How E-Logistics Changes Shipper-Carrier Relationships

Electronic commerce inevitably changes the way shippers and carriers work together, bringing improved communications and efficiencies.

William Atkinson -- Logistics Management, 4/1/2001

Some logistics managers have eagerly embraced
e-logistics technology, but many more have adopted a “wait and see” attitude. One reason has to do with the common perception that the technology itself is confusing. A more prevalent reason, though, seems to be that managers question the technology’s value or wonder if it will threaten their successful carrier relationships.

“When I attend seminars, I find a lot of apprehension in the shipping community related to e-logistics,” reports Steve Ahern, manager of corporate logistics for Honeywell in Morristown, N.J., who has been actively involved in e-logistics projects for almost a year. “They ask questions like, ‘Will it do anything for me?’ and ‘How will it affect my long-term relationships with carriers?’”

In order to evaluate the impact that e-logistics technology can have on your operations and carrier relationships, it’s important to understand what they’re all about and what they mean for both shipper and carrier. For the sake of simplicity, this article will look at two categories: freight exchanges and transportation management models.

Freight Exchanges
In this first category, shippers locate carriers via an electronic exchange. This is sometimes carried out in a proprietary setting, where only those carriers that have been approved by a shipper can participate. Exchanges also can operate in an “open market” setting, where shippers can select from any member carriers. Exchanges are designed to allow shippers and carriers to negotiate either long-term contracts or “spot” deals to handle a single shipment.

Using the open model of exchanges to arrange spot deals can save a few dollars here and there, but the whole concept harkens back to the “dark ages” of logistics, say some experts. “For years, the focus has been on supplier consolidation and working more closely with a smaller number of suppliers,” explains Lucio Pompeo, an associate principal with McKinsey & Company’s Zurich, Switzerland, office. “Exchanges can take this strategy in the opposite direction—opening up the supply base. You are now suddenly dealing with suppliers you have never heard of before. In addition, selection tends to be based largely on price, which is a different philosophy than that which exists in supplier partnerships.”

For that reason, many logistics managers have shied away from this type of freight exchange. “Providers thought a large spot market would develop for domestic truckload and ocean cargo,” observes Marc Boyle, an associate in McKinsey & Company’s Chicago office. “This has not happened, though. One reason is that, if you have a large spend that you want to leverage, why would you go to the spot market?”

Lisa Hebert, an associate partner and manager of the transportation skills group for Accenture (formerly Andersen Consulting) in San Francisco, agrees. “I don’t expect Fortune 500 companies to spend much time on spot exchanges, because these types of exchanges are ‘virtual brokers,’ and Fortune 500 firms don’t broker freight anymore. They have solid contracts with core carriers.”

A third expert who sees pitfalls with such exchanges is Marcos Barbalho, director, supply chain operations services group, for PricewaterhouseCoopers in Atlanta, Ga. “The idea of throwing away existing carrier relationships to conduct transactions via freight exchanges is going back to the ‘bad old days’ of picking up the phone to see who has a truck available,” he points out. “Service and partnerships still need to be important.”

Freight exchanges do, however, have some advantages, Pompeo says. “They might develop into major marketplaces in the future, because there is a demand for high-efficiency transactional platforms, which would convert millions of proprietary, bilateral links between shippers and suppliers into multilateral links,” he says. Just acting as a conduit between customer and vendor won’t be enough, he adds. “These marketplaces will have to focus on facilitating shipper-supplier relationships and allow for a reduction on indirect costs,” he says.

One way shippers can get the most out of freight exchanges is to use them as tools for locating locate new, long-term partners. “There is a place for RFP [request for proposal] auctioning on freight exchanges to identify carriers with which you want to establish long-term contracts,” notes Barbalho. Another way they can be helpful is for locating services for extra or unexpected shipments that are not covered by contracts.

In either case, the technology is relatively easy to use. “With earlier exchanges, you could go online to find carriers, but then you had to go off-line with that carrier by phone or fax to complete each transaction,” says Chris Newton, senior analyst for supply chain execution at AMR Research in Boston, Mass. “Newer exchanges allow you to handle all of the transactions online.”

Honeywell’s Ahern finds real value in freight exchanges. His company participates in two trucking-related exchanges. The first is an LTL service called GoLogistics.com. “Their software is carrier- and shipper-neutral,” Ahern says. “As LTL carriers have open capacity on a day-to-day basis, we can negotiate rates with them that are better than our normal LTL rates. This benefits us because of the cost savings, and also benefits the carriers who would otherwise have empty capacity.” Honeywell set up its arrangement with GoLogistics.com to ensure that it only negotiates with Honeywell-approved carriers.

Honeywell’s second arrangement is with National Transportation Exchange (NTE.net). NTE helps the shipper cost-effectively manage unexpected or unusual situations. “If one of our core carriers is unable to move a load for us, we can go onto this exchange and put the load out for bid,” says Ahern.

