ITS, UC Irvine
INDUSTRIES IN TRANSTION:FREIGHT TRANSPORTATION
INTERMEDIARIES IN THE INFORMATION AGE
Jiong Songand
Amelia C. Regan
Metrans 2nd Annual Transportation ConferenceFeb. 2, 2001
ITS, UC Irvine
Outline
Traditional Freight Transportation Intermediary
Section IISection IISection IISection II Current State and Evolution of the Industry
Niche Markets -- Online Logistics Providers
Research Needs / Opportunities
Predictions / Conclusions
Section ISection ISection ISection I
Section IIISection IIISection IIISection III
Section IVSection IVSection IVSection IV
Section VSection VSection VSection V
ITS, UC Irvine
Traditional Freight Transportation Intermediary
Section IISection II Current State and Evolution of the Industry
Niche Market -- Online Logistics Providers
Research Needs / Opportunities
Predictions / Conclusions
Section ISection I
Section IIISection III
Section IVSection IV
Section VSection V
ITS, UC Irvine
Third Party Logistics
“Third-party Logistics is simply the use of an outside company to perform all or part of the firm’s 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 customized offerings, encompasses a broad number of service functions and is characterized by a long-term, more mutually beneficial relationship”
-- Murphy & Poist (1998)
Third Party Logistics
In-house Logistics Department
Shipper
Transportation
IT support
Warehousing
Others
In-house Operation
Outsourced Operation
3PL
Shipper
Shipper
Shipper
Transportation
Warehousing
IT support
SC integration
Others
ITS, UC Irvine
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)
ITS, UC Irvine
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
ITS, UC Irvine
Traditional Freight Transportation Intermediary
Section IISection II Current State and Evolution of the Industry
Niche Markets -- Online Logistics Providers
Research Needs / Opportunities
Predictions / Conclusions
Section ISection I
Section IIISection III
Section IVSection IV
Section VSection V
Industry Evolution
Third Generation( 2000 and beyond)
First Generation(1970s - 1980s)
Second Generation(1980s - 1990s)
Broader more integrated services
Transportation / warehousing Freight forwarders / brokers Shipper’s agents
Non asset-based companies Asset-based companies increased service offerings
Online freight marketplaces Web-based 3PLs Increasing supply chain integration
ITS, UC Irvine
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
ITS, UC Irvine
Current State -- Market Size
34.239.6
46.0
54.0
1997 1998 1999 2000
3PL market is growing
( $ Billions )
ITS, UC Irvine
Market Structure
< $20 million
$20 - 100 million
> $100 million
Annual Revenue
• Orange Courier
• Regal Logistics
• Cass Information System
• California Distribution
• Bax Global Logistics
• Menlo Logistics
ITS, UC Irvine
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
ITS, UC Irvine
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
ITS, UC Irvine
Traditional Freight Transportation Intermediary
Section IISection II Current State and Evolution of the Industry
Niche Markets -- Online Logistics Providers
Research Needs / Opportunities
Predictions / Conclusions
Section ISection I
Section IIISection III
Section IVSection IV
Section VSection V
ITS, UC Irvine
Niche Markets – Online Logistics Providers
Online Freight Marketplaces Spot market Auction and RFQ Exchange Meta-marketplaces
Application Service Providers (ASPs) Purchasing Consolidation Market Infomediaries
ITS, UC Irvine
The Freight Transportation Industry is Ideally Suited 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
ITS, UC Irvine
Spot market Auction and RFQ Exchange Meta-marketplaces Application Service Providers (ASPs) Purchasing Consolidation market Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Spot market Auction and RFQ Exchange Meta-marketplaces Application Service Providers (ASPs) Purchasing Consolidation market Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Spot market Auction and RFQ Exchange Meta-marketplaces Application Service Providers (ASPs) Purchasing Consolidation market Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Spot market Auction and RFQ Exchange Meta-marketplaces Application Service Providers (ASPs) Purchasing Consolidation market Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Spot market Auction and RFQ Exchange Meta-marketplaces Application Service Providers (ASPs) Purchasing Consolidation market Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Spot market Auction and RFQ Exchange Application Service Providers (ASPs) Purchasing Consolidation market Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Spot market Auction and RFQ Exchange Application Service Providers (ASPs) Co-ops Infomediaries
Niche Markets – Online Service Providers
ITS, UC Irvine
Traditional Freight Transportation Intermediary
Section IISection II Current State and Evolution of the Industry
Niche Markets -- Online Logistics Providers
Research Needs / Opportunities
Predictions / Conclusions
Section ISection I
Section IIISection III
Section IVSection IV
Section VSection V
ITS, UC Irvine
Recent Research
General market examinationo Lieb and Randal (1999)o Lieb and Peluso (2000a, 2000b)
Contracts and relationshipso Leahy, Murphy & Poist (1995)o Sankaran & Charman (2000)
Decision-making processeso Menon, McGinnis & Ackerman (1998)o Lim (2000)
ITS, UC Irvine
Behavioral Models
Carrier and Shipper behavior modelso Carrier selectiono Contract design o Contract negotiation
3PL provider’s behavioro Service offeringso Carrier selectiono Contract design o Contract negotiation
ITS, UC Irvine
Online Freight Marketplaces
Integrated 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 to shippers, carriers and 3PLs under competing business models
o Is it a zero sum game? Who wins? Who loses? How much?
ITS, UC Irvine
Section IISection II Evolution and Current State of the Industry
Niche Markets -- Online Logistics Providers
Research Needs / Opportunities
Predictions / Conclusions
Section ISection I
Section IIISection III
Section IVSection IV
Section VSection V
Traditional Freight Transportation Intermediary
ITS, UC Irvine
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 competition from the online logistics providers;
The companies have to combine the logistics expertise with advanced technology to evolve;
Strategic alliance and merge/acquisition will be important to obtain comprehensive and intergrated supply chain solution capability;
Small carriers and niche carriers will benefit from increased access to shippers and reduced search costs
Medium sized and Large carriers may resist and try to continue business as usual or simply become e-commerce enabled using current business models
The 120+ on-line freight marketplaces will be reduced to less than 10 leaders and a few successful niche players in near future.
ITS, UC Irvine
Predictions and Conclusions
The freight transportation industry has historically been slow to change
Personal relationships will continue to be important despite a growing acceptance of web based interactions
The potential benefits of IT are huge Major industry changes will come – the question is how
soon