paradise postponed

It was one of the more credible promises of the Internet age: Web-based logistics management was going to allow shippers to sleep the dreamless slumber of men and women who knew where everything was, where it was going and when it would arrive. Four years later, the dot-com treasure hunters have lost interest in the transportation industry, and the dream of an online one-stop logistics management shop has become elusive.

But, although paradise may not be around the corner, that vision is slowly becoming reality. A shipper can now book and track cargo electronically with more than 90 percent of the world's ocean liner capacity through one of three Web "pOréal" services. Two years ago, that wasn't possible. The e-logistics providers that have survived the last two years of economic turmoil—about two dozen—argue they are making logistics management smoother, leaner and cheaper, with demonstrable benefits for shippers both in security and inventory reduction.

They are able to do this because the e-logistics market is growing, the companies' services are merging and it's becoming easier to connect one electronic system to another. Shippers who need to meet heightened security measures and hard economic demands are better placed than ever to take advantage of the opportunities. But there are pitfalls, still, in this relatively new territory.

A few words in private
In the early days, everyone had a different idea about how shippers should get to electronic heaven. Shippers should buy their transportation online on a spot basis from the company that offered the lowest prices (whether that company was known to them or not), instead of using year-long contracts. Or shippers should install vast software systems that joined together everything from warehouse management to accounting. Some groups aimed to electronically link everyone in the wide universe of trade and transportation with everyone else, so they could all freely exchange data.

But now, companies that started in very different places are beginning to converge on similar solutions. There's no longer much of a difference between a software vendor and a Web services, marketplace or pOréal provider. Companies such as Descartes Systems Group, based in Waterloo, Ont., and Manhattan Associates, based in Atlanta, started life as "pure" software companies offering transportation or warehouse management systems. But now they spend most of their time building private online networks, translating and transmitting data, and building interfaces between corporate computer systems.

Software almost never comes on a disk these days, but instead sits on the host company's computers, usually as part of a private network, rented by the month or quarter. This, in turn,is increasingly what the pOréal companies are doing. POréal companies were set up to offer a semi-public marketplace, where members could use a standard set of tools to do business with a wide range of partners. But now they are moving toward more private, customized services. The main competitors in the ocean industry are CargoSmart, wholly owned by OOCL and based in San Jose, Calif.; Inttra, the Maersk-led ocean cargo Web pOréal service based in Parsippany, N.J.; and GT Nexus, Inttra's APL-led rival in Alameda, Calif. (see sidebar). Increasingly, pOréal companies are asking traditional software vendors for technology to provide bolt-on features to the pOréals. Descartes designed Inttra's Web-based service contract management and tendering service, Inttra-Tender, available in June; and Management Dynamics Inc., the tariff and service contract management software company, created a similar function for CargoSmart.

The popularity of the open marketplace or exchange model, where companies look for spot business with relative strangers, is fading in favor of private networks, where existing business partners communicate with one another in a password-protected pocket of the Internet, or an "extranet."

"We kept hearing our customers saying: 'Well, the exchange is cool but we wish it could do these things.' And we said: 'Okay we'll do this for you, then you'll use the exchange.' But then they liked the trade management services better and would pay more for them," says Jim Davidson, chief executive officer of NTE, the domestic trucking marketplace and private networks company based in Downer's Grove, Ill. Traffic on NTE's exchange is now 20 percent of what it used to be, Davidson says, but 50 percent of that lost business has gone over to private networks. "We've turned into a software company without delivering a disk," Davidson says.

John Urban, chief executive officer of GT Nexus, says private networks are the future. "A customer can say: 'I want all my carriers and partners to connect with me.' If you start to extend it out to warehouse management, customs clearance, landed cost calculations, the list is endless," he says. "But that's where we're headed."

A further change in the last two years is that e-logistics companies are no longer in competition with third-party logistics providers (3PLs) and forwarders, but have transformed those same 3PLs and forwarders into customers. In the hectic first half of 2001, when Inttra and GT Nexus (formerly GTN) were going all out to attract shipper customers, the 3PLs and freight forwarders saw them as a potential threat. Facilitating automated booking and tracking seemed to cut out the middle man. But it turned out that those intermediary companies needed automation even more than their shipper clients, so they became customers themselves. Now 3PLs and freight forwarders make up 70 percent of GT Nexus's transaction activity, 30 percent of CargoSmart's traffic, and half of Inttra's (German 3PL Kuehne & Nagel is among Inttra's investors).

Feeling the burn
Meanwhile, shippers have been slow to accept Web-based logistics automation. "Customers have been burned in the past by useless software," says Urban. And even if a shipper is prepared to take the plunge for the second or third time, e-logistics providers point out that it's not enough to sign on to a Web-based service—even if i t's simply for booking. Companies also have to change their internal business practices.

That can be a very good thing. Michael Hampel, corporate manager of logistics at PM Global Foods in Atlanta, reports that the company's adoption of a GT Nexus logistics execution service has "changed all of the old manual processes that used to be commonplace," including problems stemming from missed telephone messages and fuzzy faxes. Furthermore, "it has made the logistics side of our business an active, valued part of our overall sales offering," he says. "Our salespeople can be confident about promising accuracy of information from my department. Not many companies can say that."

