1 June 2000

Logistics on the Web: Hurry up and wait

The following article is excerpted from "The Journal of Commerce" issue of 1 June 2000.

Change is coming. This has been the message from transportation analysts for more than a year now. The Internet is going to change transportation logistics forever, so you better get ready.

There's just one problem -- nobody really knows exactly how the changes will manifest themselves or when. In conference after conference, transportation executives and shippers have been told to brace themselves, to free up their minds, but few have yet felt the first splash of the wave of change that is said to be coming.

Online transportation auctions, for instance, have largely failed to attract the kind of transaction volume they hoped for. The major dot-com companies offering international online load-matching or rate negotiation have so far refused to give out information on transaction traffic.

Greg Burns, an analyst from New York investment bank, Lazard Freres, recently managed to get some figures out of the National Transportation Exchange, however, which he used to compare them with third-party logistics group, C.H. Robinson.

Where NTE saw approximately $3 million worth of transportation services a year, Burns said, C.H. Robinson had a volume of $1.3 billion. NTE gives shippers access to 400 trucking companies, whereas C.H. Robinson, which claims to be the largest U.S. 3PL, is connected to 24,000 carriers.

Generally the word from analysts, shippers and carriers is that these transportation auction services, or marketplaces, haven't yet taken off.

The idea of buying transportation services online is appealing, though, and there are as many different business models as there are online competitors in this nascent business. They range to blind auction, reverse auction, market-set prices, spot market business, contracts, private one-off auctions, open public auctions, pay-per-transaction, subscription fees, or commission charges.

In the last few months, there's been a notable shift in the emphasis that transport dot-coms put on their intended customer base. Initially, the typical model was a stand-alone auction service that was busy trying to build "liquidity" by attracting as many shippers as possible to become members. The thinking was that, wherever shippers go, carriers will have to follow.

At the same time, there was intense debate about how the Internet negotiation model would cut out the traditional middle man, such as the freight forwarder and broker. But it rapidly became clear that carriers needed to be wooed as eagerly as shippers, and that transportation services are not so interchangeable between one provider and another that there was no longer any need for the expertise and experience of the traditional intermediaries. Freight forwarders, the argument now goes, must get Web-smart, but their ability to tailor a carrier's service to a shipper's requirements is still needed.

At the same time, another shift has been occurring. Logistics technology companies have traditionally occupied fairly narrow spans of expertise. You bought your warehouse management system from one company and your route optimizing software from another.

Initially, online transportation auctions were generally all that was on offer from the companies which developed them (with the notable exception of Celarix).

Now, the race is on to present as broad an e-logistics offering as possible, with order management information feeding directly into transportation buying systems, which in turn automatically trigger route optimization and track and trace systems....

Another idea that seems to have become increasingly attractive lately is the use of private auctions, where shippers and carriers that already work together use the Internet as a tool to automate and speed up their business transactions.

Freemarkets Inc., one of the first to promote this business model, claims to have been the conduit for $30 million worth of transporta