Last week we published a list of trading partners that might be affected by the discontinuation of GXS’ contract with LorenData / ECGrid. After receiving a few comments from knowledgeable people in the business that the list may be inaccurate, we removed the document. Even so, we believe that there is likely some number of trading partners that will be left in the lurch when the connection they have been using for a decade stops working some time in 2014. Also later last week I had the opportunity to talk with Steve Scala, GXS’ senior vp of strategy and development. Here’s a recap of our conversation and my own observations.
To be clear, GXS has elected not to renew its agreement with LorenData when it comes up for renewal in the first quarter of 2014, citing commercial issues, lawsuits, outstanding invoices, and negative buzz in general. Per Scala, it is “not economical to retain the relationship under the same conditions.” GXS published its notice of its intent not to renew about 1 year ahead of time so as to provide ample time for those companies affected to make other arrangements.
The reasons for terminating the contract are logical and at least partially technically understandable. According to Scala, their customers are demanding increased visibility into the status of their transactions. I agree with him that this demand continues to increase, and rightfully so. Sending your transactions to your trading partners should work more like FedEx than like the USPS. You should be able to track your documents at each stop along the way till their final destination. That would be optimal, but in a world with so many connections using an inadequate standard (X12), opening the mailbag that contains many transactions and reporting on each may be unmanageable. At least it is in GXS’ estimation. And that bundling of transactions into one mailbag and transmitting them to multiple destinations is what GXS is calling ‘daisychaining.’
I don’t pretend to understand the specifics of the difficulties involved in this kind of process, but Scala holds that continued use of the practice will eventually cause the loss of data/transactions with no adequate methodology to trace and resolve the issues. I believe he is correct, but I also can’t estimate how big a problem this is, has been, or will become in the future. But he did compare the possible collapse of the EDI transaction infrastructure to the banking collapse of 2008, saying that if nobody stepped up and identified and fixed the issue, the disastrous collapse of the supply chain could cause problems similar to those that came from the banking industry.
Is LorenData being singled out in this exercise? The answer is yes, but as Scala describes the circumstances bringing them to the decision I can understand their rationale. If I had a customer who caused me multiple lawsuits and many millions of dollars in legal fees, and who talks bad about me to everyone in my industry - I’d probably want to drop them as a customer too.
However, I also believe this combination of circumstances is a good excuse for GXS to begin to tighten the reins on their customer base. As I've already written here, the company is in debt to around $800million with a yearly interest bill of more than $80million… and is not profitable. It desparately needs to find a way to stanch loss of its customers to lower cost competitors. By cutting off a couple thousand of its daisychained connections and charging licensing fees to each of them, the company has begun gathering in its customers.
Whether this action will make a difference in GXS’ long term survival is beyond me. But my guess is that LorenData is only the first interconnect to not be renewed.