Strategy

Pretzel Logistics? Global Trade Getting Complicated

Exporters turn to Web-enabled software to comply with ever-changing local regulations.
Anthony SibillinOctober 1, 2001

“The Lord giveth and the Lord taketh away.” Had globalization preceded the Old Testament, the Book of Job might have said the same about governments and cross-border trade. It seems that for every trade minister willing to slash tariffs in the name of free trade, there is an equally willing environment minister drafting new regulations covering the shipment of hazardous materials. The result: Companies spend $420 billion each year — or 7 percent of the cost of global trade, according to the UN — creating and chasing paperwork to satisfy governments around the world.

The red tape can put many off the chase altogether. An oft-cited 1999 report by Forrester Research found that 85 percent of companies surveyed could not fill some international orders because of the complexity of shipping goods across borders.

That complexity is set to increase. Take the now-ubiquitous materials safety data sheet (MSDS). These multilingual documents detail the correct usage, handling, and transportation of chemicals and hazardous materials. Two years ago they had to accompany shipments of related goods to the E.U., North America, and Australia. Today a local-language version of an MSDS is a legal requirement in many developing countries, too.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

So what can companies do, apart from dispatching an army of free-trade lobbyists to national capitals to plead their cases? The first thing CFOs should do, says Pano Anthos, marketing vice president of software company ClearCross, is shine some light on this murky part of the budget. He claims that few corporations separate the indirect costs of trade from direct costs like freight charges — despite the fact that the indirect cost of complying with myriad laws and regulations can reach $900 for a standard transaction. Anthos says companies often set aside an amount in the budget — up to $100million — and simply hope it will be enough to cover these hidden costs over a year.

No Hazmats Beyond This Point

Now there is a more rational way of dealing with cross-border trade. ClearCross and two other U.S.-based software developers, Vastera and NextLinx, sell trade management software that promises to lower the costs of compliance at every stage of a product’s production, from design to final delivery. Web-based and constantly updated with new regulatory content, their products are a leap forward from earlier generations of stand-alone, PC-based trade management software.

Just ask Cliff Betton, environmental health and safety manager at Castrol. His job is to ensure the U.K.-based business doesn’t transgress local regulations in the 132 countries to which it exports motor oil. A year ago this was a big headache. Castrol was using some 17 software programs to produce MSDSs and other trade documents. But sitting on a single PC in some far-flung office, they were little more than glorified databases. Staff had to key in regulatory information manually but had no way of pooling research. As a result, it took an average of half a day to create an MSDS from scratch.

A year later, Castrol staff in its North American Industrials business take about 15 minutes to complete the same task. They were the first in the group to benefit from a companywide decision to standardize on ClearCross’s suite of application tools and global regulatory content. The content covers 26 of the 37 languages in which Castrol must produce labels. And because it is hosted on a single server in the U.K., regulatory content added by local staff covering the other 11 languages are available immediately over the Internet.

Gathering up multilingual content is painstaking and expensive, and ClearCross charges its customers accordingly. But with an estimated payback time of only four months for Castrol, the $2.5 million the company spent on the software looks like a good investment.

Betton says the application can also incorporate regulatory elements into the product design stage. “It allows chemists, for example, to run what-if scenarios to find out what are the consequences of adding a particular compound in terms of where it can be sold,” he explains. This should translate into shorter product cycles and increased sales.

Castrol’s positive experience with this new generation of software has not gone unnoticed at parent company British Petroleum. The U.K.-based oil giant, which bought Castrol in 2000, recently signed a $9 million deal with ClearCross to bring similar efficiencies to cross-border trading in the 150 countries where it operates. It’s a move that will certainly be watched by managers at other companies, as well. Stephens, an American investment bank, predicts annual global spending in cross-border logistics technologies will reach $1 trillion by 2005.