The hurried imposition of EU regulations related to the poultry trade with Croatia was intended to contain a possible outbreak of avian flu. But it is also the latest example of the increasingly controlled nature of international trade. Terrorist threats, trade disputes, health scares and other risks have persuaded governments to indulge in an orgy of regulation.
On average, the bureaucracy associated with a single global shipment now generates 200 data elements and 35 documents. That leaves companies that trade goods groping to come to terms with regulations, multiple currencies, documentation requirements, tax issues and mountains of paperwork.
Companies that fail to master international rules face penalties that can include the loss of trade privileges and jail time.
And it’s a growing burden. World expenditure on global trade management is expected to grow from e735m in 2002 to about e1.3bn in 2007, according to the ARC Advisory Group.
A cross-border shipment typically involves accurately completing and filing documents, interfacing with about 25 parties including customs agencies, carriers, freight forwarders, brokers, and banks and complying with over 600 laws and 500 trade agreements, most of which are constantly changing, ARC points out.
Many firms get involved in global trade to cut costs – in particular to find less expensive sources of raw materials, finished goods, or labour. But costs might actually increase by going global once additional costs such as duties and taxes are taken into account.
Regulation can exact a high price. When US customs introduced the Customs-Trade Partnership Against Terrorism (C-TPAT) which forces importers and exporters to submit 24 to 72-hour advance filing of cargo documentation before they can unload goods from foreign ports, it added an estimated e6bn in costs by slowing the delivery of imported goods by one day. Shippers also incurred capital costs of e64bn as inventories rose by five per cent.
But there are important financial advantages to staying on top of trade regulations. For example, there are now more than 300 free trade agreements which some companies fail to exploit because they lack the know-how, resources and systems. As a result, millions of euros go begging.
‘Trade compliance departments, traditionally seen as a tactical back office function, are increasingly being treated as strategic advisers in keeping supply chains moving and reducing total landed cost,’ says advisory company, The Aberdeen Group. ‘The most advanced companies are also better synchronising the flow of goods with the flow of money to improve cash flow and working capital management.’
Many traders are trying to deal with these issues using good old pen and paper. In fact, two-thirds of the administration involved with international trade never goes near a computer. But technology suppliers have developed a number of tools to automate global trade management.
Automated compliance checking and production of documents can greatly increase efficiency. It is difficult to keep track of the many inter-company or third party transactions that take place at each step in the logistics supply chain.
Further improvements can be made if trading partners, suppliers and logistics companies integrate their global trade management systems. Integration can yield a better flow of information that eliminates reentering data into different systems, minimise discrepancies and the need for reconciliation, and enable third parties to ship products on a company’s behalf more easily.
The companies that supply global trade management software have traditionally been highly specialised. But a series of mergers over the past year has seen some consolidation as suppliers strive to offer an end-to-end service to exporters and importers. In the latest move, global trade management software firm Management Dynamics last month acquired NextLinx, which sells trade compliance technology.
Technology might not be able to avert an avian flu epidemic but it can help mitigate its effects by providing more visibility in the international supply chain.