- The Washington Times - Monday, March 4, 2002

Companies that specialize in coaching businesses as they jump through the hoops and over the hurdles set up by government regulators can have a field day in Washington.
Two leaders in the trade-logistics industry, both local firms, are no exception.
Sterling, Va.'s Vastera Inc. and Rockville's NextLinx Corp. are adept at getting goods moved across borders on time, with all the regulations fulfilled, and without running afoul of the U.S. Customs Service.
"Companies need to be able to ship everything from a paper clip to a dead body," says Rajiv Uppal, chief executive officer and president of NextLinx. "And this part of the [business] is not getting simpler."
Want to export a vehicle from Mexico to the United States by simply driving it across the border? Stephane Ritz, a NextLinx employee, is amused. The process is a little more complex than that.
He taps the word into his computer and points out that a vehicle can be many things a light truck, a passenger car, a van. A four-cylinder passenger car for eight persons or less (including the driver) with an engine exceeding 3,000 cubic centimeters and an interior space not less than 2.8 meters pays a 2.5 percent tariff at the U.S. border.
But it probably qualifies for a duty of zero under the North American Free Trade Agreement, provided the importer draws up a certificate that it was made mostly in Mexico. With a few more keystrokes, Mr. Ritz can provide the necessary paperwork.
These days there are more regulations and more paperwork, a fact that does not bother either Vastera or NextLinx. Every problem they have to solve adds to the bottom line. A January study by the Center for Supply Chain Research at Penn State University conservatively estimated the market for trade-management services at $30 billion.
International commerce, says Vastera President and CEO Scott Ferrer, is "tremendously cumbersome."
Logistics have consumed the time and money of the best companies for centuries.
But in the 1990s, a proliferation of about 130 bilateral and regional free-trade agreements added an unprecedented layer of complexity. The granddaddy of them all, the North American Free Trade Agreement, has helped trade between the United States and Mexico balloon from $81 billion in 1993 to $247 billion in 2000, but ranks among the most arcane.
The trend has stretched into the new century.
Over the past two months, the Bush administration's top negotiator, U.S. Trade Representative Robert B. Zoellick, has announced plans to negotiate agreements with Central America and southern Africa. American officials are already at work on a huge pact covering all of the Western Hemisphere, and will complete deals with Singapore and Chile this year.
"Our aim," Mr. Zoellick told a congressional committee last month, "is to achieve free-trade agreements with a mix of developed and developing nations in all regions of the world."
Given the ambitions of Vastera and NextLinx to serve clients who move shipments among many countries besides the United States, other countries' free-trade agreements matter as well. The 15-nation European Union's pact with Mexico, or the South American agreement known as Mercosur are only two examples.
Importers and exporters view the new agreements with a mixture of anticipation and apprehension.
"There's always yet another layer of complexity," sighs John Simpson, president of the American Association of Importers and Exporters. "These free-trade agreements are definitely a mixed blessing for people who conduct trade."
Trade-logistics providers are gleeful.
"All of these [agreements] make me smile," Mr. Ferrer says. "There is a tremendous information management component here."
The NAFTA example is instructive. To avoid paying duties, an importer must demonstrate that a vehicle was indeed manufactured in Mexico, not simply shipped through the country on its way north. That means complying with the NAFTA "rules of origin," notoriously complex strictures that the United States, Mexico and Canada hashed out in a multiyear negotiation that industry lobbyists worked hard to influence.

Politics drives regulations
"No one who makes regulations is making them to be clear," Mr. Uppal says. "They are making them for very political reasons."
Exporters wrestle with bureaucrats on a daily basis.
Governments in the United States and other industrialized countries regulate the export of weapons and other products that might have military applications, and apply tough civil and criminal penalties to violators. This area of federal activity got a boost after the attacks of September 11, when the Bush administration began barring sales to organizations with suspected terrorist links.
Smelling an opportunity to hook potential customers by flying the flag, NextLinx began offering complimentary services to screen companies' shipments and avoid getting tangled up in the new government regulations. It acted "in the spirit of rebuilding national security and well being," the company said in an Oct. 9 press release.
But even Mr. Uppal concedes that "99.9 percent" of exports will not conflict with anti-terror rules.
"Global trade is changing, but it's not because of terrorism," Mr. Ferrer of Vastera adds. "It's the trade agreements."
In response to the tectonic shifts in trade patterns, the entire logistics industry has undergone a makeover that has accelerated in the last few years.
Shippers like United Parcel Service and FedEx have dug their claws into more and more aspects of the business of moving cargo. Striving to be "integrated logstics providers," both have bought companies in the last two years that handle warehousing and distribution.
They don't ship bulk commodities like oil and grain, but their ambitions are huge.
"They're picking up every piece of the process," says Mr. Simpson.
UPS and FedEx do not ship to every corner of the Earth. So independent freight forwarders still arrange shipments for importers and exporters by pulling together different companies that get cargo from door to door. And major retailers like Wal-Mart and Target still arrange for many of their own imports.

