Different 3PL

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INDUSTRIES IN TRANSTION:FREIGHT TRANSPORTATION INTERMEDIARIESIN THE INFORMATION AGE

Jiong Song

and

Amelia C. Regan

Metrans 2nd Annual Transportation Conference

Feb. 2, 2001


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Outline

Traditional Freight Transportation Intermediary

Section II Current State and Evolution of the Industry

Niche Markets -- Online Logistics Providers

Research Needs / Opportunities

Predictions / Conclusions

Section I

Section III

Section IV

Section V


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Niche Market -- Online Logistics Providers



Section I

Section III

Section IV

Section V


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Third Party Logistics

Third-party Logistics is simply the use of an outsidecompany to perform all or part of the firms materials

management and product distribution function.-- Simchi-Levi (2000)

A relationship between a shipper and third party which,compared with the basic services, has more customizedofferings, encompasses a broad number of servicefunctions and is characterized by a long-term, more

mutually beneficial relationship

-- Murphy & Poist (1998)


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Third Party Logistics

In-house LogisticsDepartment

Shipper

Transportation

IT support

Warehousing

Others

In-hou se Operat ion

Outsourced

Operat ion

3PL

Shipper

Shipper

Shipper

Transportation

Warehousing

IT support

SC

integration

Others


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Characteristics of 3PL

Perform outsourced logistics activities

Process management / Multiple activities More customized services

Mutually beneficial and risk-sharing relationship

Long-term commitments (1~ 3 years)


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Why is it needed?

Advantageso Cost reduction

o Focus on core competencyo Improved efficiency, service and flexibility

o Industry-specific application

build-to-order systems and e-merchants

Disadvantages

o Loss of control

o Impact on in-house workforce


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Section I

Section III

Section IV

Section V


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Industry Evolution

Third Generation( 2000 and beyond)

First Generation(1970s - 1980s)

Second Generation(1980s - 1990s)

Broader more integrated services

Transportation / warehousing

Freight forwarders / brokers

Shippers agents

Non asset-based companies

Asset-based companies increased

service offerings

Online freight marketplaces

Web-based 3PLs

Increasing supply chain integration


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Current State

-- Service Offerings Dedicated Contract Transportation /

Transportation Procurement

Inventory Management Logistics Management and Consulting

Freight Audit and Bill Payment

Customs Services

Shipment Tracking and Tracing

Reverse Logistics and Value-added Services


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Current State

-- Market Size

34.2

39.6

46.0

54.0

1997 1998 1999 2000

3PL market is growing

( $ Billions )


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Market Structure

< $20 million

$20 - 100

million

> $100million

AnnualRevenue

Orange Courier

Regal Logistics

Cass Information

System

California Distribution

Bax Global Logistics

Menlo Logistics


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Current use of 3PL by industry

75.9

71.1

61.4

56.2

53.8

82.2

Percentage of 3PL use in different industries Industry

Computer

Consumer

Retail

Chemical

Medical

Auto

Source "What's ahead for 3PLs Modern

Materials Handling, April, 2000


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Current Industry Status

No commonly accepted terminology

Technologies increase visibility, efficiency and integration

Theservice menu is rapidly changing

New breed of companies are emerging


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Section I

Section III

Section IV

Section V


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Niche MarketsOnline Logistics Providers

Online Freight Marketplaces

Spot market

Auction and RFQ

Exchange

Meta-marketplaces

Application Service Providers (ASPs) Purchasing Consolidation Market

Infomediaries


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The Freight Transportation Industry is IdeallySuited e-commerce

High Fragmentation of Shippers and Carriers Many Intermediaries

Complex Supply Chains

High Search Costs Significant Opportunities for Economies of Scale

Several Models Emerging

Online Logistics Providers-Opportunity


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Spot market

Auction and RFQ

Exchange

Meta-marketplaces

Application Service Providers (ASPs)

Purchasing Consolidation market

Infomediaries

Niche MarketsOnline Service Providers


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Spot market

Auction and RFQ

Exchange

Meta-marketplaces



Infomediaries



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Spot market

Auction and RFQ

Exchange

Meta-marketplaces



Infomediaries



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Spot market

Auction and RFQ

Exchange

Meta-marketplaces



Infomediaries



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Spot market

Auction and RFQ

Exchange

Meta-marketplaces



Infomediaries



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Spot market

Auction and RFQ

Exchange


Purchasing Consolidation market Infomediaries



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Spot market

Auction and RFQ

Exchange


Co-ops Infomediaries



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Section I

Section III

Section IV

Section V


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Recent Research General market examination

o Lieb and Randal (1999)

o Lieb and Peluso (2000a, 2000b)

Contracts and relationships

o Leahy, Murphy & Poist (1995)

o Sankaran & Charman (2000)

Decision-making processeso Menon, McGinnis & Ackerman (1998)

o Lim (2000)


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Behavioral Models Carrier and Shipper behavior models

o Carrier selection

o Contract design

o Contract negotiation

3PL providers behavior

o Service offerings

o Carrier selectiono Contract design

o Contract negotiation


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Online Freight Marketplaces Integrated and Time Sensitive Optimization Problems

o Dynamic and stochastic routing and scheduling systems

o Dynamic inventory management systems

o Combined inventory-routing modelso Real-time bidding and freight matching algorithms

o Optimal pricing strategies for intermediaries and carriers

o Optimal bidding strategies for shippers

Simulation-based analysis of costs and benefits toshippers, carriers and 3PLs under competing businessmodels

o Is it a zero sum game? Who wins? Who loses? How much?


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Section II Evolution and Current State of the Industry




Section I

Section III

Section IV

Section V



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Predictions and Conclusions The total market for freight transportation intermediaries is still

growing with the boom of e-commerce;

The conventional 3PLs will not fade, but will face with the competitionfrom the online logistics providers;

The companies have to combine the logistics expertise with advancedtechnology to evolve;

Strategic alliance and merge/acquisition will be important to obtaincomprehensive and intergrated supply chain solution capability;

Small carriers and niche carriers will benefit from increased access toshippers and reduced search costs

Medium sized and Large carriers may resist and try to continuebusiness as usual or simply become e-commerce enabled using currentbusiness models

The 120+ on-line freight marketplaces will be reduced to less than 10leaders and a few successful niche players in near future.


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Predictions and Conclusions The freight transportation industry has historically been slow to

change

Personal relationships will continue to be important despite agrowing acceptance of web based interactions

The potential benefits of IT are huge

Major industry changes will comethe question is how soon


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End

Different 3PL

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