Two weeks ago, I wrote an article about our just released market study on the Global Trade Management (GTM) market outlook. GTM solutions streamline and automate processes related to customs and regulatory compliance, global logistics, and trade financing. By doing so, GTM solutions facilitate the flow of information, money, and goods in global trade supply chains that include buyers, sellers, and intermediaries, including customs agencies, banks, and freight forwarders. ARC segments the GTM market into two high-level solution categories: Trade Compliance, and International Trade Visibility and Execution.
Today, I want to take a closer look at a few of what we’ve outlined as the key factors that are contributing to growth in the GTM market. These factors are driving both interest and investment in GTM solutions worldwide, in both the Trade Compliance and International Trade Visibility spaces.
The Complexity of Global Trade
As compared with domestic distribution and supply chain management, global trade management introduces the complexities of multiple languages, time zones, currencies, and modes of transport. Furthermore, there can be more than a dozen parties involved in a single international shipment. The laws governing global trade are numerous, highly complex and ever-changing, and participating organizations must review and act on a heavy volume of regulatory information, which is often published on paper in varying formats. These challenges are difficult to master without a GTM solution that integrates up-to-date regulatory content with rules-based transactional software connected to each supply chain party.
The complexity of global trade is compounded by each global trade participant’s unique position in the field. No two participants have identical needs, and automating global trade requires managing numerous combinations of functional requirements across a trading partner network, with each partner potentially using varied enterprise software. Successful GTM solutions are flexible and adapt to changing regulations and business requirements on an ongoing basis.
The global trade complexities, along with an ever-expanding array of trade treaties, are going to support the growth of the GTM market.
Proliferation of Free Trade Agreements
There is a growing number of free trade agreements among countries, embargo lists, and sanctions making international trade complicated. There are more than 500 free and preferential trade agreements around the globe, each presenting myriad rules that governments modify continuously. For example, under the North American Free Trade Agreement (NAFTA) among the United States, Mexico and Canada, companies are able to import goods from partner countries with dramatically lower import duties. Complying with these requirements without automation can be difficult and expensive, and the challenge is not limited to NAFTA.
Trans-Pacific Partnership (TPP)
The Trans-Pacific Partnership (TPP) began in 2005 as the Trans-Pacific Strategic Partnership Agreement (TPSEP). Participating countries set the goal of wrapping up negotiations in 2012, but contentious issues such as agriculture, intellectual property, and services and investments have caused negotiations to delay the agreement. But the agreement was finally signed among 12 Pacific Rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam) on February 4, 2016. This trade agreement is the largest free trade agreement in history.
Automated Commercial Environment (ACE) Compliance
Automated Commercial Environment (ACE), a system implemented by US Customs and Border Protection (CBP), aims to improve the movement of imports and exports into and out of the United States. By the end of 2016, ACE is expected to become the Single Window – the primary system through which the trade community will report imports and exports and the government will determine admissibility. With this development, manual processes are expected to be streamlined and automated, papers to be eliminated, and the trade community to comply with US laws and regulations easily.
Rising Demand in Global and Emerging Markets
Global trade volumes are being driven by higher exports as producers seek new markets to accelerate their growth. As the wealth of emerging market nations continues to rise, these countries have become significant sales opportunities for US and European companies. The growing market can derive cost reductions from GTM solutions, through capabilities such as import self-filing, enabling use of free trade agreements, and operations in foreign trade zones.
Avoiding Fines and Penalties/Being Compliant
Though it is difficult to predict how much the losses would be if shippers do not use the GTM software, in many cases the fines and penalties have depleted the company’s budgets heavily. The negligence cost on imports can be as much as four times the value of duties, taxes, and fees and on exports can be more than $1 million per violation or up to five times the value of the export. Some publicly cited examples are:
- Large camera maker agreed to pay a $20 million customs penalty on $60 million of imports due to incorrect country of origin labeling on its equipment (which was even duty-free). Balli Group PLC and Balli Aviation were fined $15 million for conspiracy to export and re-export US-origin aircraft to Iran.
- Subway train manufacturer had to pay $1.5 million in penalties and $96,000 in additional duties for reporting incorrect dollar amounts on entry documents and for failing to report escalation payments.
For more information on the market study, check out the brochure.
Leave a Reply