E-Commerce and Trade Service

The Internet is going to change delivery, logistics, content, and other business fundamentals of the trade services industry forever. Recent surveys show that paperless electronic trade transactions are rare for exporters and manufacturers and also in a lot of top tier international banks. Yet there is a common agreement that that electronic paperless cross-border trade will overtake non-electronic paper-based trade within the next 5 to 10 years. The growth will be patchy and will depend upon industry sectors, geographic location, global standards and regulatory issues.

The trade services industry is only now really appreciating the implications, while outside the trade services industry there is little appreciation of the fundamental changes that are occurring. Trade services organisations have to be ready but, as with all major changes, the problem is that there is no consensus on how exactly the changes will manifest themselves or when.

Business to Business e-commerce is estimated to grow from US $109 billion in 1999 to US 3.1 trillion in 2003 according to Forrester Research. Growth of this magnitude will cause significant change in the trade services industry resulting in a very different perspective in 5 to 10 years.

The technology that is driving change is generally grouped under the title of internet and the various ‘e’ and ‘mmerce’ titles.

There are three major areas that will affect trade services. M-commerce will have a major impact on how services are delivered to customers. The explosion in wireless technology is inevitable due to the fact that mobile users considerably outnumber web users. The fact that m-commerce will become predominate is not in dispute but the timing is under debate. Several obstacles need to be overcome before mobile users start connecting to the net more frequently with many predicting that the true potential of m-commerce will not be realised for at least another three years.

There are currently four mobile phones for every PC worldwide and coupled with a growth in network ready PDA’s, WAP will do for the mobile phone what Windows did for the PC. WAP’s strength is that of convenience with anytime, anywhere access. It is still early days though. WAP is in an experimentation stage and where sites exist little is being done with them. Recent surveys show that only ten percent of companies currently have plans for WAP.

A word of caution, although it is the preferred standard, WAP is not alone in the mobile space. Given that the power of the wireless web lies in its accessibility and universal infrastructure, one standard must eventually become pre-eminent. Financial institutions moving into wireless will need to decide which service to commit to. One alternative to WAP is the GSM-SIM mode, which has proved popular in Scandinavia and the UK. Barclays Bank have been pursuing SIM (subscriber identity module) based activity for some time, with the primary reason being the levels of security offered. More advanced SIM based technology is being offered with SIMs that carry the security keys for more than one bank. Another alternative is the Japanese stand alone I-Mode system with over four million current subscriptions. Banking and interactive games are the most popular applications giving a very clear message that banks will have to develop m-commerce applications if they are to survive.

For the moment, none of these standards have achieved market dominance. There are going to be multiple standards for some time. WAP is going to lead the way in the next few years. If we want to offer solutions that can be applicable globally then we have to build applications on all these platforms. Consensus seems to be that the right structure for the future is WAP plus SIM.

Another important aspect of the new technology is that of Internet security and in particular the certificate authorities. Banks are staking their claims to the ‘trusted partner’ with many banks offering their own solutions. The most powerful organisation is Identrus, which is backed by a consortium of 13 major international banks. Indentrus uses PKI and digital certificates to identity trading partners, but offering interoperability amongst Indentrus member banks. The banks position is under threat from telecommunication companies and technology providers and, more worrying, from consortiums within vertical markets. One announced earlier this year involved a tie up between Ford, Diamler Chrysler and General Motors.

The final technology that will have an longer term impact on the trade services industry is Electronic or Virtual Money. Virtual currencies have long been seen as traditional denominations of money such as pounds and dollars transacted in an electronic form. But virtual currencies have expanded beyond this to include formats such as loyalty points, pioneered by companies such as Beenz, and electronic purses. These currencies are increasingly being used to pay for goods and bills over electronic channels.

Electronic money is also being developed by players other than financial services companies, opening the way for business including retailers, utilities, and phone companies to offer e-currencies and compete with banks for control of how customers pay for their goods and bills. Companies include X.com, PayPal, ProPay, PayMyBills and Ebay’s Billpoint.

Developments in information technology, including advances in smartcards and mobile phones, and the fact that virtual forms of payment will cost companies less to process than traditional methods such as cheques or credit cards, will encourage the growth of virtual money.

