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INDUSTRIES IN TRANSTION:FREIGHT TRANSPORTATION INTERMEDIARIES

IN THE INFORMATION AGE

Jiong Songand

Amelia C. Regan

Metrans 2nd Annual Transportation ConferenceFeb. 2, 2001

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Outline

Traditional Freight Transportation Intermediary

Section IISection II

Section IISection II Cu rrent State and Evol u tion of the Ind u stry

Niche Markets -- Online Logistics Providers

Research Needs / Opport u nities

Predictions / C oncl u sions

Section ISection I

Section ISection I

Section IIISection III


Section IVSection IV


Section VSection V

Section VSection V

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Section II

Section II Cu rrent State and Evol u tion of the Ind u stry

Niche Market -- Online Logistics Providers



Section I

Section I

Section III

Section III

Section IV

Section IV

Section V

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 firm s materialsmanagement 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, moremutually beneficial relationship

-- Murphy & Poist (1998)

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Third Party Logistics

In-house LogisticsDepartment

Shipper

Transportation

IT support

Warehousing

Others

In-house Operation

Outsourced Operation

3PL

Shipper

Shipper

Shipper

Transportation

Warehousing

IT support

SCintegration

Others

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Characteristics of 3PL

Perform outsourced logistics activities

Process management / Multiple activitiesMore customized services

Mutually beneficial and risk-sharing relationship

Long-term commitments (1~ 3 years)

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Why is it needed?

Advantageso Cost reductiono Focus on core competencyo Improved efficiency, service and flexibilityo Industry-specific application

build-to-order systems and e-merchants

Disadvantageso Loss of controlo Impact on in-house workforce

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Section ISection I



Section VSection V

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Current State-- Service Offerings

Dedicated Contract Transportation /Transportation Procurement

Inventory Management Logistics Management and ConsultingFreight Audit and Bill Payment Customs ServicesShipment Tracking and TracingReverse 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

3 PL market is growing

( $ Billions )

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Market Structure

< $20 mi llio n

$20 - 100 mi llio n

> $ 100 mi llio n

Ann ua lRe ven u e

Orange Courier

R egal Logistics

Cass InformationSystem

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 u se in different ind u striesInd u stry

C omp u ter

C ons u mer

Retail

C hemical

Medical

Au to

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

The service menu is rapidly changing

New breed of companies are emerging

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Section ISection I



Section VSection V

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Niche Markets Online Logistics Providers

Online Freight MarketplacesSpot market

Auction and RFQExchangeMeta-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 CarriersMany IntermediariesComplex Supply Chains

High Search CostsSignificant Opportunities for Economies of Scale

Several Models Emerging

Online Logistics Providers-Opportunity

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Spot market Auction and RFQExchangeMeta-marketplaces

Application Service Providers (ASPs)Purchasing Consolidation market Infomediaries

Niche Markets Online Service Providers

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Spot market

Auction and RFQExchange

Application Service Providers (ASPs)

Purchasing Consolidation market Infomediaries


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Spot market

Auction and RFQExchange

Application Service Providers (ASPs)

Co-opsInfomediaries


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Section ISection I



Section VSection V

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Recent ResearchGeneral 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 ModelsCarrier and Shipper behavior models

o Carrier selectiono Contract designo Contract negotiation

3PL provider s behavioro Service offerings

o Carrier selectiono Contract designo Contract negotiation

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Online Freight MarketplacesIntegrated and Time Sensitive Optimization Problems

o Dynamic and stochastic routing and scheduling systemso Dynamic inventory management systemso Combined inventory-routing modelso Real-time bidding and freight matching algorithmso Optimal pricing strategies for intermediaries and carrierso 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 IISection II Evol u tion and Cu rrent State of the Ind u stry




Section ISection I



Section VSection V


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Predictions and ConclusionsThe total market for freight transportation intermediaries is stillgrowing 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 costsMedium sized and Large carriers may resist and try to continuebusiness as usual or simply become e-commerce enabled using current business modelsThe 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 ConclusionsThe freight transportation industry has historically been slow tochangePersonal relationships will continue to be important despite a

growing acceptance of web based interactionsThe potential benefits of IT are hugeMajor industry changes will come the question is how soon

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