Freight Exchanges
Only a few months ago — though already it may seem like years — the number of organisations claiming to offer online freight exchanges literally filled a book (as readers of the e.logistics Magazine Online Freight Exchange Guide will know).
However, the inexorable shake-out in the wider dotcom community has taken its toll on the freight exchange market. Some ventures collapsed before ever doing any serious trading, while others have struggled on at the margins of the business, with little apparent prospect of ever moving into the mainstream.
Some continue to provide bulletin-board exchanges, and do a limited amount of business in the back}iaul market without aspiring to more. But many freight exchanges that are nominally still “live” have in practice been in the “development” stage for a year or more now, and it is a reasonable assumption that many of these will never see the light of day.
Some have openly abandoned the unequal struggle and handed development funds back to investors; both Webfreight and Translinx suffered that fate following the retreat last year of their parent J2C.
Some industry pundits now put the number of genuinely active exchanges based in or serving the UK at little more than a dozen. Indeed, close analysis of that dozen reveals the number of what might be termed “classic” load-matching exchanges to be even smaller.
Many of the remaining Web sites in this market are specialised operations, and may not even be exchanges in the strict sense of the word. Indeed, two of the UK’s surviving market leaders, eLogistics (no relation to e.logistics Magazine) and Freight Traders, both tend to eschew the term, and prefer to promote themselves as active participants in the supply chain.
Freight Traders (www.freight-traders.com), the Mars group subsidiary, certainly avoids narrow definition as
a freight exchange. Managing director Gary Mansell points out that the lifeblood of his business is and always has been long-term tendering. Perhaps significantly, he plays down the very fact that the service is Internet-based. “We only reluctantly branded ourselves as a Web-based company,” he says.
Freight Traders, he points out, “is populated by logisticians” — people who are more familiar with the intricacies of operating groupage services to northern France than the latest software geekery.”lf someone calls us with a question about the industry, we can answer it,” Mansell says. “Really, the Web is almost incidental to what we do.”
It is perhaps easier to understand the operators’ reluctance to use the term “freight exchange” when you consider the view of eLogistics (www.elogistics.com) co-founder Tim Meadows-Smith. “The idea of a general freight exchange was never a starter,” he says. “The main issue is security — most decision-makers are employed managers, and they’re employed to manage risk, so they won’t adopt any strategy that is more risky than their current one.”
A more fruitful approach, he says, is to take an existing managed marketplace — for example, the freight operations of a single major shipper and its transport providers— and put that online, enhancing the “visibility” of the operation.
Mistrust of open markets
Clearly the logistics industry’s instinctive mistrust of open freight markets has been one cause of their retreat, but there are others too. Indeed, arguably one of the biggest mistakes made by their champions —
and they share this with the wider dotcom fraternity — was the glib assumption that, because they were on the Web, they didn’t have to bother with all that tedious — and expensive — marketing that Old Economy firms were saddled with. In practice, any freight exchange survivor will tell you that, as with any small business, getting things off the ground was very hard work.
As X4freight (www.x4freight.com) financial director John Heelas puts it: “We set ourselves up very much knowing we were a small business, and as such had to deliver and prove ourselves.” X4freight eschewed computer industry “high fliers” — and their stratospheric salaries. “If you take that line you’re bound to be very heavy on your cost base, because you can’t just turn cost off,” Heelas explains. Instead, it concentrated on keeping its costs down. He adds:”lt also helped that we actually delivered when we promised.”
Freight Traders’ Gary Mansell agrees. “Like any other business, we’ve still got to have a sales force, and it’s very hard work setting up a new company.”
Markettrans, launched in September last year, spends “an enormous amount of time” on quality assurance, with around a third of its staff engaged in quality assessments, periodic audits and operational reviews.
Another reason for the slow take-up of freight exchanges in the early days was the hostility some of
them provoked — whether or not justifiably — in the carrier community. Some hauliers felt they were being pitched into unfair and unwelcome competition with rivals on the basis of carriage rates alone. For them, the term “online auction” acquired sinister overtones.
