Digitization Continues to Hit Crossborder Transactions

Globally operating businesses must overcome processing hurdles for added supply chain efficiency in free trade agreement management

While the provided benefits that Free Trade Agreements (FTAs) present—such as increased trade, economic growth, additional services, lower product cost—help spur market expansion and opportunities for countries operating under FTAs across the world, it is vital to consider the continuing technological mandates that will affect business processes for companies in those countries.

The June 1st passage of the Ventanilla Unica de Comercio Exterior Mexicano (VUCEM) system is one such mandate that adds to the growing list of federal regulations requiring digitized documents. Established by the Mexican government, the system enables importers, exporters and other involved parties to send electronic information once to a single entity to comply with all requirements of foreign trade. And a number of companies such as MFI International and Integration Point already implement the portal throughout their business processes—which any companies looking to trade with Mexico will have to abide by.

“We have customers on a global scale and we see more and more countries and government offices moving in this direction of acquiring electronic data,” explained Melissa Irmen, Senior Vice President, Products & Strategy, Integration Point. “And every time we go into a new situation in a different country, the same thing happens. The U.S. Customs and Border Protection has been working on their new system, the Automated Commercial Environment (ACE), for a good while now and one of the functionalities that they are bringing to play is the ACE Document Image System (DIS)—which again falls along the lines of this idea to take electronic documentation with a single entry filing.”

Commercial invoices, packing lists, invoice working sheets, TSCA import certification forms and specified EPA, APHIS and NOAA forms are among some of the documents that may be submitted during the first phase of the DIS testing.

As such systems strengthen border security and enact more efficient trade practices—replacing the paper trail with a digitized, always traceable trail—they also cut down on manual labor and consolidate numerous processes into one automated method for added cost savings.

“The perception is that the VUCEM portal will increase business in Mexico,” said Lalo Solorzano, Director of Global Solutions, Integration Point. “Now, you no longer have to run through the red tape of putting together an invoice and a Certificate of Origin and a permit and all the stacks of papers you need to physically enter and exit Mexico. Instead of having so many people doing one process, for example the solicitation of documentation from their suppliers, they have one person breaking down the process of a Bill of Material to figure out what makes it qualify or not qualify for an FTA.”

Industry impacts

And while any industry can benefit not only from FTAs but electronic documentation, the ones that will be impacted the most are the high-volume shippers “because of the time it takes for them to present physical paper work versus electronically,” Solorzano explained. Industries such as automotive or ones moving a large range of electronic parts and components require product classification which generates a high volume of invoices—an area which is a key target for electronic documentation. In fact, according to a recent mid-market report from Amber Road, 97 percent of survey respondents perform some type of product classification. And while two thirds of those approximate 150 respondents did indicate that they continue to use manual processes—such as paper manuals or Web-based research—59 percent agreed that they need to do more with their existing export compliance program or need to initiate a program.

And the more progressive companies will realize that just as FTAs help them, so too will they realize that automation helps them generate added cost savings, according to Anthony Hardenburgh, Vice President, Global Trade Content for Amber Road and former International Trade Specialist for the U.S. Department of Commerce.

“What we see on a daily basis is the companies that understand that automation and more efficient processes which ultimately save money and produce better accuracy—those are the companies that are going to be more open and will fight for the necessary budget to secure automation,” he continued. “Most products out there have a compilation of other components which more often than not, come from various other countries—and that’s where you need that management solution,” said Hardenburgh.

Although electronic document management is not a new concept, it is one that continues to gain ground as more companies expand their global business footprint—such as UPS which launched freight services between the U.S. and Mexico and even more recently, into Nicaragua and Honduras [the latter which was made possible as a result of the 2006 Dominican Republic-Central America-U.S. Free Trade Agreement (CAFTA-DR)]. Its UPS CrossBorder Connect service is one way the company is alleviating freight supply chain challenges between U.S. and Mexico for companies investing in cross-border trade.

The concept of such unique portals as VUCEM is being readily accepted throughout Latin America, said Solorzano, and such electronic documentation portals continue to serve as the next step in effective FTA management. “That is definitely the way that you will need to do business to digitize everything that is under FTAs,” he added.

In a global economy where one transaction affects another and businesses are no longer operating under just one FTA, Irmen agreed that businesses will continue to adapt to more efficient, digitized processes.

“After businesses make their sourcing decisions, they’re looking for a tool that with one push of a button is going to do their BOM analyses against multiple FTAs,” she confirmed. “They’re no longer just operating under NAFTA—companies in one central location are doing qualifications for their companies around the globe. They need to be able to do that very quickly and efficiently—and that takes automation,” said Irmen.

Export compliance is not an option

As free trade agreement initiatives continue—with most recent trade negotiations around the Trans-Pacific Partnership (TPP)—businesses must factor in how such developments will impact their cross-border processes such as maintaining rules of origin for FTAs; upholding valid certificates; and ensuring that their BOMs meet qualifications to claim preferential duty.

“We see quite often where companies have zero automation in place and if you think about everything that is involved with an import process—without automation, it can be next to impossible to cover that,” Hardenburgh concluded.