Accelerating world trade

Administering world trade costs $420bn a year. Toby Poston meets Bolero.net, a start-up that is trying to slash these costs by...

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

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