Remember the glittering dot-com era? Well, perhaps those days are best forgotten. But recently an old buzzword from those heady times has surfaced again like an old lover—total landed cost engines.
The original idea was that, when you went to calculate transportation costs, it would be helpful to have online access to a database of all the various taxes, tariffs and duties associated with trade between one country and another. It would also be useful to be instantly notified if the trading party involved in the transaction was on any government "denied party" sanctions list for security or fraud reasons; and, even better, if the Web-based service would pop up with PDF files of forms you needed to fill out for this particular shipment, ready to be printed out and filled in.
Hop on the bus, Gus
And so, four years ago, the floodgates opened and vendors poured into the marketplace. There were the international trade logistics (ITL) companies that offered total landed cost capabilities as a stand-alone service among others related to cross-border trade—NextLinx, Vastera and Syntra. There were companies that mostly focused on landed cost calculation alone—Xporta, Open Harbor, Tarrific, Precision Software and World Tariff (an early leader in the field), to name but a few. Then Syntra changed its name to ClearCross and bought International Software Marketing, a specialist in global commerce management for the European Union; TradePoint Systems, a Customs services company, bought ClearCross; FedEx bought World Tariff and invested first in Vastera, then NextLinx, which meanwhile teamed up with BridgePoint, an online track-and-trace company.
All this turmoil wasn't just about the general public's losing confidence in the magic of the Internet. It turned out to be mighty expensive to gather all the constantly changing information about tariffs and trade barriers from every corner of the world. Automatically suggesting and offering paperwork was also a big headache. Plus there were just too many vendors for the uncertain market to sustain them as pure landed cost providers. The service typically became just one in a bundle of trade software offerings, as vendors widened their scope.
In the jumble of mergers, failures and revised business plans, a surprising number are still offering total landed cost calculation. But where total landed cost used to be a sub-section of transportation management, it has now emerged as a tool useful in supply chain and sourcing decisions.
That reflects a fundamental key change in the international trade melody. Buying and transporting goods from foreign countries brings into play an increasingly complex web of trade agreements, often between a single country pair. Importers looking for a deal are constantly being caught out by unexpected tariffs, taxes and duties. A manufacturer in Brazil may be offering you kitten heel pumps in this season's hottest colors with an unbeatable price, but when all's said and done, you might have been better off buying them locally.
Make a new plan, Stan
Another, newer, concern is the increasing reliance on China as a single source of imported goods, leading to vulnerability in the supply chain because of local disruptions— whether Avian flu, SARS or plain old political unrest. Other trade regions present similar risks, such as mad cow disease or terrorism scares.
"Companies that previously operated in a particular zone because of advantages in shipping costs and so on, now have to look at new regions because they can't use those countries or adjoining countries," says Ulrike Szalay, an international trade planning consultant affiliated with International Trade Services Corp., based in Washington, D.C. "Also, they have to think about contingency planning —where do they turn if something goes wrong?"
With total landed cost calculation, importers can be as quick on their feet as a boxer in the ring about assessing and choosing new trading partners.
So, it makes more sense than ever, but who's buying? Among the more enthusiastic users of total landed cost (TLC) services are the freight forwarders and third-party logistics providers who pass on the capability to their customers —often by incorporating the Web-based service into their own so that people don't even know they're using another company's software: what's known as "private label" usage. Early adopters include Exel, the UK-based logistics company. Others—including Danzas, Maersk Logistics, TNT, FedEx and UPS—have taken it up in response to the changing face of customer service.
No need to be coy, Roy
And logistics providers are, in turn, being prompted by increased interest from shippers. John Little, director of compliance at Houston-based Elite Group, a freight forwarder and Customs brokerage firm that started offering NextLinx's product on a private-label basis to its customers 18 months ago, says clients are increasingly asking for a little TLC.
Initially, Little was looking for a new denied-party screening mechanism, having become dissatisfied with his existing one. Along came NextLinx, based in Rockville, Md., which won Little over when it demonstrated its ability to screen for trading partners who are prohibited under U.S. laws for security or other reasons, as well as its "trade wizard," which takes the user step by step through all the processes needed to establish total landed cost. "We often had requests that I had a lot of trouble answering about duty rates for other countries, so that's when we decided to use that part of the product," says Little, who reports that he's delighted with the added capability.
"I think it's because people are realizing that it's a competitive advantage if you know what the duty rate is, going into the bidding process. If they know what that duty is going to be, they can lower their price to make up the difference," says Little.
Customers, he says, often just want a one-time quote on total cost implications associated with a tentative deal. Partly, the service appeals to logistics providers because smaller companies with lower rates of transactions can't afford to buy it.
Philadelphia-based logistics service provider BDP, for example, is eager to provide some landed cost capabilities to its customers, but it's working with G-Log—a relatively new entrant into the TLC market—to build its own, cheaper, services to check for regulatory compliance and tariffs and add those to G-Log's existing shipment execution, visibility and reporting services.
"You have to look at expense and value and how much the customer is prepared to pay," says Mark Stocksdale, director of software development at BDP. "The question is: How big is the demand? I think our clients would love to see it, but they're not really willing to pay for it. That's what we found out. It died out when they found out the cost."
Just trying to keep the customer satisfied
Robin Roberts, analyst with investment bank Stephens Inc. in Little Rock, Ark., says the TLC vendors aren't making much money out of this product yet. "The companies are having a hard time gaining traction, although in theory, demand should increase along with increased regulations. Although the total landed cost engine is a great tool, they have a hard time showing return on investment to customers," Roberts says.
The vendors' survival strategy has been to offer to be much more than an online database for customers. Vastera, for example, took over both the U.S. and the Mexican global trade operations divisions of Ford Motor Co. NextLinx still makes more money from software than from its trade data content. (The company says that this year will see that part of the business become profitable for the first time.) Xporta, like many others, has restricted the number of countries it covers to the top 40 importers, and many vendors have built their importer databases before turning to the much-trickier matter of export controls and tariffs.
Roberts says that, until the total landed cost calculator can be bundled with end-to-end solutions of data management, it's probably not going to gain as much market traction as everyone would have hoped. But vendors are making efforts to do just that.
Darren Maynard, chief operating officer at NextLinx, says the company is tailoring the service as it learns more about customers' needs. Maynard says, for example, that NextLinx staff discovered that their logistics company customers were using the trade wizard to manually populate spreadsheets with data, in order to compare multiple potential trade routes and partners. "We decided to give them a tool that did that—a trade planning tool, which can put in multiple sources to importing country or multiple exporting into one country—so you can work out the best place to sell from and the best place to buy from,"Maynard says.
"I think the science of landed cost analysis and determination is very important but only in the context of other applications," says Dave Horne, president and chief executive officer of Xporta in Santa Clara, Calif.
"What we find is that clients are looking for a complete solution to help them manage data throughout the global supply chain," says George Weise, vice president of global trade content at Vastera in Dulles,Va. "Landed cost calculation is a component of that. So we haven't focused on LCC but embedded it in our comprehensive whole."
"In my opinion, this is where the industry is going to go," says Little, describing the competitive advantage landed cost calculation adds to his logistics services. "In order to prosper, you're going to have to do things like this. It's certainly a far cry from what we were doing 20 or 30 years ago."
Gartner, Inc.
