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Vastera: Taming International Trade

Up until the early 1800s, the conventional wisdom was that protectionism was a wise policy. But the classical economist David Ricardo argued vigorously against it. He believed that free trade was the best approach and developed the concept of comparative advantage (that is, nations should specialize).

While there has been great strides towards free trade, the fact remains that there are still many tough barriers. If anything, international trade is exceedingly complex. Companies must deal with brokers, importers, regulatory agencies, carriers, banks, customs, forwarders and so on.

Well, there is a company that is making things easier: Vastera. The company plans to go public in late September. The lead underwriter is Deutsche Banc Alex. Brown and the price range is $9-$11 (the company intends to issue 6 million shares). The proposed ticker symbol is VAST.

The company has a comprehensive set of technologies. There is eContent, which is a huge source of trade regulations and requirements. Vastera has a team - licensed customs brokers, industry consultants, former government compliance officers - that constantly update the database.

Next, there is TradeSphere, which is software that helps with the exchange of goods across international borders. It can handle shipment documentation, boycott/embargo screenings, global tracking and tracing and tariff management.

Then there is TradePrism.com. Basically, it is a portal that delivers e-Content, TradeSphere and other Vastera services over the Web.

Regulatory compliance is critical for international trade. An audit from the U.S. Customs Service averages about 15 months. If there are violations, a company could be subject to a variety of penalties, such as fines, loss of import/export privileges and even bad publicity.

An example of a happy client of Vastera is Nortel. As the company's international sales mushroomed, Nortel realized that its in-house capabilities were unable to handle the myriad documentation requirements. The result was delayed deliveries. With Vestera, Nortel was able to deploy solutions in the United States, Canada, UK, Mexico, Brazil, Malaysia and Singapore. So far, Nortel has saved $9.4 million.

For Vastera, the company's financials are as follows: For the first six months of 2000, revenues were $13.4 million, which was up from $9.1 million in the same period in 1999. As for losses, these were $15.7 million in 2000.

However, the company is transitioning to a business model based on subscriptions and transactions. These revenues increased 91% from last year.

What's more, in July Vestera signed a huge deal to acquire Ford's global customs unit (for 8 million shares of Vestera). In the deal, Vastera gets Ford's technology, as well as the contract to manage Ford's global trade operations (such as import/export customs operations, contracts with third party brokers and freight forwarders, etc.).

This should help propel revenues, as well as lead to new contracts. All this should bode well for the company's upcoming IPO.