landed cost calculations that were either impossible or done poorly using pre-SaaS approaches. That's innovation that the customers take right to the bank."

SaaS solutions aren't new as they've been used for sales force automation and other critical business applications for over a decade. Research firm Gartner Group forecasts that over a third of all software will be delivered in this way within three years. SaaS GTM systems are still relatively new but already used by hundreds of importers and exporters around the globe as a very cost efficient and maintenance-free method to ensuring compliance and proactively planning for efficient trade.

Melissa Irmen is vice president, Products & Strategy for Integration Point, Inc. Integration Point provides trade compliance software. Their system is a SaaS/web-based, real time system. Customers utilize one or more of the system components such as: foreign trade zones, free trade agreements, entry visibility, 10+2 filings, C-TPAT & PIP certification, denied trade screening, etc. www.integrationpoint.com


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