Webster defines the word �reasonable� as: a) being in accordance with reason (a reasonable theory); b) not extreme or excessive (reasonable requests); or c) moderate, fair (a reasonable chance, a reasonable price). The U.S. Government has a very different definition when it comes to what it calls �reasonable care� in the movement of goods and service into and out of the country.
Consider the case of a t-shirt marketing firm that had been buying from a supplier in the Caribbean for several years. Before every shipment, it asked if the cotton in the shirts was produced locally, and the firm was assured that it was. But, in the case of one shipment, the government claimed that the cotton was actually made in China, and because the company could not produce the required Certificate of Origin, the shirts were seized and the company was fined.
Or, also consider the case of a major East Coast university that had enrolled a student from an embargoed country in a post-doctoral physics program. When the student returned to her native country, the university was cited for illegal technology transfer.
There are countless examples of these types of infractions, where the offender is just doing business as it always has, but the world it does business in has changed. In the US, international trade is controlled by a multitude of agencies and bureaus under the U.S. Depart-ment of Commerce, the U.S. Department of the Treasury, the State Department and others. Violations can result from the shipment of goods, services or intellectual property to denied parties and/or embargoed countries, or they can stem from acts deemed to be harmful to national defense. One such agency, the U.S. Customs and Boarder Protection (CBP) can impose fines, seize goods, curtail or eliminate import/export privileges and initiate criminal proceedings that can result in prison sentences.
You do not have to ship to anyone internationally to run afoul of these agencies. When any US company (or individual) has its export privileges taken away, it is automatically placed on the Denied Parties List, making it a violation to ship to them. Currently, there are over 550 such parties listed by the U.S. Department of Commerce, all of which have a domestic shipping address.
Below are the types of penalties associated with common infractions of US requirements:
            � Errors: $10,000 per negligent violation, $100,000 per will-ful violation
            � Negligence: Twice the government�s revenue loss or 20% of the dutiable value if no revenue loss occurs
            � Gross Negligence: Four times the government�s revenue loss or 40% of the value if no revenue loss occurs
            � Fraud: Market or resale value of the goods or the forfeiture of the goods themselves
            � Criminal Behavior: Goods seized and forfeited, a $500,000 fine and five years in prison
An example of a negligent error would be if your company does not keep accurate records for the required period of five years. Every import or export of goods that your company makes is logged against your Employer Identification Number (EIN). It is a simple matter for an inspector to look up your EIN, review the activity and then ask to see the file for a specific transaction. If you cannot produce this, you are guilty of negligence in this area, and a $10,000 fine could be levied against you for each occurrence.
Ten thousand dollars is the low end of the spectrum. In February of 1996, the Loral Space & Communications Ltd. agreed to help the Chinese government determine the cause of the failure of one of their rockets that was trying to boost a Loral satellite into orbit. Unfortunately, they did not seek the approval of the US government as required when dealing in this type of technology. That failure resulted in a $20 million fine (later reduced to $14 million). Lockheed Martin Corporation was also fined over their relationship with the Chinese government, but in this case, it did apply for approval. Unfortunately, the approval was for a high-level document to be passed to the Chinese concerning a rocket motor, but what was actually turned over was a highly detailed 5-page document. That transgression cost the company another $13 million.
You don�t have to be in the high-tech industry or even dealing with countries like China. Morton International (Morton Salt) was recently fined $647,500 for exporting a common chemical to Mexico. The chemical involved was thiodiglycol, a high-volume product (less than one million pounds annually) that is used as an antioxidant. Unfortunately, it can also be used in the preparation of mustard gas, and its export is controlled by the U.S. Department of Commerce.
Fines and forfeitures are not the only penalties your company could suffer. High legal fees, disruption of your business activities, demands made on the time of your executives and the disruption or even revocation of your ability to move goods into or out of  � the country are other risks that you run. Not to mention the issue of brand image. In fact, suits have been filed by the stockholders of companies hit by trade violations because management had failed to practice due diligence in this area.
