Why we invested in: traide

We're happy to announce that we support traide as part of their early angel investor pool. Traide helps its customers to handle complex customs processes more easily, starting with automating product classification. Read our investment theses below.
Traide founding team

Customs classification is a painful process today. Wrong customs classifications can cause penalties, delays for shipments, even import refusals. There are good reasons to have your customs data on point if you’re involved in international import and export processes. Finding the right tariff number and keeping it up to date for each product is a real challenge. From the outside one might think that standardization could help here and in fact that’s what the World Customs Organization thought back in 1988 when it introduced the  Harmonized System (HS) of tariff nomenclature, built like a decision tree to assign each individual categorized product its respective tariff number. The HS has been continuously updated during the years but still the problem initially stated isn’t solved. Wikipedia provides a nice little example for complexity that the HS bears:

“HS classification is not always straightforward. Many automotive parts, for example, are not classified under heading 87.08, which provides for Parts and accessories of the motor vehicles of headings 87.01 to 87.05. Automotive seats are classified as articles of furniture under heading 94.01, which provides for Seats (other than those of heading 94.02), whether or not convertible into beds, and parts thereof, and more specifically under subheading 9401.20, which provides for Seats of a kind used for motor vehicles.”

Now, this may sound confusing but that’s only the peak of the iceberg. The HS provides a 6 digit system but there are many goods either not covered or not specifically enough covered for international tax and trade authorities. And that’s why other local systems exist that comprise the HS system and add further specifications. In the EU that would be the Combined Nomenclature (CN), an eight digit system that is annually updated and of course there are many others for other countries or customs areas. Now, this is only the classification process, there are other issues in tariff handling for many stakeholders in the market which include e.g. insufficient product data, license questions for specific goods, document exchange. Furthermore, trade restrictions are a common political tool to apply diplomatic pressure making it even more complex to navigate the trading jungle. All that shows: there is a lot of work left in international trade and where processes are manual and lots of complex data is involved software is a good answer. 

And a great answer specifically to the problems stated above is traide. They aim to build a new generation of customs software that automates painful processes like classification at the highest compliance standards reducing both the risk associated with wrong classification as well as the time needed to classify products and keep classifications up to date.

Here’s our theses and why we invested:

  • Team: We love that the team tackles the problem as a technological challenge. Their setup is a great hint that they’re building a deep tech solution rather than just digitalising workflows: with Hendrik and Philipp as two experienced software developers with great knowledge of DeepLearning and AI development the founding team is complemented by Leonie who is responsible for the commercial side benefitting from her previous startup experience. We were impressed with both the team’s technical approach as well as their ability to quickly manage to understand and solve the problem in a very practical way without previous experience in customs management. Being able to quickly adapt to new environments and challenges is a trait we value highly in founders.
  • Technological depth and defensibility: As the problem addressed is very clear, the most important question is where to start. Traide chose not to start with document handling but a more complex part of the problem which is the assignment of tariff numbers. While arguably easier tasks will also bring a lot of value, we think that from an investor’s perspective, traide’s approach is more defensible. That not only ensures a long lasting value proposition but also opens up opportunities to potentially collaborate with other players solving other parts of the equation and therefore adds business flexibility.

  • Market Size: Customs handling is partially outsourced to either logistics service providers (e.g. freight forwarders), fulfillment service providers or dedicated customs brokerage agencies. Varying from source to source the external customs brokerage market alone should be worth something north of 30bn USD globally. However, there are many trading companies internationally with their own customs departments that benefit equally from traide given the fact that traide usually boosts efficiency by more than 70% and reduces error rates significantly, the savings potential is huge. The general trend of growing complexity, “trade wars” and stricter compliance guidelines enforced by the respective authorities make clear that this can only be managed with a strong software. Furthermore, traide shows further development potential unlocking other revenue pools e.g. in strategic sourcing and supplier management and therefore even increase addressable market sizes.

  • Future of supply chain: As described above, trade and customs restrictions are a common and effective political instrument in today’s world. For companies that bears great challenges and while this problem increases the same cannot be said about the number of customs experts to handle it. To make global value chains resilient, international trade will have to use automation and ensure adaptability at the same time. Enabling dynamic workflows that allow cooperation between different stakeholders and as a key requirement avoid and reduce manual data and documentation handling is key. We believe that traide will contribute significantly to achieve that.

We’re happy to be part of traide’s early angel investor pool investing before its first institutional round.