Copyright © 2006 Howard Publications, Inc.
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Copyright © 2006 Howard Publications, Inc. |
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Related articles: by Gordon Forsyth |
e-SURVIVORS Providers of transportation, warehousing and supply chain Internet software and exchanges are preparing for shake-up. by philip damas |
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With the honeymoon between the stock market and Internet-based technology firms now over, the knives are coming out as the investors’ checkbooks are being put away. The complete change of climate and the pressure to perform are, as in other technology sectors, affecting the logistics and transportation software companies and electronic marketplaces. The question now is whether these companies have attracted real Web-based customers and are generating sustainable revenues — expectations that are putting particular pressure on the Internet start-ups. Even i2 Technologies, the well-established supply chain planning software giant, issued a profit warning in early April, saying that its earnings per share would halve from 4 cents in the first quarter of 2000 to 2 cents in this year’s first quarter. For the year 2000, i2 reported an annual net deficit of $1.8 billion on revenues of $1.1 billion. The deficit included a one-off amortization charge of $1.8 billion. Manugistics, another large supply chain planning software firm, posted a loss of $28.1 million on revenues of $268 million for its fiscal year ended Feb. 28. If these large, well-established e-commerce supply chain companies are losing money, life must be even tougher for the new dot-com start-ups, many of which do not publish their results. In the area of online import/export facilitation applications, the software firm Vastera Inc. posted a deficit of $71.7 million applicable to common stockholders for calendar 2000, on annual revenues of $33 million. Vastera provides e-commerce landed-cost calculation and trade compliance systems. NextLinx, a competitor of Vastera founded in 1994, has secured many contracts from big names, but its financial results are unknown. Descartes Systems, the Canadian Internet-based transportation management software firm founded in the early 1980s, is also losing money, with a deficit of $31.6 million on revenues of $66.6 million for the fiscal year ended Jan. 31. "Whoever has the funding can survive," said Robin Roberts, research analyst with the financial group Stephens Inc. But this cannot last in the long term, unless the company has the management, skills and marketing to make the company succeed, she warned. "You need a group of people who understand logistics processes," she said, commenting on supply chain e-commerce software firms. Roberts said that a lot of transportation and logistics exchanges have closed down, because they lacked liquidity. Those e-marketplace start-ups that have survived have become software providers, she added. And larger, well-known supply chain e-commerce companies like i2 and Manugistics have a marketing advantage that smaller players try to capitalize on. "For a start-up, it’s really good if you have a relationship with i2 or Manugistics," she said. NTE, the large U.S.-based trucking e-marketplace, announced last November an agreement to provide execution services to FreightMatrix, the logistics e-marketplace owned by i2. NTE’s transportation services will be available to the public and private e-marketplaces powered by FreightMatrix. Among the supply chain software firms, Roberts believes that G-Log (founded in 1999) and Capstan Systems (started in 1998) have good survival potential. G-Log, which had initial equity investments from FedEx Corp., provides systems to manage the movement of freight as a single integrated process across the global supply chain. Capstan Systems provides online landed cost calculation tools, trade compliance and other logistics software. "The whole e-commerce logistics area has been so much of a roller-coaster," said Larry Sur, chief executive officer of IOLogistics. "To have a viable product, you need to have a real feel for customers, for the real transportation network itself," he added. For example, arrangements concerning trailer interchange and pre-loaded trailers must be made from the outset. Shake-up. There are no industry statistics on how many logistics dot-coms have closed down since the heydays of a year ago. But consolidation has started — a trend that may now accelerate. In March, the supply chain software developer Arzoon, founded in 1999, announced the takeover of From2, a small landed-cost, trade compliance software and freight exchange firm also incorporated in 1999. Also in March, i2 acquired RightWorks, the San Jose, Calif.-based e-procurement dot-com founded in 1996. Last year, Logistics.com took over QuoteShip.com. And Descartes has acquired the ocean transportation software company E-Transport and other e-logistics companies. Arzoon has made headlines in the press by attracting $34 million in funding from big name investors such as Canadian Pacific, CSX Transportation, Norfolk Southern and Union Pacific. The supply chain management software business remains fragmented, with different firms specializing in transportation management, warehouse management, supply chain execution or supply chain planning. Because many vertical e-marketplaces across all sectors of industry aren’t doing well, there are fears that the logistics e-commerce software firms and exchanges that serve them are exposed to risks of bad debts. Start-ups vs. Establishment. "From a marketing standpoint, start-ups have a disadvantage," said Roland Ziebell, head of e-commerce at Danzas-AEI, the global forwarding and logistics group. But he said that i2 and Manugistics, although well established, have supply chain management systems that are "too complicated." "It’s going to take a while for companies to implement these complete systems," he said. "Descartes is much more focused." Meanwhile, the start-ups are trying to differentiate themselves from their larger competitors and attract revenues and customers. "I don’t know what’s going to happen to smaller providers like Arzoon," Ziebell added. One avenue to achieve critical mass, for a logistics dot-com, is to garner wide industry backing among large transportation or logistics players. "I think companies like Tradiant or Global Freight Exchange (GF-X) founded their business as a strong industry initiative," Ziebell said. "They will survive." Tradiant, now renamed GT Nexus, is a new multicarrier container shipping portal that has signed many ocean carriers as members. Crowley Liner Services, Compania Sud Americana de Vapores, Wan Hai, APL, CP Ships, Hanjin, Hyundai, "K" Line, Mitsui O.S.K. Lines, Senator Lines, Yangming and Zim Israel Navigation Co. have