Parcel shippers must be particularly careful in how they prepare their documentation. Because it is so easy to simply pack up small items and send them out via any of the major carriers, companies may be tempted to manifest their contents as things like �hand tools� or �spare parts.� It is always critical to include complete descriptions, including part numbers and if available, serial numbers as well. Not following this practice cost one company dearly: It had made a seemingly legitimate shipment of some machined parts, which it had sold as spares. But it neglected to record its serial numbers. When those parts turned up as components in a terrorist weapon, and their origin was tracked via the serial number, the company was investigated for a violation of US export regulations by the Bureau of Industry and Security. Because it could not provide an audit trail back to the original shipment, it was cited and fined.
Due Diligence Is Key
When the government becomes involved, it wants to know what steps were taken to avoid the violation. The difference in the penalties assessed for �negligent� violations and �willful� violations can be as much as a factor of 10. If the company can show processes that are in place, with a clear audit trail that proves they were followed, they are much more apt to be viewed as being only �negligent� by not staying on top of current rulings. But without that process and audit trail, it is much easier to assume that the violation was willful. Implemen-tation of systems that force employees to follow procedures, capture the time and date of each step as well as the identity of each person involved go a long way toward proving the company�s sincerity in following the rules.
This proof of due diligence is one of the primary factors that is driving growth in the market for automated systems to support international trade logistics (ITL), or global trade management (GTM), as it sometimes called. According to ARC, a leading supply chain consulting firm, the ITL market is expected to almost double in the next four years, growing from $90 million this year, to $152 million in 2008.
ITL software is available in modules designed to support different types of activities. If you are an exporter, you may want assistance in the creation of all of the documents required, but because of the nature of your products and/or customers, you may not need to worry about compliance. Or you may be using a freight forwarder to make the actual shipping arrangements, so you would not need to do any rating or routing or be concerned with tendering the loads. However, when buying modules to fit your company�s needs, care must be taken to insure that they actually talk to one another, even if they come from the same company. The rapid growth in this market has caused many of the smaller players to merge, and the resulting product lines may not be fully integrated.
Integration between modules is one issue; however, the level of integration to your host system is just as critical. Today�s Tier-One ITL systems are able to pass information to and receive information from the ERP or legacy system that runs your company. Information from the order entry system, such as the customer name and location, and from the transportation management system, such as the carrier and freight class, should be automatically fed from those sources and not needed to be re-entered. The same is true of data that already resides in the warehouse and manufacturing systems. Detailed product information like the serial number of every component, or the lot or batch number that produced it, should be included in the shipment documentation. If the company that found its parts being used by the Chinese space program had installed this kind of a system, it would have been able to prove its innocence by showing exactly when and where those parts were shipped.
Another effect of the volatility in the area of international trade logistics is the number of companies that are entering and exiting the market. AMR, an industry analyst in the supply chain space, has just completed an in-depth survey of the ITL market. One thing that it noted was that in the time that it took to complete the study, three of the companies reviewed were acquired, went bankrupt or disappeared from the marketplace. Along with reviewing a prospective vendor�s technology and knowledge of your industry, it advises that you access the vendor�s financial viability as well.
The good news is that today there are a lot of choices available to companies that are considering stepping up to play in the global market place. The bad news is that in the post-September 11 world, there are a lot of new requirements, and the penalties for not meeting them have become much more severe. Anyone considering such a move needs to exercise the government�s form of �reasonable care� when choosing a software vendor.
Bill Petersen has over 25 years of experience in supply chain management. Bill has worked for several of the �best-of-breed� providers of warehouse and transportation management systems, including Manugistics, Red Prairie and JD Edwards. He joined Precision Software in 2004. He plays a pivotal role in marketing its Global Logistics solution TRAXi3. He can be contacted at 361-779.8195 or bill.petersen@precisionsoftware.com.