Technology and changing trade regs make forwarder role critical, says Descartes CEO
Global shippers are pretty accustomed to facing uncertainty, whether it be natural disasters, man-made supply chain disruptions, or micro-events that tangle single shipments.
But that uncertainty is likely to magnify as the world gets to grips with a widening bloc of governments leaning heavily toward protectionist views. That will inevitably impact free trade agreements, tariffs, quotas, and possibly more specific regulatory areas like rules of origin.
All of that puts an increased emphasis on two areas: shippers’ reliance on logistics service providers and customs brokers, and those LSPs’ reliance on technology.
“There are something like 47 countries that require advanced data, and 120 more that are going to do that,” Ed Ryan, chief executive officer of the global logistics software provider Descartes, said in an interview with the Adam Smith Project. “And the U.S., Canada, and EU want export docs as well. In the next 15 years, we’re going to have regulations from dozens of countries.”
He pointed to a watershed incident in late 2010 underscoring how logistics providers can be the fulcrum in the intersection of freight and customs compliance. The noteworthy case of two bombs hidden in printer cartridges mailed from Yemen to Chicago brought into stark relief who vulnerable the international freight transport system can be.
The bombs were intercepted in London, based on tips from Saudi intelligence officials, but had already traveled on both cargo and passenger planes by the time they had reached London.
Ryan’s contention is that forwarders are in the best position to know when something is amiss. Why would someone in Chicago be shipping printer cartridges at all, must less in such small quantities, from Yemen, a place not exactly renowned as a supplier of that product.
Ryan’s comments came when asked about where Descartes sees its business going in the years ahead (the company is a major provider not only of customs documentation software but also customs content from around the globe). But it also serves as a reminder that upheaval in sourcing patterns potentially induced by major trade policy changes will be met by an accompanying force: technology.
Software companies in the logistics and global trade space don’t generally tend to rest on their laurels even in the quietest of times. But they’re particularly apt to innovate in times of extreme pressure for their customers. Layer in the fact that cloud-deployed software has raised user expectations in terms of the number and depth of system updates, and it’s clear that this is a hyper competitive market.
That innovation will help the market overcome the extreme challenges they face.
There are a cadre of software companies addressing the global trade and logistics challenges facing shippers and forwarders. Among those that Descartes competes with are Integration Point, QuestaWeb, Livingston International, Thomson Reuters ONESOURCE, and Precision Software on the trade compliance software side, and Amber Road, SAP, and Oracle among those vendors that supply integrated customs and logistics systems, like Descartes.
There are scores of other niche global trade management providers that focus on certain geographies or industry verticals.
But in December, Descartes made an interesting move by acquiring the trade data firm Datamyne to bolster its burgeoning roster of data-first acquisitions. The deal in and of itself is not unusual for Descartes, which has been acquisitive and partner-friendly for some time.
But Ryan framed the deal for Datamyne as one that starts to round out the company’s ability to arm its users with actionable data via the Descartes Global Logistics Network (GLN) across a number of fronts.
In recent years, Descartes has bought:
• Customs Info to get internal access to a warehouse of global trade content from around the world
• MK Data to bring in-house comprehensive denied and restricted party screening lists and associated applications
• And Datamyne’s content, which includes import data for dozens of countries based on customs information
The Datamyne piece is designed to give Descartes users the ability to understand a range of information as they make logistics decisions. That’s everything from tactical information about who else is using a trade lane to more strategic decisions about where to build a plant.
The data can be as integrated as the user needs it, depending on what other modules they use on the Descartes network.
Aligned with Descartes’ regulatory and documentation generation tools, this starts to paint a picture of the ammunition shippers and their service providers need to have to combat a global trade environment in flux.
Descartes, of course, is not the only provider of customs and logistics tools, but they are a major provider of systems to the freight forwarding industry.
And that industry, along with customs brokers, will be tasked with helping shippers navigate changes to regulations, and therefore, freight transportation patterns. Indeed, if you think of Descartes as a sort of federation of logistics practitioners all dipping into the GLN to use various components, forwarders are going to lean more heavily on that reservoir of tools.
“Forwarders were nothing when I started,” said Ryan, who’s history in the industry dates back to the early 1990s. “Now they’re the main players. They kept sucking in more stuff that shippers used to do. They were getting better ocean rates. But now they’re doing packing, stuffing, transportation at origin. Distribution to warehouse.”
Those added services have increased forwarders’ reach into shipper organizations, because not every shippers is equipped to manage all the complexities of their shipments. It also certainly covers customs requirements at origin and destination. And, increasingly, it means forwarders must become technology providers, a niche where Descartes has become important, supplying white-labeled systems, modules and content to service providers.
“To replace Kuehne + Nagel, you need to do something entirely different,” Ryan said in response to a question about technology startups aiming to nudge themselves into the global trade picture. But he might as well have been talking about forwarders lacking the technology to help shippers themselves.
“Freight forwarders have been living in the middle of two behemoths forever,” he said. “These forwarders are pretty sharp about getting scrapings off the nickel. It’s a highly competitive business and they’re used to working in a competitive market.”
This is all going to get much more complicated going forward. Disciplines like supply chain design, sourcing visibility, global trade compliance, freight procurement across modes, inbound domestic transportation, and final mile delivery are going to come crashing together as shifting trade policies force shippers to rearrange supply chains.
Those that aren’t tapped into a network and those that haven’t automated basic processes to free up staff to make harder long-term decisions are going to suffer.