Maersk Line’s acquisition of the customs house broker Vandergrift earlier this week should be seen by shippers as part of a larger movement within the logistics services and software space to more efficiently couple freight and trade compliance activities.
The ocean carrier’s move may seem unusual, but viewed in light of recent consolidation within the global trade management (GTM) software category, it’s clear that shippers are driving software providers and logistics services providers (LSPs) to offer a more holistic approach to freight movement.
That holistic approach can shape both tactical concerns — e.g., a single platform to manage visibility across transportation legs and customs clearance, and strategic — for instance, use of free-trade agreements to minimize duty exposure in tandem with determining the correct sourcing location where adequate ocean freight capacity exists.
Recent trade dynamics also shined a light on shippers’ capability to manage freight execution and duty minimization on equal terms. For example, when shippers found out tariffs on certain goods from China would automatically increase from 10 percent to 25 percent on Jan. 1, they front-loaded cargo to get it to the US in time. Unfortunately for those BCOs, however, port terminals couldn't keep up with the rush, resulting in congestion at key gateways and boxes being held up for weeks in some cases.
Those holdups translate directly into demurrage fees. For instance, container terminal visibility provider Crux Systems said average dwell times through the ports of Los Angeles and Long Beach went from four days to six days, but the number of containers with dwell times of longer than five days increased by 47 percent from October through December.
“This resulted in a huge increase in demurrage fees,” Crux said in a Jan. 23 blog post. “The total amount of demurrage for containers we were tracking at the ports of Los Angeles and Long Beach increased fourfold in October. And then from October to December, the amount doubled.”
That also resulted in an average demurrage bill in Los Angeles and Long beach of $852 in December for containers that exceeded their free time.
The demurrage incurred in December and January is especially painful considering the tariff increase was postponed to March 1. As a forwarder and customs broker who helps shippers manage freight movement and duty strategy put it to JOC.com this week, “you have to wonder whether some shippers would have traded higher tariffs for thousands of dollars of demurrage fees.”
That cost tradeoff is heavily dependent on the value of the goods within a container. If it’s a container with $450,000 worth of electronic equipment, a 15 percent tariff hike would equate to more than $100,000 of extra Section 301 tariffs (once the 25 percent level kicks in). If it’s a container with $15,000 worth of spark plugs, the extra tariff would equate to $2,100 in additional cost. If demurrage spikes because of port congestion, then it becomes a dilemma for shippers.
Seen in that light, Maersk’s acquisition of Vandergrift could enable the carrier to further its ambitions to provide an integrated supply chain offering, but the deal didn’t occur in a vacuum.
In late January, logistics software provider Descartes Systems Group acquired trade compliance software provider Visual Compliance for $248 million. Descartes already provides GTM software along with freight management tools, so this move will bolster its customer base and provide shippers with deeper capability in restricted party screening, the process of determining whether customers and suppliers are on government sanctioned lists. Descartes is a highly acquisitive company, growing its federation of customers and tools by buying complementary software providers, but the $250 million price tag is among the highest the company has paid during its decade-long acquisition spree.
Thomson Reuters in October acquired Integration Point, a competing GTM provider, for an undisclosed amount to bolster its ONESOURCE GTM platform. Yet another GTM provider, Amber Road, rebuffed a $350 million acquisition effort by supply chain planning platform E2open in early 2018.
The North American trade compliance software market has matured as more shippers gravitate toward systems to help them manage the complexities of importing and exporting, with analysts projecting it will grow roughly 30 percent from present levels, to be a $1 billion market by 2022.
Integration Point and Visual Compliance had competed with systems from Amber Road, Aptean, Livingston, BluJay Solutions, and Questa Web, among others. Enterprise resource planning (ERP) vendors SAP and Oracle also offer GTM software and benefit from a massive install base. In other words, companies using those ERP tools often then decide to use the integrated trade compliance software provided by those same companies.
Those ERP-associated tools were often part of on-premise deployments of Oracle and SAP. The cadre of other GTM solutions that rose to prominence are predominantly software-as-a-service (SaaS)-based and deployed in the cloud, allowing companies to implement them more quickly and less expensively. And more automated options have emerged among a recent wave of startups. Los Angeles-based INLT, for example, offers an automated customs brokerage platform.
A more integrated offering
In general, GTM has been an overlooked segment of the broader supply chain management market, with importers and exporters often purchasing solutions from a reactive position rather than a proactive one. Often, investments in trade compliance come as a result of regulatory penalties or changes in free trade agreements or duty impositions that impact sourcing patterns. These penalties can include large fines, denial of import or export privileges and even jail time for negligent officials.
Another way the logistics and trade compliance are merging is through enterprise transportation management systems partnering with GTM platforms of choice to provide shippers a with a seamless, integrated offering. For instance, JDA Software has long worked with Amber Road, while GT Nexus cemented a strategic partnership with Integration Point prior to its acquisition by Thomson Reuters.
These developments highlight the varied paths shippers can take to manage their logistics and trade compliance needs. BCOs used to have to only two choices: either work with a customs broker or use a self-service GTM software to file customs entries, and then use separate systems to manage logistics or outsource those functions to 3PLs.
Now, shippers wanting to integrate logistics more tightly with trade compliance and strategize around them in tandem have more options. They can work only with technology-oriented forwarders/customs brokers (startup or legacy) that offer supply chain management services; they can work with more full service GTM platforms, like Descartes, Amber Road and BluJay; or they can continue to outsource customs brokerage and manage logistics internally or through a separate 3PL, but link those activities on a single dashboard.
Maersk is building another option, the opportunity to use an ocean carrier to provide integrated services across ocean freight, logistics, and customs brokerage.