Who's who? Sorting out the e-logistics players

The e-logistics field has developed in several different directions. Understanding who the players are helps shippers make intelligent choices.

Scott A. Elliff -- Logistics Management, 4/1/2001

The fundamental promise of e-commerce is to empower the customer. Armed with just a mouse and a Web browser, both businesses and consumers can now access an almost unlimited choice of products and services, compare prices and features on a real-time basis, and execute transactions nearly instantaneously. In many industries, this increased competition has helped squeeze out inefficiencies, reduced prices, and in effect leveled the playing field for the “little guys”—medium and small businesses and individual consumers-who did not previously have the time or resources to manually access the full potential of the marketplace. Now they can use the Internet to more effectively choose what best meets their needs.

Making purchases, whether choosing a book from Amazon.com or participating in an online auction for industrial widgets, has been the focus of e-commerce to date. Once a product has been sold, though, it’s time to ship and deliver it. Today, e-commerce is bringing transportation and logistics services and capabilities that had been too expensive and simply out of reach for all but the largest companies to everyone—big and small.

These opportunities range from online auctions and marketplaces to software and support tools available over the Internet, and even to a whole new category of provider known as Internet Logistics Operators. This article profiles some of these exciting new supply chain management approaches and helps you identify which of them might provide the greatest value for your company.

Ripe for New Opportunities
There are few better candidates for e-commerce than transportation and logistics. Not only are they a significant component of the economy, but they also are especially ripe for the introduction of new ways of doing business.

This is abundantly clear in the motor carrier industry. More than 80 percent of America’s freight is shipped by truck. At an estimated $500 billion in annual expenditures, truck transportation is the largest single component of overall logistics costs-and it has many characteristics that make it a logical target if you’re seeking to build a better mousetrap.

For example, the segment’s customer base is large and diverse. Although Fortune 500 companies are the biggest shippers, of course, small and medium-sized companies that typically spend between $1 and 10 million annually on transportation represent a substantial share of the overall market. For these shippers, e-commerce can help with the often difficult task of finding trucking companies that can provide both superior rates and consistently high quality.

On the supply side, the market is extremely fragmented with nearly 200,000 individual trucking companies operating today. Almost all-95 percent-of them have fewer than 25 trucks in their fleets and serve limited areas of the country or specialized market segments. Using e-commerce techniques can help both buyers and sellers of these services find each other more efficiently and set prices on a more competitive basis.

Another benefit electronic commerce can bring for both shipper and motor carrier is improving equipment utilization. By some accounts, nearly 30 percent of the miles traveled by trucks are empty, carrying no payload but still incurring costs for drivers, gas, and depreciation. Using e-commerce tools should allow better matching of supply and demand in a way that more efficiently fills available capacity and reduces total costs.

E-commerce can streamline everyday transportation operations as well. Thanks in large part to its long history of regulation, transportation pricing tends to very complicated, with a variety of tariffs and discounts that vary by distance, weight, type of product, level of priority, need for specialty services such as unpacking or set up at the destination, and similar factors. One example: Pricing for small companies that make less-than-truckload shipments has relied on the National Motor Freight Classification system, which includes more than 10,000 different product codes and classifications—and has spawned an entire industry devoted to auditing shippers’ compliance with the system. Surely e-commerce can develop a simpler approach to the pricing process.

As for logistics, electronic commerce offers both challenges and opportunities. As many consumer-focused dot-coms and business-to-business online vendors are learning, getting orders is only the beginning. Fulfilling them—quickly, completely, accurately, reliably, and efficiently—is the key to continuing success. E-commerce has tremendous potential for improving the full range of related logistics activities, including warehousing, inventory management, picking and assembling orders, and more.

In industry after industry, for example, studies have shown that there are significant levels of total inventory in the overall supply chain. While these “buffer stocks” help ensure that stores, factories, and other customers have products when they need them, they also represent a cost that everyone pays. The cost of storing, financing, handling, and insuring inventory represents an estimated $400 billion today. E-commerce can no doubt play a role in increasing the efficient use of inventories and drive them down to lower levels.

Warehouses and distribution centers, meanwhile, comprise billions of square feet of space today. The need for their services is growing, and e-commerce should be especially suited to helping small and medium-sized businesses develop relationships with the diverse set of warehouse providers that they need to handle their products for customers all across the country.


Categories of services and solutions
It’s no wonder that so many new “e-logistics” companies have entered the fray with a variety of offerings that address the situations outlined above. Shippers that are searching for providers that best meet their needs should ask two primary questions:

• What type of solutions do the providers offer? There are two main categories: Contractual solutions that involve multi-year decisions and substantial capital investment, and transactional approaches that provide value on the basis of one-time situations and require minimal investment.
• What kinds of companies are providing the solutions? Solutions offered by intermediaries focus on improving processes and transportation and logistics support. By contrast, direct solutions are offered by companies that actually take responsibility for transportation, warehousing, and order fulfillment.

