As the market changes its perception of global trade management (GTM) technology, look for vendors to consolidate to achieve scale and provide broader platforms.
Global trade management is a funny old business.
On the one hand, supply chains have been becoming steadily more complicated for the better part of five decades. From the point that containerization unlocked a more efficient way to transport goods from across oceans, shippers have been continuously eyeing the most cost-effective places to produce goods.
That part of managing global trade is well defined and mature by now. There are established industries around supplier management and freight logistics on every continent. What’s more, there are trusted technologies to underpin those processes, falling under the broad umbrella of supply chain management software.
But technology that automates trade compliance and duty management strategy? The uptake on those products lags way behind other supply chain management software categories. And it’s a good time to the ask why that is.
One of the persistent problems that the GTM market faces is the totem pole dilemma. GTM technologies have historically been seen as ones that digitize the generation of customs documentation, or automate HTS code searches. Simply put, these are not high on the list of enterprise-wide technology priorities for most global shippers.
There’s good reason for some of that laissez-faire attitude. Shippers have historically relied on freight forwarders and customs brokers, most of whom do yeoman’s work in the areas that GTM software help shippers become more efficient and self-sufficient.
These service providers do great work for reasonable fees.
When GTM software was perceived to be only a direct replacement for the work that brokers and forwarders do, it was understandable that shippers would be reticent to invest in software. Those investments generally entailed licensed software that had to be maintained in-house by the shipper. It required significant funding, change management, and extra internal resources.
The thing is, GTM software is not just about automating the basic elements of trade compliance anymore. It is now seen for what it more accurately is, and what American Shipper has been proclaiming it is in its annual GTM Landscape Report: strategic platforms that cut across trade compliance, logistics, and finance.
This is where the attitude toward GTM is slowly changing. Now companies large and small are seeing that GTM software helps them with everything from where they source, to the free trade agreements they leverage, to tax strategies they use, to logistics optimization. And by the way, they’re still pretty good at automatically generating customs documents and accessing things like up-to-date restricted party lists and HTS codes.
Now, the next phase of this market appears to be significant consolidation.
“The GTM market is still mostly made up of best-of-breed suppliers,” Clint Reiser, the supply chain software industry analyst for ARC Advisory Group, wrote in a recent synopsis of ARC’s 2017 study on the GTM software market. “Only a few ERP suppliers offer GTM solutions, but I expect more to acquire providers or build their own solutions in the future.”
I agree with Reiser that consolidation is bound to occur. There are dozens of niche solutions in the market, and maybe a handful of what I’d call household names outside of the GTM modules offered by ERP vendors.
In fact, I’d group the market into four tiers of solutions providers: ERP software companies; logistics enterprise solutions providers; pure GTM software providers, and customs brokers that offer GTM software or managed services.
In that first group would be companies like Oracle, SAP, and even Infor (as Reiser points, Infor has emphasized GTM since its acquisition of GT Nexus, with that company’s internal and partner-related GTM capabilities).
In the second group are companies like WiseTech Global, Descartes, and BluJay Solutions. These are companies with GTM capability that focus as much on logistics and supplier management (or more core enterprise functions like accounting and HR in the case of WiseTech Global). In this tier of GTM providers, GTM functions are one leg of a stool, not the stool itself.
In the third tier are names are companies that focus mostly or wholly on trade compliance automation, like Amber Road, Integration Point, Questa Web, MIC Solutions, and Thomson Reuters ONESOURCE. Bear in mind, many of these companies offer solutions (in areas like logistics, visibility or tax) in areas other than strictly trade compliance or duty strategy.
In the fourth group are brokers that offer software for their customers to either use themselves or that they manage on behalf of the customer.
I should note, these tiers are not ranked in order of efficacy. For many shippers, a company in the fourth tier will be the best option.
Right now, the consolidation in the market is mostly happening in the second tier, and though Reiser expects the first tier companies (the ERP vendors) to start acquiring, I think we’ll see acquiring all up and down these tiers. There’s a footrace to capture effective technology, trade content, resources and customers across geographic regions and verticals.
That means you’ll see recognized names in the market acquiring companies in untapped markets, but it also means you’ll see companies you don’t traditionally associated with GTM acquiring companies to get into this market.
The importance of trade compliance in e-commerce applications is part of this evolution, but a more fundamental shift is that shippers are more invested than ever in seeing supply chain as a big, interconnected puzzle. And trade compliance and duty minimization is a big part of that puzzle.
What the GTM software market lacks most of all is scale. The best-of-breed providers need and want to get bigger, but don’t always have the marketing and cross-selling platforms to make that happen.
The ERP providers would love to further expand beyond the customer base they get access to through their primary solutions. Customs brokers with GTM software want to be seen as cutting edge service providers, not dinosaurs in a digitized trading world. All will be in the market for impactful acquisitions, whether those are bolt-on or transformative deals.
Keep on an eye which GTM software provider you use, or are considering using. They may well be looking to acquire or be acquired.
As Reiser put it, “Expect a number of additional mergers and acquisitions to occur in the near future, driven by the attractive growth rate of GTM solution sales and the broader supply chain technology convergence trend.”
Commentary: Time for GTM software consolidation?
