Nothing gets software vendors more excited than new government regulations. Sarbanes-Oxley was a boon to companies like SAP and Oracle a few years ago. It allowed them to walk down the hall from the CIO’s office and talk to the Chief Financial Officer (CFO), the person who controls the company’s purse strings. Similarly, TMS vendors welcomed the new Hours of Service (HOS) regulations when they first went into effect in 2003. It was part of the “perfect storm” shippers and carriers were facing at the time (along with rising fuel costs and capacity constraints) that served as a catalyst for TMS sales. (By the way, after eight years and several court challenges, the Federal Motor Carrier Safety Administration last week adopted as “final” the provisions of the agency’s interim rule from last December. Shippers and carriers have been working under these rules for five years, so the announcement won’t change things on the ground, but it removes the cloud of uncertainty hanging over the industry).
The latest regulation that has vendors seeing dollar signs is the Importer Security Filing (ISF) rule, better known to folks in the industry as “10+2.” Less than 24 hours after the US Department of Homeland Security (DHS) announced its interim final rule on ISF, I received e-mails from Log-Net, TradeCard, and several other technology vendors promoting solutions related to this regulation. I expect more e-mails in the days ahead, along with whitepapers, webcasts, and the other marketing blitzes. If there’s going to be a bright spot in IT spending next year, this will probably be it.
A quick background on “10+2”: the regulation was first announced in January 2008, and it requires importers or their agents to submit ten data elements to customs 24 hours prior to vessel departure, and ocean carriers to submit two additional data elements. You can read the specifics of the rule at the DHS website, but it’s sufficient to say that existing regulations do not require importers to file some of this information today, or they are able to file after the shipment has arrived in the US (within fifteen calendar days of arrival).
This morning, I spoke with Ed Ryan, Executive VP, Global Field Operations, at Descartes Systems Group. Descartes was ahead of the pack, announcing it’s “10+2” Importer Security Filing Service last week, so I wanted to get Ed’s perspective on the topic. The biggest challenge importers face (not surprising) is data collection. “You’re in an environment where the ten data elements are not in a single system or company,” explained Ryan, “so the first step is enabling a way to bring this data together.” That’s the main focus of the services Descartes announced last week. So which companies are signing up? “When the new rules were first announced last year, we received a lot of inquiries from importers,“ said Ryan, “but today most of the companies signing up for our IFS services are freight forwarders and brokers.” In other words, although importers are ultimately liable for compliance, they’re passing this hot potato to their freight forwarders and brokers.
This doesn’t surprise me. In many ways, the requirements of “10+2” are an extension of what freight forwarders/NVOCCs are already doing to comply with US Customs’ Container Security Initiative (CSI), namely submitting manifest information, including shipper details, electronically to U.S. Customs’ Automated Manifest System (AMS). In fact, “10+2” information will also be submitted to Customs via AMS. Descartes is a dominant player in AMS filing, thanks to its acquisitions of Flagship Customs Services and ViaSafe back in 2006. The ISF services announced last week leverage and build upon the services Descartes has been providing freight forwarders, brokers, carriers and NVOCCs for a couple of years already. And it’s these existing freight forwarding and brokerage clients that are signing up for the IFS service and private-labeling the capabilities. They’ll be happy to take this hot potato from importers—for a fee, of course.
As I think about it, traditional software vendors are not in the best position to cash in on this opportunity. If there’s ever a business process that lends itself perfectly to a network-based solution, it has to be “10+2” compliance. This is really a data collection and connectivity challenge, and freight forwarders and network-based solution providers, like Descartes, are in the best position to address it. What you do with the data is less important (and easier) than getting the data (timely, accurate, and complete) in the first place.
Last year, I wrote a report called “The Next Big Thing in Logistics” (profiled in Forbes.com) that envisioned a day when companies would no longer be plagued by data quality problems, the Achilles’ heel of supply chain management. The solution: the emergence of standards-based logistics communication and process execution networks—i.e., “logistics utilities” that companies can use to exchange electronic information and execute business processes with their trading partners, customs, and regulatory agencies. If this vision has any chance of coming true, it needs to start with “10+2” compliance.
