2001: The Year of E-Commerce-Decision Time

(For related articles, please see Taking the Plunge and Bricks & Clicks.) Deregulation completely reshaped truck transportation within a decade. E-commerce will transform the industry just as completely, but in half the time. In fact, the process is already well under way, and if you haven't already begun developing an e-commerce strategy for your fleet, time is running short. Whether you're managing

(For related articles, please see Taking the Plunge and Bricks & Clicks.)

Deregulation completely reshaped truck transportation within a decade. E-commerce will transform the industry just as completely, but in half the time. In fact, the process is already well under way, and if you haven't already begun developing an e-commerce strategy for your fleet, time is running short. Whether you're managing a private or for-hire trucking operation, you need to start the transformation in your fleet by making 2001 the year of e-commerce.

In theoretical terms, e-commerce is fairly simple: It's the movement of business transactions from physical paper documents and telephone voice communications to electronic data formats. And it isn't new; fleets and shippers have been using EDI (electronic data interchange) documents in limited forms for some time. What has changed is the development of easy, inexpensive access to a standardized network for communicating electronic data. The Internet has made e-commerce practical.

Together, the Internet and e-commerce create an enormous opportunity for gains in efficiency, which in today's economy means they have also created an irresistible force for change. Estimates vary greatly, but analysts forecast annual e-commerce growth rates of 50 to 100% for the near future.

One of the most widely quoted studies from Forrester Research predicts that e-commerce revenues will grow from approximately $475 billion last year to nearly $2,750 billion by 2004. The lion's share of that revenue will be in business-to-business transactions, which are predicted to grow at a rate of 85% annually in that five-year period.

While the transactions are electronic, the goods involved still need to be transported between supplier and customer, which means most will be moved by trucks. However, if businesses are adopting e-commerce to market and acquire products because it's a more efficient channel, it's highly unlikely they'll be eager to revert to their old, manual processes to arrange moving those goods.

Over that same 2000 to 2004 period, Keenan Vision Inc. predicts that annual Internet-only transactions from freight and logistics services will lead all other service industries, growing from $630 million to $115,200 million. To put that growth in perspective, Keenan reports no Internet freight and logistics transactions in 1997 and only $60 million in 1999.

“The Internet and e-commerce are already here to stay as a means of doing business in freight transportation,” says Brian Kinsey, a former executive with a major TL carrier and now CEO of Carrier-Point, an online provider of e-commerce services for fleets and shippers. The combination is “too efficient and too well established already to disappear,” he says. “In terms of improving efficiency and doing business, my advice is not to fight it, but to figure out ways to take advantage of it for your own benefit.”

Given the amount of business already moving over the Internet, smaller fleets in particular “need to think about an e-commerce strategy,” says Jim Bramlett, president and CEO of freightPro.com, a non-asset-based provider of TL, LTL and warehousing services. “If they don't belong to some type of (e-commerce) network, the companies doing business over the Internet won't know about them, and they won't participate in this growing market.”

The first step in developing an e-commerce strategy is dealing with the fear that online freight systems will replace customer relationships based on value with commodity transactions based solely on price. In truth, resisting e-commerce won't protect you and, in fact, is the course most likely to turn your services into a commodity.

Without a doubt, web-based e-commerce puts pressure on price because it makes it easy for buyers to shop around. But as many failed “e-tailers” have recently discovered, competing on price alone is a recipe for failure; service and efficiency are the keys to e-commerce success.

Even in this early stage, Internet freight systems are focused on cutting operational costs for both shippers and carriers by simplifying the processes and showing the way to better productivity through access to better information.

When loads are tendered and accepted electronically, when deliveries are scheduled online, when shippers can track and trace their own freight at will, when invoices are submitted and paid without paperwork, service is improved and cost removed. When shippers and carriers can use broad spot markets to quickly find and sell excess capacity and freight, both sides gain productivity.

One of the main reasons larger for-hire carriers invested in expensive EDI systems was to reduce the cost of customer transactions. And for their part, the largest shippers pushed for EDI as a way to reduce communications errors and give them better information about their transportation activities.

“The Internet extends those efficiencies to smaller carriers at a cost they can afford,” says John Norris, senior vp-marketing and communications for Transportation.com, an Internet-based transportation management company.

Private fleets can also use e-commerce technology to better manage internal operations as well as extend backhaul sales efforts beyond their own internal network, says Norris.

The Internet even brings sophisticated electronic tools for analyzing and managing bid requests and optimizing fleet operations within reach of medium to small fleets. Logistics.com, which has traditionally provided those tools to large carriers with the resources to support extensive information-technology systems, now offers them on a subscription basis to anyone with an Internet connection and web browser.