joined the portal. A spokesman for GT Nexus said it would be "collectively providing access to over a quarter of the global ocean container market through GT Nexus." Ocean carriers have a minority equity stake in GT Nexus. GT Nexus also said that ITOCHU Express, the American subsidiary of the big Japanese trading house Itochu, is starting a pilot program to adopt the planning services of the Internet container shipping portal. In the air-freight sector, GF-X, founded in 1998, has also attracted major industry players. The company’s aim is to enable electronic transactions between carriers and forwarders. To date, GF-X has raised $85 million in funding, making the company one of the best-funded business-to-business exchanges. Equity stakes have been taken by American Airlines, British Airways, Deutsche Post World Net, Lufthansa Commercial Holding, Panalpina World Transport (Holdings) and SAirLogistics. GF-X, like GT Nexus, has sought to build an online system without adopting the spot-market, price-based auction model that has been criticized by carriers. And GF-X works only on the wholesale market — carriers and forwarders. The company said it offers "product differentiation and decommoditization through allowing carriers to market all kinds of flight-based and time-definite products, not a simplistic flight-based model." The air freight dot-com also said that it provides full integration with carriers and forwarders, not "simulated integration using e-mail." In the trucking sector, Transplace.com incorporates the former activities of six of the largest publicly held truckload carriers in the U.S.: Covenant Transport, J.B. Hunt Transport Services, M.S. Carriers, Swift Transportation Co., U.S. Xpress Enterprises and Werner Enterprises. Critical Factors. "The critical thing seems to be getting the first Web customer signed up," said Richard Armstrong, president of logistics consultants Armstrong & Associates. Armstrong said that all the major established warehouse software groups are "migrating to the Web." Among the major players, Armstrong cited major software houses Irista Inc., a subsidiary of HK Systems; Provia Software Inc.; and Manhattan Associates. "The field is dominated by the people who have existing software customers," he said. "It’s analogous to the click-and-mortar companies being better than the e-tailers." The established software companies may be better at providing Web services than people "doing this from scratch," he suggested. "Manugistics has been very successful," Armstrong said. "Manugistics seems to dominate the space that is ‘capability-to-promise’ and advance planning." "i2 has TradeMatrix out there," he added, another system designed to enable companies to promise product availability. Commenting on FreightMatrix, the logistics e-marketplace owned by i2, Armstrong said that it appears to have no customer, to date. But there are new entrants like Arzoon, Armstrong said. He said that Arzoon will provide "a true application to take care of the domestic and international applications." Relationships. To attract industry users and revenues, there is a growing recognition in the transportation industry that e-commerce must recognize, rather than replace, customer/service provider relationships. This particular aspect for logistics dot-coms has a lot more to do with continuity in business than with Internet technology revolution. Last year, Jeff Crowe, chairman, president and CEO of Landstar System, said that core values and relationships will drive the successful e-commerce Web sites. Simple exchanges and "post it" sites will not be the transportation markets of the future, he added. "I believe the vast majority of transportation spending in the U.S. is negotiated by service contracts and that will not change," Crowe said. Relationships are particularly important for forwarders and other intermediaries. Some of them fear that the Internet — including carrier-controlled e-marketplaces — could disintermediate them by removing their role between shippers and carriers. However, in their annual State of Logistics report, the two logistics companies Cass and ProLogis said that "it is still about relationships." The report cited Transplace.com, eFr8.com and Freightdesk.com as three viable exchanges "that add value and improve relationships without intrusion." eFr8.com was developed by a subsidiary of Landstar System. Freightdesk.com was launched last year by Rob Quartel, the former U.S. Federal Maritime Commissioner, to enable forwarders and brokers to lower their costs and strengthen their customer relationships. Armstrong said that the OptiBid online trucking procurement tool of trucking marketplace Logistics.com "is based on an old paradigm." "I think that there are a lot of carriers that have an immediate reaction against OptiBid," he added. Armstrong noted three main dot-coms that are "online 3PL managers:" FreightQuote, established in 1998; freightPro.com, launched in 1999; and Transportation.com, which commenced trading in June 2000. All three trucking-based transportation 3PLs are based in or near Lenexa, Kan. He suggested that it is taking a long time for those companies to generate significant customer activity. But Transplace.com, with its backing of large truckload carriers, appears to have "a substantial business," he said, partly because it has been able to move existing business to the Internet. Sur, at IOLogistics, said that transportation dot-coms "had better have something more than just an exchange." Few people in the industry seem to be shedding tears about the demise of some the dot-coms. After their hyperbolic promises to revolutionize transportation and logistics, the dot-coms aren’t getting much sympathy from some of the old hands in the industry. Yet, industry forecasts predict an increase in demand for online supply chain software. Sur said he remains enthusiastic about e-business in logistics. "E-commerce, by itself, is wonderful." "I think that there are some companies out there that are putting freight management systems that are good," he added. But those systems "are not perfect," he said. "It’s like Swiss cheese — they all have holes." The logistics and transportation dot-coms that survive are likely to have a better understanding of the real business world, the need for relationships, and the profit requirements of institutional investors. After the Internet revolution and the struggle for survival of the fittest, the dot-coms are turning to the old-economy principles. |
Larry Sur
Richard Armstrong
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"To
have a viable product, you need to have a real feel for customers, for the
real transportation network itself."
"The
field is dominated by the people who have existing software customers. It’s
analogous to the click-and-mortar companies being better than the e-tailers."