Dagang Net Leads E-Commerce Charge

Published by The Edge

When the Royal Customs Malaysia first mandated the electronic sub­mission of customs declarations from manual processing at Port Klang in January 1995, forward­ing agents staged a protest outside the Kedai EDI (Electronic Data Interchange) of Dagang Net Technologies Sdn Bhd.

Dagang Net, via a back-to-back agreement with the National Chamber of Commerce and Industry of Malaysia (NCCIM), had been given a 15-year government concession ending this year to roll out the infrastructure for electronic commerce (e-commerce) nationwide.

Dagang Net's pilot rollout for the e-com­merce exchange was Sistem Maklumat Kas­tam-DagangNet (SMK-DagangNet) for Port Klang, which automated customs procedures for shippers, carriers and third-party logis­tics companies.

"Those were tense days," Dagang Net gen­eral manager Yong Voon Choon recounts. Yong, who has been with the company since it was established, says the biggest challenge in the early days of switching from manual to electronic trading was changing people's mindset.

“Thankfully, the Royal Customs Malaysia remained firm and gave its full support for this national initiative. We also had cooperation from the private sector, including the Port Klang forwarding agents' association,” Yong told The Edge in an interview at the Dagang Net office in Bukit Damansara last year.

Today, Dagang Net is close to completing the national rollout of SMK-DagangNet, which provides a more efficient system that streamlines and facilitates international trading processes electronically.

“It has been a long project, but we expect total migration to the e-commerce system nationwide by April this year,” Dagang Net chief executive officer Saifol Bahri Mohd Shamlan says.

“We expect our revenue to increase by 40% this year from the completed nationwide rollout,” he estimates.

Dagang Net posted a revenue of RM38.3 million for the year ended Dec 31, 2002, up from RM36.8 million in the previous year. For the half ended June 30, 2003, the company chalked up RM15.8 million in revenue.

"After the rollout, we will be on a new foot­ing and can start to concentrate on introduc­ing new value-added products and services to our existing customers, as well as offer new services to new markets further upstream in the trade and supply chain," he adds.

He is hopeful that the company will even­tually cover the entire trade value chain from sourcing to logistics and trade settlements.

Dagang Net's main product is now fo­cused on local customs clearance at ports and airports throughout the country through SMK-DagangNet. Apart from Port Klang, the company has set up electronic trading com­munities at:

• Subang Airport which was migrated to the Kuala Lumpur International Airport;
• Port of Tanjung Pelepas;
• Pasir Gudang;
• Tanjung Kupang (Linkedua);
• Tanjung Puteri (Tambak);
• Penang;
• Kuantan;
• Kemaman; and
• East Malaysia.

Previously called Electronic Data Inter­change (M) Sdn Bhd, the company was es­tablished in 1989 to pioneer trade simplifica­tion initiatives in accordance with the vision of the Ministry of International Trade and In­dustry. The company's operations then were funded by a consortium led by NCCIM with a paid-up capital of RM54 million.

In Port Klang, the introduction of SMK-­DagangNet has reduced documentation error rates from 40% to just 5%.

Cost savings of more than RM100 million

According to a 1996 study by Dagang Net, the submission of electronic trade declarations has also resulted in total cost savings of more than RM100 million annually in terms of manpower, paper and time. Cargo turnaround time in Port Klang has also been halved from four to two days and the document processing time has been reduced by 12 hours to 15 minutes.

"We are targeting same-day cargo turnaround time by asking the banks to enable 24-hour electronic fund transfer for customs duty payments," Saifol says. He adds that currently, these transactions can only be conducted during banking hours.

At the end of last year, Dagang Net has more than 2,000 users. It handles about RM1.8 billion worth of electronic customs duty payments a year and about 40 million electronic document transfers annually between members of its trading community comprising manufacturers, forwarders, shipping agents, terminal and port operators, banks, port authorities and customs houses.

Saifol says the company's new products and services include MyPorts which was launched at the end of last year, MyPorts provides value-added services, including a search engine on harmonized system codes, weekly reports on customs exchange rates, registered Customs Cargo Report (CUSCAR), location codes and shipping schedules.

Products and services that will come on stream in the next five years from now include Dagang Net Exchange (DNX) which will serve the entire trade and logistics value chain. The company has plans to introduce single window filing for trade documentation for importers and exporters, customs duty payment clearing house and an Asean payment hub. It also plans to provide trade information statistics.

Apart from that, Dagang Net envisions equipping the whole country with a vessel information service (VIS) to provide information on incoming and outgoing vessels in the same way airports display arrivals and departures. VIS is already available in Kuantan and will be implemented in Penang and Bintulu this year.

"By themselves, these value-added services would not have been sustainable, but they can now piggyback on the infrastructure that we have built,” Saifol explains.

He says it is these new products and services that will provide new streams of income for Dagang Net once the increased revenue from the nationwide rollout reached a plateau in a few years.

Dagang Net has so far invested a total of RM88.5 million in building the nation's e-commerce exchange infrastructure. The capital expenditure will be a recurring cost because the company has to invest in new hardware every three years due to the rate of technological obsolescence, Saifol says.

Dagang Net itself is revamping its systems architecture to ensure that the company's new products and services are well supported.

Saifol adds that the company has to date spent RM26 million on research and development and has budgeted another RM3 million for this year.

Dagang Net is part of the stable of companies under the newly restructured UEM Group. Saifol joined the company in June last year together with senior general manager Zaharin Ali, while chairman Datuk Dr Syed Muhamad Syed Abdul Kadir joined in September last year.

Dagang Net executive director Amiruddin Abdul Aziz, who heads the half-new management team, says Dagang Net is in the group's information and communications technology (ICT) flagship, Time Engineering Bhd, from the UEM Group perspective.

Time is Dagang Net's controlling shareholder with a 63.3% effective stake, through a direct stake of 20% and an indirect stake of 43.3% from its subsidiary World Trade Facilitation. Other shareholders include Lembaga Tabung Haji (10%), Bank Islam Malaysia Bhd (10%), Juasa Holdings Sdn Bhd (5%) and NCCIM (54 shares).

“Dagang Net provides the group with the opportunity to fulfill our tagline of being a partner in nation building, but from an ICT perspective,” Amiruddin says, noting that Dagang Net's projects have improved IT literacy rates in the port community.

“We are a supporting industry that makes business operations in the country more competitive,” he adds. Indeed, the electronic system has minimised opportunities for corruption.

Amirruddin says Dagang Net's income contribution to the group, while important, is still small compared with other companies within UEM Group. He also states that there are no immediate plans to list Dagang Net. However, he says, "In the long term, it is wise to have a vision of going public. The potential is always there if one looks at the business, the num­bers and the company's performance”.

In the meantime, Saifol says, other developing countries, including Pakistan, Nigeria, Thai­land, Syria, Bangladesh and Sri Lanka, have approached Dagang Net to set up the same in­frastructure for e-commerce in their countries.

Among others, the company is involved in a multi-corporation initiative with its Singapore counterpart, Crimson Logic Pte Ltd, for a single filing and data re-use system for customs clearance in Malaysia and Singapore.

“I tell my staff that the nationwide rollout is ‘Project Alpha'. It's only the beginning. There is more to come,” Saifol says.