Shippers are turning to outsiders for advice on international regulatory compliance and distribution network design. Freight forwarders hope they'll get the call.
For many a company in the United States, globalization has meant getting involved in international trade after years of operating as a purely domestic business. Even companies that have long histories of international sales are getting into new markets and sourcing more materials and products overseas. Often, they need expert advice and guidance as they enter new business territories.
Globalization has also has meant that many companies now must worry about international regulatory compliance, something they've never had to think about. Many are exporting or importing for the first time and are unfamiliar with the complexities of customs regulations. These companies, too, need expert guidance to ensure they comply with the many laws that affect international trade.
Where can they turn for expert advice on regulatory compliance and import/export operations? Although most people would think of the traditional management consulting and accounting firms or customs attorneys, more and more exporters and importers today are relying on their international freight forwarders and customs brokers for guidance. In fact, forwarder and broker executives say consulting has become their fastest-growing source of new business.
Going Abroad
Demand for consulting and training services in import and export operations, international trade law, and customs compliance has exploded in the last five years. There are several reasons for that growth.
First, the globalization of business has created soaring demand for international trade consulting services. Even manufacturers that have staunchly focused on domestic business for decades are finding today that they need to be involved in international trade. As these companies have begun to sell their products or buy raw materials, components, and finished goods overseas, they have found that they need help in establishing processes and developing expertise in the complexities of international trade. That has presented a ripe opportunity for freight forwarders, especially those that have a worldwide network of offices. "We are working with middle-market companies to set them up to participate in global trade," says David Williams, managing director of Fritz Trade Management Services, based in San Francisco. "Compliance is a global issue and we can bring a global perspective and management skills to our clients."
Another development driving demand is the trend toward eliminating what top management sees as "unnecessary" functions in the name of improved productivity. "Companies today are focusing on their core competencies," says Jack Rafferty, vice president of sales and marketing for PBB Global Logistics, based in Buffalo, N.Y. "At the same time, they are downsizing and [shedding] their internal expertise." Sooner or later, company executives realize that regulatory compliance and competent management of import and export processes are in fact essential. Many turn to outsourcing as a cost-effective way to obtain information that they are unwilling to maintain in-house, he explains.
"We're an excellent buy, an alternative to hiring full-time people to keep up with developments in customs regulations. If you outsource, you don't run into continuous expense and you don't build up a bureaucracy."
Cost control is indeed an important reason why customers are asking freight forwarders and customs brokers to consult on network design, agrees Rick Cazan, senior vice president of sales and marketing for Hellmann Worldwide Logistics in Miami. His company will consult with clients about market trends, help them find the most efficient distribution network, and analyze how to control transportation and labor costs, for example.
The changing nature of the freight-forwarding business also has led some forwarders to develop an integrated package of supply chain process- and information-management services, says Richard J. Bolte Jr., president of BDP International in Philadelphia. "When I came up in the business, we handled export shipments," he says. "Today, we design export processes that handle export shipments." Customers also are asking their forwarders to help them develop, implement, and maintain information systems that manage international transactions, Bolte says.
"Today it's all about helping customers meet their goals, ... reducing costs, streamlining processes, and gaining efficiencies."
For customs brokers, offering consulting and education services may be a survival tactic, says Williams of Fritz Trade Management Services. "The traditional brokerage business is becoming basically a transactional one. Soon [these brokers] will just be a provider of technological services to the importing community." By offering services like designing customs-compliance programs, they can continue to play a critical role in their customers' business.
Changes in the role of the U.S. Customs Service have provided ample reason for importers to turn to customs brokers for guidance. Under the 1992 Customs Modernization Act (often referred to as the "Mod Act") and its principle of "informed compliance," the burden of knowledge about and compliance with regulations has shifted from Customs to the importer.
"This was a big change for importers and some needed help," says Cathy Clausen, director of product development and customs operations for Circle International in San Francisco. "Many of the folks they would traditionally go to for consulting weren't prepared with the necessary level of information. The natural person to turn to was the customs broker, who was very knowledgeable not only about the traditional rules and regulations but also about the way Customs was looking at their processes." Customs authorities also have stepped up enforcement of regulations. Among other things, auditors look for evidence that importers have internal controls and processes in place to ensure that all relevant functions, including traffic, taxation, purchasing, and finance, are in compliance with Customs' rules. Clausen says that has led companies like Circle to help their importer customers create and set up those controls and processes.
Different Approaches
Some freight forwarders and customs brokers have set up separate divisions or subsidiaries that offer consulting services. For example, Tower Group International, based in Buffalo, N.Y., has a separate organization called Professional Advisory Services, which employs five full-time consultants in the United States and Canada. This group offers three main services, says Bernadette Corrado, senior regulatory compliance specialist. These include public seminars on import/export topics, such as NAFTA compliance, record-keeping requirements, and import classifications; on-site training on specific issues or broader topics; and consulting services, such as conducting Customs compliance evaluations and internal process reviews and redesigns. "We would review documentation just [as] Customs would do, recommend improvements, and assist the importer in creating a policies and procedures manual designed to maintain the quality of the importing process," she says.