The use of these alternative payment methods and ‘currencies’ will inevitably spread to B2B commerce and international trade and pose another threat to the traditional domain of banks in trade services.

The potential for change is evidenced by the many models that have been proposed in the last few months and the changing definitions of models proposed over the last few years, such as Bolero. These models typically deploy interesting technology solutions such as digital signatures, documents archiving, XML data transfers, SSL encryption, and defined workflows.

All the proposed models impact a trade services organisation in one or more ways: They provide real-time, reliable, electronic information, they deliver credit extensions to the appropriate party in a timely manner, they integrate data into the company’s internal systems and they provide cheaper alternatives than current conventional means.

The major proposed models can be categorised as

Electronic Cross Border Payment companies, for example TradeCard, Tradepaq 
Electronic Trade Credit using Letters of Credit or Documentary Collections, for example CCeWeb, Actrade, TFSC, Logistics companies with factoring offerings, for example Danzas, UPS Letter of Credits outside the banks, for example, ec-finance.com, Icconect.com, and UPS Capital Corp. One of the major innovations is by UPS Capital Corp, the financial services arm of UPS, who are launching global trade finance services in the US and Canada with the introduction of Letters of Credit Services and Export Receivables Service products. 
Bolero and their proposed alliances including software partners.

In each model the major differences revolve around the following issues

• how the bill of exchange, invoice, and bill of lading are handled 
• how discrepancies are handled 
• what are the merchandise claims procedures 
• how changes are processed 
• if and how banks are dis-intermediated 
• what, if any, credit extension methods are used 
• how are non payments, wrong shipping, disputes, etc. handled 
• how events occurring out of the standard sequence are handled. For example, when payment is before, at or after delivery. 

The attractiveness of each model to the trade services party will depend on a number of factors, the primary one will be whether the model will have enough solutions to make it an attractive proposition to a significant number of the proposed participants. Another important factor will be the compatibility with existing business practices and processes. One consideration is the legal aspects with respect to paper and manual signatures, which are evolving piecemeal around the world.

Underlying all these models is the problem of the security of electronic trade. It will take time to assimilate electronic trade areas into existing legal systems. The signs are that most of the developed countries are moving quickly to build the necessary framework.

Perhaps the most interesting aspect of the world of e-commerce is the opportunity for companies to reassess the role of intermediaries. In markets where intermediaries exact high charges or cause cash-flows delays, Web-based services will prove successful. In some cases, the Web will encourage the different participants in the trade services chain to jump stages. Most of the models advocate combining the traditional roles or doing away with them altogether. The large corporates that constitute the major buyers and sellers are using e CRM so they have seen the advantages of reducing the supply chain and have seen how the internet can make that happen.

All the major carriers have their own internet based systems, most make advanced use the capabilities of the web and it’s associated technologies. All can allow a customer to book a shipment and then track their shipment. There is also a plethora of vertical markets facilitating load matching services for shippers and carriers such as bulknet.com for the chemical industry, RightFreight.com for the airfreight industry and Tradiant Trans-Commerce for containerised freight.

The major freight forwarders and customs agents have embraced the new technologies. Many have their own internet systems to fulfill their role of preparing the export declarations, bill of ladings, and necessary insurance documents, and completing other documents required under an Letter of Credit.

However competition is fierce with tens of thousands of freight forwarding organisations worldwide. New companies such as Webfreight are using the Internet to combine the traditional freight forwarder functions along with new, value added capabilities by providing a list of carriers destinations along with their rates . Exporters can access competitive door-to-door rates to more than 900 international destinations and choose between 2,000 service options and can obtain a detailed quotation almost immediately.

Most Customs Authorities in the developed world have electronic document systems in operation. In the UK 95% of all customs declarations are delivered electronically. Most Customs Authorities are using the Internet as a means to register documents. AES in the US provides a standard document format along with API capabilities to allow other systems to interface easily. Others customs authorities offer similar solutions.

Few software vendors offer the technology to meet the challenges. CCeWeb, the new secure payments trade management company for all parties involved in trade services, selected China Systems to meet their stringent demands for a browser, internet front end backed by a flexible and proven transaction processing back end, combined with state of the art workflow management system. Their choice has been vindicated as a fully working system was built in 3 months. Technology has to be able to meet the speed of change the modern e mmerce world demands.