The following chart summarizes these categories and the types of services they include. The discussion that follows will address each category and provide examples of traditional and/or “e-logistics” solution providers within them.

Contractual approaches are one way that companies have devoted a substantial amount of effort to addressing transportation and logistics problems, both through process improvements and through direct provider services. The major process-improvement techniques and resources that have been devoted to these transportation and logistics issues include:

• Software and IT systems that handle a wide range of key transportation and logistics decisions. These cover everything from determining the most cost-effective truck, air, rail or ocean routes, optimizing warehouse networks and product flows across the country or around the world, and providing visibility and tracking of shipments while they are in transit.

• Management consulting services to help companies apply “best practices.” They can advise shippers on how to design and implement better, often more streamlined, processes for handling inventory, shipping products, and fulfilling orders, including making the best use of software.

• Internal staffing and infrastructure development to upgrade the capabilities and expertise of shippers’ transportation and logistics departments. By doing so, companies can give them broader responsibilities at an executive level.

What do these approaches have in common? They all require a substantial commitment of resources and a multiyear time period to implement—and most smaller and specialized companies have neither the money nor the time to utilize them effectively.

Shippers have also made significant efforts to improve transportation and logistics operations directly through the trucking companies, warehouses, and other industry players that move and handle freight. These efforts include:

• Core carrier contracts that use volume leverage to obtain better pricing from a handful of selected transportation providers. In return for a promise that they will get to move most of the company’s freight, the carriers can achieve efficiencies that justify the discounted rates they provide.

• Distribution facilities and networks. These include new construction, and realignment and expansion or closure of warehouses to meet the changing needs of the shippers’ customer base in the most efficient way.

• Outsourcing transportation and logistics activities that are not “core competencies” to third- party logistics (3PL) companies. The 3PLs can provide the full range of staffing, IT systems, transportation equipment and contracts, and distribution facilities to meet a client’s needs.

Again, these approaches are most effective for the large companies that have the market clout to drive better pricing as well as the money to attract the attention of warehousing, 3PL, and other providers.

Rather than leveling the playing field, these expensive, long-term, contract-based solutions have typically widened the gap between the Fortune 500 companies and everyone else. Clearly, a new set of solutions is needed to fulfill the promise of e-commerce in transportation and logistics for medium and smaller companies operating in specific niche markets or geographies.

Transactional approaches are proving to be helpful for many shippers. As in most other segments of the economy, numerous start-up companies in the transportation and logistics fields have emerged to improve the process of bringing buyers and sellers together to execute individual transactions. Compared to the contractual solutions above, these involve no long-term commitments and are both low cost and suitable for companies of any type.

Although some of these marketplace services are owned or backed by carriers, the expectation is that they do not actually transport any products themselves. Rather, they are intermediaries and information sources that help improve the competitiveness of the market. Many also provide supporting services and software tools that help users better manage their transportation and logistics activities, substituting to some extent for the more comprehensive IT systems discussed earlier.

The transactional support available through “e-logistics” intermediaries falls into three primary types:

• Freight exchanges and auctions. Historically, if you needed to ship product, say from New Jersey to a new customer in Oregon, you had to identify carriers that served that market, contact them each by phone to outline your needs, wait for price and service quotations, check their references, and then select one of them to handle your shipment. That process can be improved somewhat by visiting individual carriers’ Web sites, but accessing them one at a time is a time consuming process and does nothing to increase the competitiveness of the overall marketplace. Instead, by using exchanges and auctions like transportation.com, GoCargo.com, or many others, shippers can enter their requirements online and then receive price quotations from a number of carriers, make their selection, and issue the purchase order quickly, easily, and electronically.

• Transportation and logistics marketplaces and aggregators. These approaches to e-commerce provide improvements in transportation and logistics operations by offering easy access, all in one place, for viewing and using pre-determined rates offered by participating carriers. Rather than using a real-time approach to decide which carrier will get which shipment and at which price—which can vary from day to day—services such as National Transportation Exchange and freightquote.com facilitate comparison shopping and the selection and use of carriers at pre-set prices.

• Process improvement technology providers. Some providers are developing versions of the e-commerce systems and tools traditionally used by Fortune 500 companies for use by smaller and more specialized companies. Providers such as Arzoon and Celarix are building “virtual shipping departments” through the Internet, with “best practices” processes and capabilities made available right on their customers’ computer desktops. These new offerings can help companies with a wide range of day-to-day activities and decision-making that will improve the transportation and logistics process. In many cases, they include the kind of auctions or marketplace functions that were discussed above.