No commissions
To some extent, operators offering such services may have played into the hands of less aggressive players focusing on the carrier side of the business. Typical is the Roadrunner Online Exchange (www.roadrunner.uk.com), which was set up around four years ago by Road Tech, a transport management software developer. The site was created specifically to allow carriers to transact with each other, and according to managing director Derek Beevor, “that’s why it has continued to thrive.”There is a modest membership fee, but no commission on transactions; and there are definitely no auctions.
It would be wrong to suggest that online auctions no longer take place; they do. But generally, the freight exchange operators now strive to present a much more even-handed front to shippers and carriers. Certainly this is prominent in the concept of “online communities” fostered by eLogistics. According to the company’s Tim Meadows-Smith, their effect has been twofold: it has stabilised transport prices, yet at the same time has reduced transport operators’ own costs (for example, by allowing backhaul capacity to be used more effectively).
If so, this will have answered the complaints over margin erosion. According to eLogistics, early indications are that savings of 6 to io per cent are achievable,though in thelongerterm,figuresofioto 15 per cent are possible.
In addition, a system eLogistics calls its Virtual Fleet Optimiser “has turned each operator’s depot from a concrete-walled silo into a glass-walled one”, according to Meadows-Smith. He says this makes it easier for 3PLs to make more efficient use of their own assets.
While not all freight exchange operators are prepared to discuss their intimate financial details, it’s a reasonable bet that those that have made it this far are, if not in profit, at least within shouting distance of it. Gary Mansell says that while Freight Traders had the advantage of being backed by Mars (a major player in the international food business), it had the further advantage that its guardian angel was also a private company, with very short and predictable management processes. In a similar vein, X4freight was fortunate in that it didn’t have to rely on a single backer.
Point of viability
How many users does a freight exchange actually need to become viable? It’s one of those unanswerable questions, but if Freight Traders is anything to go by, it currently has a community of around 700 members, of whom about 105 are shippers and the rest carriers (though some users fall into both camps). However, it should be remembered that Freight Traders gets its income from a variety of sources, notably commissions on tenders — although it is partly migrating to a system whereby it would be rewarded on the basis of any reduction in freight or administration costs it achieves for its users.
X4freight numbers around 400 regular users, both shippers and service providers. Its service offering was initially based on longer-distance, cross-border freight in Europe, but it is increasingly offering domestic freight in the UK and other European countries, The company takes “a small margin” on each deal.
These are hardly numbers to take the industry by storm, as the “dotcommers” were confidently predicting only a few months back, but they do at least provide the basis for a viable business and a base on which to build further growth.
Another approach is for freight exchanges to go for
a very specific market niche, Perhaps the best example of this approach, in the UK at least is Courier Exchange (www.courierexchange.co.uk), another pioneering operation. Simplicity is the key to survival, according to managing director Lyall Cresswell. “We’ve always taken the view that making the system easy to use is as important as any technical innovation,” he explains.
Interestingly, Courier Exchange kept things so simple that it is only now developing an online booking system. Until now, once users had found a freight match, they then had to make the booking by other means. How many other exchanges have tried to
put the cart before the horse by trying to force an online booking system on their users? Other innovations are a courier directoiy which could be of interest to non-courier industry users. (Lyali Cresswell is interviewed on page 24.)
With 400 registered subscribers, Courier Exchange is well established in its own market, but still has plenty of potential for growth. Bear in mind that in the “heavy” freight sector, Teleroute (www.teleroute.co.uk), the ancestor of all on-line exchanges and perhaps the ultimate survivor, can boast a subscriber base of 38,000. In some ways, this perhaps represents the nearest that the industry has come to a genuine open exchange.
Syndicates
So what are prosthe pects for more universal adoption of open exchanges? ELogistics’ Tim MeadowsSmith suggests that the carrier communities encouraged by his company could gradually evolve to the point where small groups of carriers serving a given third-party logistics contractor might form “syndicates”. Ultimately, the industry may arrive at something resembling a general public exchange. But if it does, it will get there “brick by brick” rather than with a”big bang”.
