Administering world trade costs $420bn a year. Toby Poston meets
Bolero.net, a start-up that is trying to slash these costs by
persuading companies to move their paperwork online
The last few months of 2000 were quite depressing for many of
those involved with e-business. Dotcom start-ups were crashing
Icarus-like to Earth with increasing frequency, while the tech
markets continued their downward slide.
The season of goodwill began for many 'new economy' workers with
a pat on the back and a redundancy cheque, while venture
capitalists drew their purse strings ever tighter; many of them
developing a bad reaction to any proposition with the word
'Internet' in it. One Internet start-up - Bolero.net - went into
last Christmas having drummed up $50m (£34.5m) in its first round
funding, without so much as a cap in hand, despite the fact that it
has been running for two profitless years and freely admits that it
does not expect to be trading in the black for another two.
"That [$50m] is a significant amount to raise against a
difficult investment climate. The success of this financing
demonstrates the robustness and exciting potential of Bolero.net's
business," explains Tom Cooper, managing director of investment
bank UBS Warburg, which arranged the funding.
Bolero.net is a fairly typical sounding dotcom name, suitable
for a business-to-consumer site specialising in, for example,
classical music. But this Bolero has nothing to do with classical
music; nor, you will be pleased to know, is it a shrine for fans of
that legendary British ice-skating duo, Torvill and Dean.
Bolero.net is about world trade; it's about big business. And
the value of global trade these days - the goods shipped between
countries and across continents, using either a boat, plane, train
or automobile - is well into the trillions.
E-paper pushers
Bolero.net is interested in the fiddly bit of global trade - the
paperwork. The site provides an Internet-based service that it
believes can rapidly and securely transfer data and documents to
facilitate world trade flows, thus saving companies millions in
administration costs and paperwork in the process.
The cost of documentation and administration for world trade is
estimated at 7% of its total value, a staggering $420bn (£290bn) a
year.
That paperwork can create such huge costs seems staggering at
first, but not if you then examine what world trade really
involves.
Trade is not just about buyers and sellers that have agreed to
do business. Other people come into the equation; freight
forwarders that pick up goods and take them to the dockside or
airport; big international carriers that ship the goods from
country to country; customs officials and inspection agents at the
point of departure and arrival who make sure that the goods are
accounted for and that no laws have been broken; and financial
institutions that insure cargoes, provide credit and risk mediation
services. It's hardly surprising that there is a serious amount of
documentation being couriered, posted, emailed or faxed around the
world. "Traditionally, these companies all had their own internal
systems. The problem is that none of these proprietary systems talk
to each other; they are all using different standards," says Peter
Scott, Bolero.net's commercial director.
"There is a lot of interchange of documentation and paperwork
between all the parties involved, all in different formats and
media, with people trying to transcribe between one document and
another, or trying to take something from paper and make it
electric." This is where Bolero.net comes in, says Scott. All of
the processes above cause delays and errors in the processing and
reconciliation of trade documents. Scott believes Bolero.net can
provide an infrastructure to allow the exchange of data. "We are
not trying to provide a banking or shipping product, but a shared
infrastructure that competing service providers can use," he
says.
Exchange and Mart
Bolero.net describes itself as an "electronic trade community",
providing an open system through which businesses can exchange
trade documents and data via the Internet. It acts as a neutral
third party to ensure secure delivery and receipt of the
information, and provides a legal structure that binds the users
together.
Thanks to its own corporate structure, the company is able to
remain neutral in a very competitive environment. It is jointly
owned by the TT Club, which serves as an investment vehicle for the
world's container fleet carriers, ports and terminals and logistics
companies, and the international banking co-operative SWIFT (the
Society for Worldwide Interbank Telecommunications). Together,
their members work with most companies that buy or sell
internationally.
The Bolero.net system is relatively simple. It has the backbone
of a core messaging system, managed by SWIFT, which has a bit of
experience in this area, transferring, as it does, $3.5tr (£2.4tr)
a day through its interbank messaging system.
Secured using digital signatures and encryption technology, the
system allows users to exchange electronic trade documents that
Bolero.net has created using the XML document definition language.
The Bolero.net system currently accepts 52 different XML
document-type definitions, which can be used to cover 90% of all
trade transactions.
On top of the messaging platform is the title registry, which
allows ownership of goods to be exchanged online. Bolero.net
members are charged an annual fee, which can vary from nothing to
hundreds of thousands of dollars, depending on whether they join as
basic, corporate, enterprise or premier members.
Membership entitles companies to unlimited use of the messaging
system and the title registry, legal support and help implementing
the software needed to access the system.
The company's sales and marketing strategy is firmly focused on
major multinational companies, explains Scott. "We approach a major
company, get them to join at premier level and offer to connect
their smaller trading partners. We can sponsor them by only
charging a few thousand dollars or even connect them for free," he
says.
"It is important that the large trading companies of the world -
the Tate & Lyle's, the Samsung's and the Mitsui's - are
involved because they can push the Bolero standard down the supply
chain," says Scott.