Drive down costs
"The [companies who ship large amounts of goods] are looking for every means possible to drive cost out of the supply chain," Mr. Simpson says. "The fewer people who need to make a profit, the lower the cost will be."
Vastera and NextLinx are widely regarded as the number one and two companies in their industry, says Michael Bittner, research director for supply-chain strategies at Boston-based AMR Research. At their core, they are database and software companies.
The databases' "content," in the industry's jargon contain all the rules and regulations that prevent, slow or otherwise hinder the movement of goods across borders.
"It all starts with content in this business," Mr. Bittner says. "Content is king."
In the case of NextLinx, content means a 100 gigabyte database that 300 persons in various countries have assembled and must update constantly. Vastera runs a similar operation, with employees in Britain, Japan, Canada, Mexico and Brazil.
The software allows endless permutations of all the rules and regulations in the database. They can determine how to ship a tube of toothpaste from France to Uganda as cheaply as possible, or how to get a wrench from China to South Africa with a minimum of bureaucratic hassle.
At this point, the business models of Vaster and NextLinx diverge sharply.
Vastera looked to consulting as it went public in 2000, racked up $62.9 million in revenues last year, and came very close to profitability. Through Vastera, companies can outsource the management of their global trading, and eliminate what Mr. Ferrer, the CEO, refers to as "the guys in green visors sifting through paperwork."
Major corporations including the Ford Motor Co. and Lucent Technologies have handed off their logistics divisions to Vastera.
As a result, Vastera's people do a lot of running around. After September 11, they had to monitor shipments coming into the United States from Canada. As the Customs Service increased its inspections in a search for terrorists, huge lines of trucks formed at the border crossings around Detroit. In some cases, Vastera rerouted them to distant, but less-clogged ports of entry.
Vastera also employs former government officials who can keep tabs on developments in the field. George Weise, a former commissioner of the U.S. Customs Service, and Larry Christensen, a former senior official in the Bureau of Export Administration in the Commerce Department, both work there.
NextLinx, on the other hand, prides itself on being an upstart technology company that will hit about $25 million in revenue in 2002. It has been profitable for five of its seven years without the higher-margin business that Vastera pursues.
"We do no consulting," Mr. Uppal says.
Instead, the company has bet its future on partnerships with companies that integrate their databases and software into their operations. Those firms include UPS and FedEx, both of which own a share of NextLinx, to ABN-Amro, a Dutch bank that provides financing to importers.
Most recently, NextLinx cut a deal to put its software into large packages offered by technology giant Oracle.
Corporate cultures at Vastera and NextLinx also differ somewhat.
Vastera, housed in a black glass box near Washington Dulles International Airport, employs experienced, often middle-age workers who wear starched shirts and the occasional jacket. NextLinx is full of young women who joined the firm out of college and men who shave irregularly.
Workers have similarities
That said, both companies' employees have their similarities.
The people who work in the trenches of NextLinx and Vastera invariably have at their command detailed information about trade, and chew them over the way a die-hard baseball fan analyzes World Series statistics.
Anthony Hardenbaugh of Vastera can reel off the 10-digit tariff number for a "keyless entry device" a remote control for opening car doors by heart. His colleague, Joshua Bloomfield, knows government forms of all types backward and forward.
Sushan Arora of NextLinx has merged his law degree with the export-control regulations contained in a thick binder on his desk. Several cubicles away, Gisele Belotto boasts of "pleasant surprises" as she ferrets out inconsistencies in Brazil's tariff code that even its own bureaucrats had not discovered.
"I was finding errors in Chile's system too," she says. "It was great."

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