Kenny Spevak, director of international logistics for office supply retailer OfficeMax, says sharing shipment information electronically with its carriers through CargoSmart has saved around 15 hours a week because his department doesn't have to manually create shipment status reports. Spevak says he also gets better visibility of his cargo than before.

All the same, NTE's Davidson says you can't expect the moon. "The problem is you have five different computer systems with four different EDI protocols. The Internet doesn't make that go away, but it does make things easier."

No more cargo "holds"
Shippers have been spurred into action recently by the U.S. Customs Service's 24-hour advance manifest regulation, which came into force Feb. 2. The rule demands that all carriers and NVOCCs (non-vessel-operating common carriers) bringing imports to the United States submit a ship manifest to Customs 24 hours before leaving the last foreign port. This means the carriers have put pressure on their shipper and forwarder customers to file the information not only sooner, but also electronically. The ocean-based e-logistics companies report a spike in interest from shippers wanting to sign up for their services, especially for electronic bills of lading. Several carriers, including Maersk and APL, have said they will either waive or reduce the $25 fee charged for manually filing the early information. CargoSmart spokesman Joe O'Brien says the electronic submission of shipping instructions "only reinforces the pOréal's value proposition to carriers, which is a cost savings on manual data entry."

Shippers benefit too, and not just from a waived filing fee. "If carriers get the information in advance of their own deadline, shippers can avoid the risk of having their box held up," says Ken Bloom, chief executive officer of Inttra. Electronic filing also cuts out the need for re-keying information from shipper to carrier to Customs, reducing the risk of an onerous and time-consuming Customs inspection.

U.S. Customs' C-TPAT (Customs-Trade Partnership Against Terrorism) program is another incentive to get Web savvy. Pre-validated shippers and forwarders who file their cargo information electronically through this program can avoid inspections and pay their import duties on a bi-monthly, rather than pay-as-you-go basis.

Dismantling the language barrier
Shippers still face problems with making their computers talk to their business partners' computers, even if the process is mediated by an e-logistics company. This is the much-discussed issue of connectivity. Many companies are moving from EDI (electronic data interchange) protocols, which offer varying formats for transmitting the same information, to XML (extensible markup language), which offers greater standardization, and therefore easier translation. But the change is slow.

Different service providers have different approaches to this issue. All of them spend a great deal of time paying software engineers to make different computer systems understand each other. GT Nexus's Urban believes that open systems, connected directly, are going to be the norm in the future—what he calls "co-opetition." Rival Inttra, however, is more focused on becoming the single dominant system that everyone else has to comply with. Currently, there is a battle going on about who has enough clout to choose the format in which information is transmitted —the carriers, the shippers, the pOréal companies or some international industry body such as the air initiative Cargo2000. For now, there's no simple answer.

"There's not going to be a single network," says Art Mesher, chief logistics officer at Descartes. "There are subcommunities of mutual interest that federate together." Whatever information Descartes collects about a shipper's shipment is not going to be the whole story of a shipper's logistics operations. So Descartes acts as an intermediary, receiving, translating and sending on information from one part of the logistics chain to another in order to complete the picture.

Still a fragmented market
An other problem for shippers is the fragmentation of the e-logistics marketplace. As yet, no single technology provider can cover booking, tracking and cargo management in all transport modes. GT Nexus says multimodalism is "clearly in our strategic plan," and GF-X, the London-based pOréal for air forwarders and carriers, has "looked into ocean," but most e-logistics providers say they have their hands full just dealing with domestic or ocean or air forwarding business.

In some cases, smaller shippers have turned to third-party providers for help 3PLs have sophisticated technology and handle all modes, making them an attractive alternative to navigating the technology jungle alone. And 3PLs are eager to act as second-hand providers of software and services. Many, such as Exel in the U.K., see their expertise in logistics technology as a competitive advantage in attracting shippers' business. But there's another problem here—most shippers use more than one 3PL, so the problem of multiple technology providers remains, even at one remove.

Some large shippers—Coke, Ericsson, Safeway—have signed up with pure-technology companies such as Descartes and Elogex. Others—Target, Toshiba, Hewlett-Packard—are relying on the pOréal-based vendors such as GT Nexus and NTE. Still others are taking matters into their own hands and building their own vast private networks. Last September, U.S. chemicals giant DuPont announced it had formed its own e-logistics division, TransOval, in charge of merging together automated transport management for all cargoes in all modes. So far, TransOval has focused on road transportation, but it is now working on the ocean sector. All three ocean pOréal companies have been asked to hook up with TransOval,cutting its need to communicate with each carrier individually. At some point in the future, TransOval could rival the e-logistics providers, if it connects enough forwarders, carriers, NVOCCs, suppliers, customs agents and contract management companies together in a single, usableWeb service. If it does, however, that will be a first. The task is vast, whoever is attempting it. Paradise may not be lost, but it is definitely postponed.

However, shippers should not shun the opportunity to improve logistics operations through technology. GT Nexus's Urban says customers are becoming more sophisticated, driven, in part, by security demands, and that e-logistics companies are responding with improved service. "If you're going to import goods, you're going to have to understand your supply chain, the people you're involved with and what the processes are," Urban says. That makes automation a great deal easier. "All of a sudden, people are going to say: 'Look at the return I have in reduced inventory,'" he says. "That's one of the bigger trends, the unwritten story, the hidden benefit."