The Most Under-the-Radar Aspect of LogTech

Welcome to the 32nd edition of The LogTech Letter, a weekly look at the impact technology is having on the world of global and domestic logistics. Last, I explored why using proprietary software in logistics isn’t the competitive advantage it used to be. This week I’m pulling the covers off the most overlooked aspect of supply chain technology: global trade compliance systems.

As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.

For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.

While everybody watches in wonder as a stuck containership gums up world trade and turns everyone into experts on liner shipping/civil engineering/hydrodynamics, that provides just the right cover to talk about a part of the global trade industry that generally flies under the radar.

Today, I’m writing about trade compliance, and more specifically about the role technology plays in helping companies manage it. The importance of logistics and freight transportation has seeped into the mainstream consciousness, a trend that accelerated during the pandemic. Meanwhile, the tariff tit-for-tat during the Trump administration made the public more aware that different countries discourage certain goods by slapping steep tariffs on items.

The fact that goods being shipped across borders need to be properly identified so that they can be categorized by the country of export and import is no surprise to anyone in the business of global logistics. But...there has traditionally been a divide at many organizations between the teams handling logistics and the teams handling what falls under the broad umbrella of what’s known as trade compliance. So let’s start by defining what trade compliance entails. It can mean everything from classifying the product to filing customs entries to identifying restricted parties that a company can’t engage with, to more strategic aspects, like duty minimization strategies that includes use of free trade agreement, free trade zones, and duty drawback.

Some of these aspects run sequentially with logistics processes, while some run in parallel. Where they run in parallel, technology (generally called global trade management systems) has helped coordinate the flow of goods so that customs issues don’t become an impediment to the flow of the physical goods. Think of CBP deciding to hold a container at a US port of destination, thereby inhibiting the goods within that container from meeting transit times they ordinarily would have.

So that’s a very brief prologue on a very complex, if little understood, aspect of global trade. But where things get interesting is that a cohort of technology-focused companies has taken aim at this under the radar section of the industry in recent years. For the most part, these companies are seeking to use machine learning and automation to transition processes that have been handled by people - highly trained and regulated people - to do jobs like classifying products and generating customs documents. Some are training their sights even higher, helping customs agencies and parcel providers to be faster and more comprehensive in determining risk. 

I normally don’t use this newsletter to highlight specific companies by name, but I think it might be instructive here because of how specific this niche is. Among the companies on my radar (and this is far from an exhaustive list) are Border Bee, KlearNow, Zeus Logics, Eezyimport, and NetCHB, and AltanaAI.

These companies, in some ways, are seeking to disintermediate traditional customs brokers, entities that help shippers with those core procedural aspects of global trade while also serving as strategic consultants. Some, however, are aiming to provide forwarders and customs brokers with a more efficient way to serve their shipper customers. As with most things in the LogTech landscape, it’s complicated.

I want to draw attention to this space for a couple reasons: one, global trade management (GTM) has always seemed to me to be an undervalued logistics software category. Many companies come to the space reactively - after being hit with a CBP audit or some type of penalty related to improper classification - instead of proactively. If they looked at GTM proactively, they may have realized the inherent value in tethering logistics processes to the flow of customs-related information, as well as the flow of financing related to the goods themselves. It’s all intertwined, and having three teams managing them on three different systems isn’t optimal, unless those systems are tightly integrated. 

The other reason for me to focus on the technology flooding into this niche: it seems to me the 2019 acquisition by Amazon of the digital customs broker INLT was an inflection point of sorts. A couple months after the acquisition, I highlighted the move to a group of footwear trade compliance specialists I was speaking to, noting that automated product classification was coming, and suggesting humans maybe weren’t best equipped to make those classification determinations. I could feel the eyerolls in the audience. But since that point, there is growing acceptance of the use of machine learning algorithms to at least assist long-term trade compliance experts at doing their job better. BluJay Solutions, one of the major GTM providers, recently called this augmented capability, not automated. 

And you can bet that Amazon’s interest in not just building digital customs process capability, but buying an outside firm to accelerate it, caught the attention of founders and VC investors in the space. That’s why that list above is steadily growing.

So while we wait for the Evergreen vessel to be dislodged, keep an eye on automated trade compliance space. Because every single bit of cargo on the Ever Given needs to go through a massive range of customs procedures. A failure to do them correctly could be as crippling as being stuck in on the banks of the Suez.

Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):

• An internal theory I wanted to sentiment-test with a trusted group of sources turned into this story. Basically, the idea is that the supply chain management technology space is likely trapped in a cycle that prevents it from ever reaching its full potential. Encourage you read to why in the piece (and obviously eager to hear your thoughts as to why I might be wrong!).

• Let the visibility wars escalate. FourKites got a $100 million series D this week, exactly the same amount that rival project44 got in its latest funding round. The two companies can’t seem to escape each other’s shadow. They even had similar messages from the Nasdaq.

  

  

• Baton, an 8VC-incubated startup aiming to segment long-haul trucking into highway and local delivery legs, got a $10.5 million series A from Maersk Growth and 8VC this week. Interesting model and the founders plan to use the cash to expand from operations in Southern California to Chicago or Atlanta this year.

• More funding news, this time an interesting TMS provider aiming to arm LTL carriers with load management technology to provide to small shippers. MyCarrier wants to help those carriers and shippers avoid a reliance on brokers, the entity that typically both connects supply and demand and also provides technology to the shippers.

• I wrote last year about Sedna Systems’ desire to grow its business in the logistics industry, and that’s what made its partnership with SAP’s TMS very interesting to note. Communication and workflow efficiency in logistics feels like an absolutely wide open market right now.

• Tech has a crucial role to play in the decarbonization of the logistics industry across modes and regions. I put together some of the more pertinent comments from TPM21 on this issue here.

And here are some recent discussions, reports, and analysis I found interesting:

• How could I not share a video that uses Legos to describe global logistics?

• RPA is coming in logistics, so here’s a pretty interesting interview to peruse about the topic in a more general sense. Hat tip to Ruben Huber at Ocean X Network for passing this along.

• Not a new one, but well worth a read from McKinsey on startups in logistics.

• Want to understand why the Evergreen vessel ran aground in the Suez? Here’s a fascinating look at the dynamics of how it may happened. 

• Weekly moving update: still not moving to Florida or Texas.

• Keith Rabois is becoming increasingly boring so this will be a guest VC of the week slot now. This week, come on down, Paul Graham! Wonder if I qualify as “not having achieved much.” Or smart, for that matter.

  

Some upcoming events I’ll be involved in:

• I’ll be moderating a free JOC webcast March 30 on a pertinent topic: The New Frontier in Global Logistics Technology: Linking Customer Expectations to Customer Promise. This one will be great. Jim Blaeser at AlixPartners has some fantastic slides on the squeezing pressures on shippers, while Wayfair and Jaguar Freight Services will highlight the complexities of juggling multiple systems to generate and update promise dates to internal and external customers.

  

• Registration is open for the IAPH World Ports Conference June 21-25. I’ll be involved in various technology-related elements of the program. MSC CEO Soren Toft and Hapag-Lloyd CEO Rolf Habben Jansen will both speak. Don’t miss out!

• I’ll be participating in Transporeon’s Visibility Day 2021 April 15. The focus will be on real-time visibility opportunities and challenges in Europe.

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.