Transportation Management
Several varieties of tools and services fall under this umbrella, which includes automated supply-management solutions and “e-enabled” transportation-management services. Among the many possible features offered by providers of these services are transportation optimization, routing and scheduling, load tendering, performance management, event management, and customs management.

One company that is actively taking advantage of the benefits of these tools is grocery wholesaler Fleming Companies Inc. of Lewisville, Texas. Fleming is currently using two online transportation- management tools. One is a transportation-management and optimization package developed by Manugistics. “It is the engine and optimizer that drives our transportation decision making process in terms of carriers, rates, etc.,” says Justin Strother, centralized operations manager. “It helps us put our lowest-cost carrier on the lane that is best suited to that carrier.”

The system allows networked carriers to send messages from carriers to Fleming’s various locations. “If the carrier is Internet-enabled, we know instantly when the carrier updates the status of the load,” Strother says. “If not, we have to wait for EDI connectivity, which may only be three to five times a day, depending on how often the carrier’s system dials into our system.”

The second Internet-based transportation-management tool that Fleming uses is called CLEARTRACK. “This links directly with our produce system,” explains Strother. “We send information to our buyers and warehouses, telling them who we have given loads to, along with the individual P.O. numbers. In this way, they know what is coming in and by which carrier.”

That system also has a feature that allows the buyers and warehouses to determine whether a load will be arriving early, on time, or late. “This helps the warehouses plan their labor needs,” he explains. If the carrier is equipped with a satellite tracking system, CLEARTRACK automatically links the satellite system. “Buyers and warehouses can then log onto CLEARTRACK and see where each load is, in real time,” says Strother. If a carrier is not satellite-equipped, Fleming requires the carrier to go into the CLEARTRACK system at least three times a day to update the status of each load.

Honeywell is also utilizing some electronic transportation-management tools, including one that allows it to handle truckload bids and RFPs online. “In the past, if one of our business units with several sites wanted to get the sites together for truckload bids, we would have to put all of the information on diskettes, mail them to the carriers, and wait for the carriers to plug in their numbers and return the diskettes to us,” notes Ahern. “It could take two to three weeks.” Now, as a result of partnering with a company called DigitalFreight.com, which automates the truckload bid/RFP process, Honeywell can usually get responses from carriers within 72 hours. “We can arrange to send out bids and RFPs only to our core carriers, or we can take it ‘out the world,’ ” says Ahern.

Honeywell also is working with its freight-payment company, AIMS Logistics, to handle freight bill exceptions online. In the past, getting a signature authorizing payment or resolving a problem with a particular bill could take many days. Under the new system, by contrast, AIMS scans in exceptions and sends them electronically to the appropriate Honeywell managers. “We can initial the bills and identify the specific accounting codes online,” Ahern says. “Most Honeywell managers do a handful of these each day, so carriers love it because they get paid in a timely manner. Carriers can even go online and check the status of their bills,” he adds.

E-Logistics Boosts Communication
In addition to those mentioned above, there are a number of other benefits that e-logistics technology can bring to shipper-carrier relationships.

One such area is communications. “Communication between shippers and carriers becomes more efficient,” reports Barbalho. “They can exchange a lot more information in a more timely manner. E-logistics really helps them improve efficiency and take cost out of the supply chain.”

Newton agrees. “Transportation is a communication-intensive business, with a lot of documents going back and forth—status updates, freight bills, carrier performance data, and so on. The Internet can facilitate all of this communication in real-time.”

“The results are amazing,” adds Hebert. “[Managing information online] streamlines the flow of information, because you have as close to real-time data transmission and capture as possible.”

That’s one reason many carriers are embracing the technology and expressing strong willingness to help with their customers implement it. “Most ‘tier one’ and ‘tier two’ carriers are already enabled through the Web in one way, shape or form,” notes Hebert. “Most of those who have not voluntarily moved in this direction have been asked or required by their shipping clients to provide information electronically, and most are ready, willing, and able to cooperate,” she says.

Still, not all carriers have jumped on board. “When we select carriers, we not only ask about rates and services, but also their technological capabilities,” states Strother. “Some carriers may have competitive rates, but if they don’t have the technology in place, they can actually end up being more expensive. It costs us more to have to arrange for an employee to follow up and double-check on their activities.”

Because sharing information vie the Internet is so efficient, Fleming is strongly encouraging its carriers to switch from using fax and EDI to managing information over the Internet. But although most of Fleming’s carriers now offer e-logistics capabilities, some of their employees are still not up to speed with the technology. “For example, some people at the dispatch level are not using the systems like they should,” adds Strother.

Given those pros and cons, should you move ahead with e-logistics? As long as you focus on how the tools can foster, rather than threaten, carrier relationships, it is definitely a good move to make now, say the experts. “I have told my clients not to be on the ‘bleeding edge,’ but if they wait too long, it may be too late,” cautions Barbalho. “The transformation is moving too fast for shippers to wait.”