Another example is PBB's Trade and Regulatory Services. A team of consultants offers such services as Customs compliance assessments; analyzing all trade-related functions to ensure appropriate linkages and audit trails between sales, purchasing, accounting, and traffic/logistics; and developing international market-entry and distribution strategies. Likewise, Fritz Cos.' Trade Management Services (TMS) consultants focus on the areas of regulatory compliance, tariff analysis and management, trade development, and organizational design. TMS also is working on a number of projects with various national customs authorities to set up compliance programs.
Others consider consulting to be part of their general service offerings and do not formally separate it out, although they usually have staff who are dedicated to consulting assignments. "We do not have a separate consulting group per se. ... We have people on staff who are dedicated to problem solving," says Hellmann's Rick Cazan. Today, he notes, shippers often expect distribution-network planning and design to be a normal part of the service. There's so much demand for consulting services in that area, he notes, that Hellmann has hired a vice president of warehousing and distribution who can help large customers develop their own facilities or incorporate the forwarder's capabilities into their plans.
BDP International also considers consulting services to be an integral part of its offerings. The company says its use of cross-functional teams to serve customer accounts ensures that it helps every customer look for ways to improve supply chain processes and cut costs. Examples of some major consulting projects include: designing an order-processing system for a Midwestern retailer; a project that encompassed systems integration, electronic data interchange (EDI), and export management functions for a chemical manufacturer; and designing and implementing a materials-handling program that tracks equipment worldwide for a construction and engineering company. The company also has built a growing business around information-technology consulting and has spun off its software-development expertise into a separate company called Sirrum.
Similarly, Circle International has integrated its consulting work into its daily business, which is structured around a number of vertical product lines, says Cindy Stoddard, senior vice president and chief information officer. "We have salespeople who specialize in high tech, others who specialize in retail and fashion, and so forth. They are complemented by logistics analysts who understand warehousing and the optimization of freight flows within those markets." These teams make recommendations to customers in three areas: products and general business practices, logistics and transportation, and information solutions. Examples of Circle's consulting projects include redesigning a global logistics-management network to support a client's move toward a "configure-to-order" environment and redesigning the supply chain for an automotive customer to cut the order-to-delivery cycle in Latin America from 12 days down to six, thereby cutting both transportation costs and inventory.
The Perfect Position
Both existing and potential clients of freight forwarders' consulting services have to decide whether to work with forwarders and brokers, or choose traditional providers of such services, such as consultants, national accounting firms, and international trade and customs attorneys.
Freight forwarders and customs brokers contend that they are the best choice on several counts. "We're in the perfect position to help customers streamline processes because we're in the center of their activities, and we have a worldwide presence," says Stoddard. That is critical when multiple countries and regions are involved, observes Fritz's Williams. "Customs authorities want to be able to see the entire process, from original order to final payment. We can look at the supply chain to ensure compliance becomes a mechanism within the global supply chain process, not just an appendage, as it usually is."
Forwarders and brokers also bring to the table in-depth, hands-on knowledge of import/export operations and regulations. "Brokers are the experts in customs regulations. It's not secondary, it's our primary focus," says Tower Group's Corrado. "We do this every day, and customers recognize that we have the resources and the type of knowledge that's very practical in nature - we know how to apply it."
That practical approach is a big advantage over what traditional consulting firms offer, says Stoddard. "We know the business. We have a library of best practices. We've moved freight, we have the warehouses, we have the global presence. ... What we bring is not just the ability to plan, but also the ability to execute the plan."
The forwarder's operations-oriented perspective ensures that the customer will get the kind of support it really needs, adds BDP's Bolte.
"We're seeing the activity every day, so we can recommend programs that are better tailored to ... the actual business that's going on." The relationship between freight forwarders and customs brokers and their clients, moreover, is more intimate than most other kinds of business relationships, he adds. "Forwarders and customs brokers are kind of like your hairdresser. You've been coming to us for years. We know all about you and we know all the things you're doing wrong!" he says with a laugh.
Still, forwarder and broker executives agree, there are times when customs attorneys and traditional consulting firms are appropriate choices - for example, when litigation or trade policy disputes are involved or a "big picture" strategy is required. Most, in fact, work closely with customs attorneys to provide customers with the specialized knowledge both have to offer.
Ultimately, though, says PBB's Rafferty, exporters and importers have to judge where their specific interests lie and choose the kind of provider that will support those interests, rather than one that may focus entirely on financial issues or on legal battles.