Given the highly fragmented nature of the transportation marketplace, these “market making” and process-improvement mechanisms offer significant potential for increasing efficiency and reducing costs. Because they involve a broad set of carriers and customers and establish pricing on a more competitive basis, they may ultimately fulfill the e-commerce promise of empowering the customer.

In order to be successful, however, they will need to attract a high volume of both carriers and shippers so that they provide a competitive marketplace that really results in lower pricing and has broad geographic coverage. In addition, since these services do not actually handle the freight or take responsibility for the shipment, separate follow-ups are needed with each carrier to address issues associated with billing, insurance, damage claims, shipment-status visibility, proof of delivery, and others. In addition, they do not handle other types of services that shippers also often need, such as warehousing and inventory management, and specialized order-fulfillment activities.
In contrast to the intermediaries that facilitate improvements in transportation and logistics processes, a new category is emerging within the transactional model that directly offers transportation and logistics services.


Internet Logistics Operators (ILOs)
Internet Logistics Operators (ILOs), as they are beginning to be called, provide one-stop shopping for customers who want to maximize the promise of e-commerce. They create a simple and comprehensive way to deal directly via the Internet with a single provider that takes responsibility for meeting their shipping, warehousing, and fulfillment needs.

Internet Logistics Operators provide a unique combination of offerings. These may include a network of carriers and distribution centers; the personnel and expertise to optimize processes and achieve high levels of service and efficiency; and the software and other tools to handle the real-time flow of information on the status of orders and shipments-all in a manner that is transparent to the user.

The following are two examples of ILOs that are offering these services to shippers today:

FreightPro.com assists smaller and medium-sized shippers of less-than-truckload (LTL) shipments with the dual challenges of finding ways to reduce their transportation costs and finding providers of warehousing, order-fulfillment, and other activities on an as-needed basis. By creating a network of carriers that can move shipments across the country and local providers to handle pick-up, delivery, and warehousing services in each metropolitan area, freightPro.com has created a virtual core carrier program—available on a transaction-by-transaction basis, with no asset or long-term contracting requirements.

By using software tools and industry expertise to consolidate shipments from different customers and move them efficiently from origin to destination, freightPro.com can typically obtain savings of 15-20 percent for its customers, while taking full responsibility at every stage in the process. When warehousing or other services are needed—for seasonal or one-time promotional situations for example—freightPro.com can use its network to seamlessly provide these added services as well.

Sameday.com offers time-critical fulfillment and specialized services. Its unique set of high-value, high-speed fulfillment and related services enables shippers to respond more quickly to change. Sameday.com uses a network of distribution centers that are carefully positioned to deal with the traffic congestion that is endemic in metropolitan areas today. It is backed by sophisticated software that monitors and manages the flow of information and inventory between suppliers and their customers. As a result, Sameday.com is adding significant value in fulfillment, inventory management, returns and repairs processing, and related functions.

Companies in high-tech industries such as computers, electronics, aerospace, and telecommunications as well as major brick-and-mortar retailers of consumer products and related merchandise stand to benefit especially from these services. With flexible warehouse configurations, high service standards, and a strong backbone of information technology, Sameday.com can address the transportation and logistics requirements of fast-moving, high value, or fragile products.

In both of these cases, the “e-logistics” companies themselves are the providers that take direct responsibility for shipping product and managing inventory, rather than acting simply as intermediaries. In addition to offering their services to large companies, they are bringing to smaller shippers and special situations the pricing and capabilities previously available only to the big boys—and they are doing it in a way that is flexible and low cost for the customer.

More than any other model, these Internet Logistics Operators may offer the best means yet of fulfilling the promise of e-commerce in transportation and logistics: the promise of empowering the customer and leveling the playing field.


The Last Word
There is a wide range of new “e-logistics” players emerging to address today’s transportation and logistics challenges, with different solutions that will be appropriate for different kinds of situations. The new “e-logistics” services that best fulfill the promise of electronic commerce will be those that directly provide transportation and logistics services, take responsibility, and do it in a low cost, flexible, “virtual” way that meets the requirements generated by the individual transactions that shippers must manage every day.

Scott A. Elliff is President of Capital Consulting & Management, Inc. (CCMI). He specializes in helping companies improve their overall effectiveness in supply chain operations, including procurement, manufacturing, inventory management, logistics, transportation, and related activities. He can be reached by e-mail at scott_elliff@CCMIservices.com or by phone at (703) 370-2607.