“These are systems that we marketed to the top 50 LTL, TL and private carriers,” says Carl Drisko, Logistics.com president. “Now, a fleet can send us the data (over the Internet), and we can send back the optimal solutions.”

The company has also developed an online version of its electronic bid system that will allow a fleet to manage the entire shipper RFP process. “Most large carriers have already seen electronic RFPs, and in four to five years that will be the dominant process for handling bids,” Drisko says.

As an intermediary between some of the world's largest shippers and their carriers, Logistics.com is finding that “high service levels and reliability are the drivers in e-commerce, not cost,” he adds.

In other words, if you don't participate in e-commerce markets, in very short order you won't be able to compete on value and service. Instead, you'll be left with price as your only lure.

MORE THAN VOLUME

E-commerce is certainly valuable as a tool for increasing a carrier's freight volume and controlling operational costs, but as simple as the concept may seem at first, e-commerce is a good deal more than EDI over the Internet. Its true potential to radically transform the trucking industry lies in its ability to allow carriers to become a key partner rather than simply a hired hand in the developing supply chain movement.

In a major study on what it calls “E-gistics,” the financial services firm Bear Stearns and Co. concludes:

“… Supply-chain engineering services such as enterprise resource planning integration, transportation routing, warehouse management, reverse logistics, and international trade logistics will likely become more important to shippers. … Existing transportation and logistics companies that are able to adapt to rapidly evolving e-commerce should be at the forefront of e-gistics, in addition to startup e-gistics companies managed by top freight and logistics managers who bring their expertise to e-commerce.”

In other words, the supply chain needs trucking partners to fully exploit the possibilities of e-commerce.

Take the real-world example of Exel Direct, a third-party logistics (3PL) company that provides home delivery for big-ticket items such as appliances and furniture. The company makes about 15,000 home deliveries a day for customers such as Sears and William Sonoma using a network of owned warehouses, contracted warehouses and approximately 1,000 small fleet “agents.”

Since Exel Direct is responsible for managing the complete movement of the goods, it has established a web-based reporting system that allows participants to update shipment activity as they move through the various links.

“Our customers want (this type of information) and we require our partners to have the technology to supply it,” says Jim Allyn, Exel Direct president.

In the near future, Exel Direct will need to supply its customers with even more information to help them do a better job controlling the supply chain through more accurate forecasting and tighter cost control.

“If 3PLs are going to avoid becoming a commodity, we need to continue adding value to the supply chain process, and that will require better information and better technology,” says Allyn.

Backing up Allyn's observation is a survey just released by his parent company, Exel. It found that 3PL customers are looking to them for e-commerce information services and that, in turn, the 3PLs are looking to their transportation partners to provide the technology and information to drive those services.

And in order to be a true partner in that relationship, rather than a commodity provider, you'll need to have your e-commerce strategy in place and ready to go.

“Fleets don't have to race to sign up with one (e-commerce service provider) or another, but doing nothing at this point is probably not the right answer,” says Kinsey. “They need to figure out how to turn e-commerce into an advantage instead of worrying about how it could hurt them.”

(E-commerce is also changing the relationship between fleets and their suppliers. A companion story in the equipment section (p. 55) explores the many ways e-commerce will impact fleet operations by allowing trucking companies to improve the acquisition and disposal of vehicles as well as obtain the parts and services needed to keep them running. The third story in this series, beginning on page 75, explores ways to adapt e-commerce systems.)

Carriers falling short?

Despite efforts to beef up Internet service offerings, nearly half of all shippers believe trucking companies are not meeting expectations. Here's their assessment:

Source: “Strategic Directions in e-Transportation,” KPMG Consulting

In a study of Internet usage patterns in transportation, KPMG Consulting asked shippers to rate the importance (4 = very important; 1 = very unimportant ) of a number of online services provided by trucking companies. Here's what they found:

ACTIVITY

RATING

Shipment tracking

3.8

Customer self-help

3.7

Shipment visibility in supply chain

3.6

Posting information

3.5

Customer online communication

3.5

Invoicing/billing information

3.3

Auctioning unfilled space at discount

3.1

Online ordering

3.1

Collaborative planning

3.1

Just-in-time inventory management

3.0

Pricing

2.5

Source: “Strategic Directions in e-Transportation,” KPMG Consulting



What drives Internet investment?

Fleets have many reasons for investing resources in Internet-related services. Here's how they weigh the relevance of some of the major factors.

Recruiting

27%

Improve investor relations

32%

Extend to new markets

64%

Reduce costs

64%

Differentiate services

82%

Improve customer relationships

82%

Capture share in existing markets

82%

Percentage of fleets rating factor “very important”

Source: “Strategic Directions in e-Transportation,” KPMG Consulting


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