Beyond Trade Compliance
I’m kicking off some research and writing on global trade compliance. During this research, I’ll be talking to many of the solution providers in this market. My first calls were with with Descartes and SAP. Both are leaders in this market. I had interesting conversations with Jackson Wood- director of industry strategy for global trade intelligence at Descartes, and Linda McKee – director of solution management for global trade services at SAP.
Mr. Wood believes there is a significant trend that is occurring with respect to the trade compliance department in companies. Five years ago, or so, trade compliance would often report up to the chief legal officer. Today, compliance is morphing from trade compliance into something broader. The compliance function might roll up to quality, logistics, supply chain, or even to the chief sustainability officer. Ms. McKee says rougly half of their global trade services customers roll up into finance or legal, have to the supply chain function.
“We’re also seeing a lot more organizations that are starting to weave concepts of sustainability into some of their compliance programs.” Companies are moving from a narrow lens on trade compliance as a department that ensures the company is following “the letter of the law,” to a broader view of compliance as being part of a function that supports “broader risk, image, and reputational considerations.”
Ms. McKee from SAP agrees that many companies have moved past a narrow focus on following the law towards a major trend towards using GTC solutions for duty minimization. The SAP solution helps companies determine if one of their products qualifies for a lower tariff based on the composition of that product’s bill of materials (BOM), vendor certifications, and the declaration process. The solution also makes if much easier for a company to reach out to 100s or even thousands of suppliers so that the company can understand nation of origin and related issues associated with components in the BOM.
U.S. Customs and Border Protection (CBP) has expanded their focus on investigating and preventing goods made by forced labor from entering U.S. commerce. The CBP defines “’forced labor’ is a form of modern-day slavery that violates international labor standards and universal human rights. It can include abuses such as physical and sexual violence, withholding of wages, and debt bondage. Foreign companies use forced labor to produce goods at lower costs, which hurts American businesses that respect fair labor standards.” Several Chinese firms, and some firms from other nations as well, are listed as companies that US companies cannot do business with.
But there are many companies and individuals who are not on the CBP sanctions list engaged in unethical behavior. A large multinational corporation is dealing with subcontractors, logistics service providers, contract manufacturer, and all kinds of trading partners across the globe. These companies and individuals all might engage in actions that could adversely impact a company’s reputation.
“We work with a number of very large global apparel manufacturers,” Mr. Woods explained. “There’s certainly a slave labor component to that. But there’s also an environmental degradation component. We work with one very prominent brand whose CEO has made a very strong public pledge that their business wants to be supportive of the Green Revolution. They’re now starting to look at sustainable supply from not only a labor perspective but also agricultural and environmental protection perspectives. The amount of due diligence that global companies are doing now on all these different parties has begun to take on this much broader character.”
The people working in trade compliance programs tend to have “good research skills, good decision support skills, and a good infrastructure around assessing what’s happening from an international perspective.” These employees are in a perfect place to support a broader compliance mission.
Because of this trend, Descartes has moved from talking about their global trade compliance solutions towards talking about trade intelligence solutions. Descartes’s acquisition of Datamyne in 2016 marked their initial foray into providing a broader trade solution set; a solution said that continued to help clients with trade compliance but also included more strategic trade analysis data.
Datamyne collects, cleanses, and commercializes logistics trade data from nations across 5 continents. More than 500 million records are gathered each year from official filings with customs authorities and trade ministries. If a supplier is engaged in activities that could hurt the brand, subscribers can use Datamyne’s intelligence tools to speed up sourcing with new companies. The solution can also improve supply chain decision making. The Datamyne data, for example, strongly suggests that the ocean freight problem is not just a short-term problem. From Descartes’s perspective, upfront market insight and downstream risk management should both be part ofof a company’s overall approach to global trade.
There is clearly a trend for companies to have a broader focus on environmental, social, and governance (ESG) issues. Perhaps the best example of this is Exxon Mobil. To say that the oil industry has not historically been noted for their concern about environmental issues would be in understatement. But activist investors engaged in a successful campaign the gain boards seats. Now Exxon Mobil is disclosing greenhouse gas emissions data related to customer use of its petroleum products. If this can occur in the oil industry, it can occur in any industry. As companies respond to ESG pressures from the public, they may find that in their employees in the trade compliance department are a hidden jewel.