A new study shows a significant shift occurring in the transportation management systems market. According to ARC Advisory Group, the top players in the marketplace are failing to respond to new trends in the industry and to growing competition from ERP (enterprise resource planning) vendors like SAP and Oracle.

The study says that due to the financial struggles of the top three vendors, the overall TMS market grew just 1.5 percent in 2003, a much lower rate than forecast. However, when the leading vendors are removed from the equation, the rest of the market grew by 10.6 percent.

Clearly, the recipe for success in the TMS market is changing, creating challenges for established leaders and newcomers alike.

"There are several factors that are forcing TMS vendors to revisit their strategies and product development plans," says Adrian Gonzalez, director of ARC's Logistics Executive Council and author of the new study, Transportation Management Systems Worldwide Outlook. "These include the growing acceptance of subscription- based pricing and 'on demand' deployments; the obsolescence of traditional, batch-oriented optimization; and stronger competition from ERP vendors."

ARC is forecasting an annual growth rate in the TMS market of 7.1 percent over the next five years, to over $1.2 billion in 2008 from $873 million in 2003. The growing adoption of recurring revenue pricing models such as subscription fees is also affecting the market's growth rate. Recurring revenues grew by 9 percent in 2003 and have increased 27 percent since 2001, while both license fees and maintenance fees declined last year.

Externally hosted solutions accounted for almost 32 percent of TMS revenues last year, up from 28 percent in 2002. And although ERP vendors have historically lagged behind the best-of-breed players in terms of functionality, ARC says the gap is beginning to close.

"ERP vendors have certainly moved beyond the PowerPoint stage," says Gonzalez. "Some companies are already planning to replace their best-of-breed TMS with an ERP offering. If this practice becomes widespread, how can bestof- breed vendors continue to compete?"