1. Metrans 2nd Annual Transportation Conference
INDUSTRIES IN TRANSTION: FREIGHT TRANSPORTATION INTERMEDIARIES IN THE INFORMATION AGE
Jiong Song
and
Amelia C. Regan
Metrans 2nd Annual Transportation Conference
Feb. 2, 2001
ITS, UC Irvine

2. Outline Traditional Freight Transportation Intermediary
Section I
Traditional Freight Transportation Intermediary
Section II
Current State and Evolution of the Industry
Section III
Niche Markets -- Online Logistics Providers
Section IV
Research Needs / Opportunities
Predictions / Conclusions
Section V
ITS, UC Irvine

3. Traditional Freight Transportation Intermediary
Section I
Traditional Freight Transportation Intermediary
Section II
Current State and Evolution of the Industry
Section III
Niche Market -- Online Logistics Providers
Section IV
Research Needs / Opportunities
Predictions / Conclusions
Section V
ITS, UC Irvine

4. 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)
ITS, UC Irvine

5. Third Party Logistics 3PL Shipper Outsourced Operation Transportation
Warehousing
Shipper
3PL
IT support
Shipper
In-house Operation
SC integration
Shipper
In-house Logistics Department
Others
Others
IT support
Warehousing
Transportation

6. 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

7. Why is it needed? Advantages Disadvantages Cost reduction
Focus on core competency
Improved efficiency, service and flexibility
Industry-specific application
– “build-to-order” systems and e-merchants
Disadvantages
Loss of control
Impact on in-house workforce
ITS, UC Irvine

8. Traditional Freight Transportation Intermediary
Section I
Traditional Freight Transportation Intermediary
Section II
Current State and Evolution of the Industry
Section III
Niche Markets -- Online Logistics Providers
Section IV
Research Needs / Opportunities
Predictions / Conclusions
Section V
ITS, UC Irvine

9. Broader more integrated services
Industry Evolution
Third Generation
( 2000 and beyond)
Online freight marketplaces
Web-based 3PLs
Increasing supply chain integration
Non asset-based companies
Asset-based companies increased
service offerings
Second Generation
(1980s s)
Transportation / warehousing
Freight forwarders / brokers
Shipper’s agents
First Generation
(1970s s)
Broader more integrated services

10. 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

11. Current State -- Market Size
3PL market is growing
( $ Billions )
ITS, UC Irvine

12. Market Structure Annual Revenue > $100 million $20 - 100 million
Orange Courier
Regal Logistics
Cass Information
System
California Distribution
Bax Global Logistics
Menlo Logistics
ITS, UC Irvine

13. Current use of 3PL by industry
Percentage of 3PL use in different industries
Computer
Consumer
Retail
Chemical
Medical
Auto
Source "What's ahead for 3PLs“ Modern Materials Handling, April, 2000
ITS, UC Irvine

14. 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

15. Traditional Freight Transportation Intermediary
Section I
Traditional Freight Transportation Intermediary
Section II
Current State and Evolution of the Industry
Section III
Niche Markets -- Online Logistics Providers
Section IV
Research Needs / Opportunities
Predictions / Conclusions
Section V
ITS, UC Irvine

16. 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

17. Online Logistics Providers-Opportunity
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
ITS, UC Irvine

18. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Meta-marketplaces
Application Service Providers (ASPs)
Purchasing Consolidation market
Infomediaries
ITS, UC Irvine

19. ITS, UC Irvine

20. ITS, UC Irvine

21. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Meta-marketplaces
Application Service Providers (ASPs)
Purchasing Consolidation market
Infomediaries
ITS, UC Irvine

22. ITS, UC Irvine

23. ITS, UC Irvine

24. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Meta-marketplaces
Application Service Providers (ASPs)
Purchasing Consolidation market
Infomediaries
ITS, UC Irvine

25. ITS, UC Irvine

26. ITS, UC Irvine

27. ITS, UC Irvine

28. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Meta-marketplaces
Application Service Providers (ASPs)
Purchasing Consolidation market
Infomediaries
ITS, UC Irvine

29. ITS, UC Irvine

30. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Meta-marketplaces
Application Service Providers (ASPs)
Purchasing Consolidation market
Infomediaries
ITS, UC Irvine

31. ITS, UC Irvine

32. ITS, UC Irvine

33. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Application Service Providers (ASPs)
Purchasing Consolidation market
Infomediaries
ITS, UC Irvine

34. ITS, UC Irvine

35. Niche Markets – Online Service Providers
Spot market
Auction and RFQ
Exchange
Application Service Providers (ASPs)
Co-ops
Infomediaries
ITS, UC Irvine

36. ITS, UC Irvine

37. Traditional Freight Transportation Intermediary
Section I
Traditional Freight Transportation Intermediary
Section II
Current State and Evolution of the Industry
Section III
Niche Markets -- Online Logistics Providers
Section IV
Research Needs / Opportunities
Predictions / Conclusions
Section V
ITS, UC Irvine

38. Recent Research General market examination Contracts and relationships
Lieb and Randal (1999)
Lieb and Peluso (2000a, 2000b)
Contracts and relationships
Leahy, Murphy & Poist (1995)
Sankaran & Charman (2000)
Decision-making processes
Menon, McGinnis & Ackerman (1998)
Lim (2000)
ITS, UC Irvine

39. Behavioral Models Carrier and Shipper behavior models
Carrier selection
Contract design
Contract negotiation
3PL provider’s behavior
Service offerings
ITS, UC Irvine

40. Online Freight Marketplaces
Integrated and Time Sensitive Optimization Problems
Dynamic and stochastic routing and scheduling systems
Dynamic inventory management systems
Combined inventory-routing models
Real-time bidding and freight matching algorithms
Optimal pricing strategies for intermediaries and carriers
Optimal bidding strategies for shippers
Simulation-based analysis of costs and benefits to shippers, carriers and 3PLs under competing business models
Is it a zero sum game? Who wins? Who loses? How much?
ITS, UC Irvine

41. Traditional Freight Transportation Intermediary
Section I
Traditional Freight Transportation Intermediary
Section II
Evolution and Current State of the Industry
Section III
Niche Markets -- Online Logistics Providers
Section IV
Research Needs / Opportunities
Predictions / Conclusions
Section V
ITS, UC Irvine

42. 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

43. 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
ITS, UC Irvine

44. End
ITS, UC Irvine