Bolero.net already has a Who's Who of major global companies in
its membership list, which includes seven of the top 10
international banks, five of the top 10 container shipping
companies, business-to-business (B2B) exchanges such as Ferrous
Exchange and EMETRA (backed by Enron and MG), and multinationals
such as Hitachi, Samsung Electronics, Mitsui, Otto Versand and Tate
& Lyle.
Bolero was conceived in 1998 and launched in 1999, before the
idea of B2B electronic exchanges became popular. Although most B2B
exchanges claim to facilitate trade between companies in particular
industries, such as chemicals or construction companies, Scott sees
them as an business opportunity rather than a threat. "Today's
exchanges provide a front-office trading environment, but their
back-office execution and fulfilment is in the realms of
discontinuity and compromise.
"I defy any of them to publicly show that they have an
international model that can deal with payment and fulfilment
online," challenges Scott. "Although 99.9% of business transactions
still go through normal business methods, we still see B2B
exchanges as an opportunity.
They help us move into a new community very quickly so, to that
extent, we are interested in them," he says.
Just as Scott sees no threat from B2B exchanges, he cannot
envisage any supranational organisation like the United Nations or
European Union coming up with a rival format for exchanging trade
documents internationally. "The UN and government-backed agencies
are bureaucratic and don't move fast enough. People want to get the
benefits of e-commerce now. The world may come up with a solution,
but it could take five years," he says.
Certainly, Bolero.net is in an almost unique position for an
Internet start-up in that it has no direct competitors. There is no
other organisation that has a standards body, a neutral messaging
platform and that can transfer ownership online. Shipping companies
or banks may have proprietary systems that can deal with some of
the procedures and paperwork associated with world trade, but not
all of them.
"We are not yet the de facto global standard; we are just
getting going," says Scott. "The issue is going to be how quickly
we can develop and roll out our technology. People are implementing
it and this will become more visible over the next 12 months.
"We will know that we are a global standard when partner
companies start building applications around us and competitors
start asking us for our XML definitions," says Scott.
For a company as small as Bolero.net, which has just 85
employees worldwide, partnerships with IT suppliers and systems
integrators are crucial. It already has 35 of these, which include
Sun Microsystems, Mercator and AMS.
Most crucial to its success will be the ability of Bolero.net's
marketing and sales teams to convince companies that adopting an
Internet-based platform for all their trading will improve
efficiency and save them money. Scott thinks his company is well on
the way to doing that. "We are pushing on an open door. Everyone
knows there is inefficiency out there and that somebody, someday,
would sort it out. When people look at what we've done, they say it
could be us."
Bolero.net
What is Bolero.net?
It is an electronic trading platform that aims to cut the estimated
$420bn (£290bn) in documentation and administration costs
associated with world trade.
How does it work?
Its backbone is a core messaging platform that enables companies to
exchange electronic trade documents via the Internet, using XML
document definition standards. All messages between users are
validated, acknowledged and notifications given if necessary. A
title registry allows ownership of goods to be exchanged
online.
Who uses it?
Seven of the world's top 10 international banks, five of the top 10
container shipping companies, leading B2B exchanges and
multinationals such as Hitachi, Samsung Electronics, Mitsui, Otto
Versand and Tate & Lyle.
Who runs Bolero.net?
It was launched in September 1999 as a joint venture between the
TT Club, an investment vehicle for the world's container fleet
carriers, ports, terminals and logistics firms, and SWIFT, the
international banking co-operative.
A bolero-enabled trade: Coffee shipments from Colombia to the
UK
Trade Chain Participants
Exporter: The National Federation of Coffee Growers of
Colombia (FNC)
Exporter's Bank: Chase Manhattan Bank (Chase)
Carrier: P&O Nedlloyd (P&O)
Importer: AJ Ridge & Bremier (AJRB)
Importer's Bank: RBS NatWest Bank (RBS NatWest)
| Step | Sender | Receiver | Action via
Bolero.net |
| 1 | FNC | P&O | FNC prepares and sends
shipping instructions to P&O |
| 2 | P&O | FNC | P&O confirms
on-board dates, prepares and sends Bolero a bill of lading (BBL)
with transfer of title, back to FNC |
| 3 | FNC | Chase | FNC registers transfer
of constructive BBL title on the Bolero Title Registry and sends on
with invoice, weight certificate and exporter's collection
instructions to Chase |
| 4 | Chase | RBS
NatWest | Chase registers
transfer of constructive BBL title on the Title Registry and sends
on with invoice, weight certificate and Chase's collection
instructions to RBS NatWest |
| 5 | AJRB | RBS
NatWest | AJRB RBS NatWest sends
invoice, weight certificate, the BBL (with no transfer of title)
and RBS NatWest's collection instructions to AJRB for
review |
| 6 | AJRB | RBS
NatWest | AJRB reviews
documents. If OK, AJRB completes collection instructions confirming
that documents are satisfactory and authorising RBS NatWest to
debit their account against transfer of title of the
BBL |
| 7 | RBS
NatWest | AJRB | RBS NatWest sends
transfer of BBL title to AJRB. Settlement effected in accordance
with RBS NatWest's debit authorisation |
| 8 | AJRB | P&O | AJRB registers
surrender of the Bolero bill of lading on the Title Registry and
transmits the BBL status change to the carrier. The BBL will now be
at an END state |