Introduction
The Transportation Software market is a large and varied market. Most researchers understate the size of this market since they focus on a few big and well-defined companies. However, there are hundreds of software and content firms in the transportation market. And amazingly, more entrants all the time.
In the US alone, transportation represents more than 8.5% of GDP,1 which is more than $1.3 trillion in revenue. In the EU, which reports their base numbers slightly differently, it’s more than â¬533 billion. And an interesting statistic they also include is that about 13% of the consumer cost or ‘value consumption’ is based on transportation costs. Getting great numbers from the rest of the world is tough, but consider that in China transportation costs represent, by various estimates, between 13% to 18% of their gross domestic product.
Our world relies on trade. According to the World Bank, more than 49% of the goods we use are sourced from global trade. Take the following: virtually all goods travel by truck at some point — on a global basis, goods may move from truck to truck up to a dozen times. 78% of imports arrive in the US via ocean transport. Our commodities — fuel, grains and so on — still travel the nation’s railroads. Across the global infrastructure, investment in rail continues to climb as rail has undisputed real estate/roadways, lower emission and lower costs to transport. I mention rail because it is oft forgotten in the grand scheme of route planning.
Another interesting factoid about transportation is that world economists expect that by 2020, 5.2 billion of the world’s population will live in cities. When I look at my own hometown where old homes are being converted to multiple-dwelling condos, at the ever-expanding building boom in Boston and Cambridge, and the ever-expanding cities of Asia with millions upon millions of people settling in those areas, the transportation challenges are staggering. When one thinks about the regional and local transportation challenges, that last mile looms large.
Yes, transportation is BIG and important. Whether land, seas, or air, these varied sectors need technology to keep them on route and on time. Since the 1990s, when software development started in earnest, the market has been segmented by mode — rail, trucking, ocean, or air; by user/customer — shipper/importer/exporter, carriers; or third-party service providers (Freight Forwarder, Customs Broker, Freight Broker, 3PL). For shippers (manufacturers or retailers) and their proxy — freight forwarders — the journey is long, often multi-mode, and can be international.
Solving problems for just one customer segment winds up traversing multiple modes of transportation. Creating a fairly complete solution is an enormous task, which has taken the major players more than a decade to develop. Large organizations, therefore, bought multiple products and developed transportation departments focused on either domestic or international shipping. Or they outsourced international to their freight forwarder to handle.
TMS Land — or Planet — Grab
Though many of the TM solution providers are focused either domestically or internationally, that is changing. Major TMS players are in a race to grab more territory in the market. (Later in this article we will comment on their readiness or the advisability of that move. But for now, just think of the vendors’ desire to be a ‘single window’ into the users’ transportation world.) The desktop, they perceive, is the battlefront for planning an end-to-end journey, or as close to one as possible given the integration required in the background. (See Figure 1.)
Players are moving from the extremes toward a more inclusive approach: for example, an ocean TM provider (GT Nexus developing a ground TMS capability) or the domestic/trucking TMS providers marketing ocean (JDA, MercuryGate, and Oracle OTM, to name a few). Behind the covers, these solutions are often integrating with one another to get the job done.
However, many users really need only one type of solution or the other. Some may be moving containers from their warehouse near one port, via air or ocean, to another warehouse in the destination port. Another firm may be moving freight from their site to a customer within their own country.
Let’s look at the challenges of each and then explore a ‘one’ TM solution.
Lately, I have been asked the following questions: “Isn’t just getting one of those global TM solutions a better choice? After all, as global it should have everything, right?”
In short, they don’t have everything.2 These solutions should be evaluated by you as the technology buyer. As mentioned earlier, the solution may have been developed for a shipper, but it might have been developed for a freight forwarder who has different requirements. The TM providers are in a decades-long effort to build out their solutions, either through development or acquisition, with investments coming over time from either revenues or outside investors.
Companies such as Amber Road, Descartes, or Wise are public companies. In this market, actually, there are very few of them. GT Nexus or JDA are owned by private equity. And then there are Cloud Logistics and MercuryGate, which are funded by their founders. In spite of the growing presence of these types of firms and the seeming availability of capital, development should not get too far ahead of the market. Just as companies don’t want to tie up working capital in inventory, software companies have to manage development to remain innovative but not build too much software without a ready pipeline of sales in the near future.
As far as international/ocean software development goes, so many shippers had their service providers managing their freight that it is only recently that some shippers are more directly managing their own ocean relationships. The point is that no software firm ever ‘has it all,’ but especially in such a complex market.
Domestic TM
As a user you just might not need everything. In reality, a major part of a company’s activity is domestic shipping. There are many local factors and issues that need to be considered such as: How do I meet local and variable demand? What is the optimal flow from inbound to outbound? Are there traffic issues to resolve in order to ensure on time customer delivery? There day-to-day customer orders. What is today’s requirement? Each day — often each hour — domestic shippers are making decisions such as: Do I need a truckload, or will LTL do?
Let’s look at a few other issues as well:
- For a private fleet manager: Do I use my own fleet or purchase a for-hire carrier — as one-off or on an ongoing basis to augment and optimize my delivery capacity?
- LTL load building exists at the integration point between the warehouse software and the TM solution, and users need to understand: Do I have the detailed shipment data — weight, dimensions, other shipping requirements such as temperature, hazardous materials, or medical products with strict regulations about shipping methods, and so on — to provide to my TMS or my carrier’s TMS so the right equipment, packing and space optimization can be done. Many carriers can be shipping a full truckload of a single product one day and a mix of dimensions the next.3
- Pooling and consolidating: This is fine-tuned coordination from several long-haul inbounds, through the warehouse to de-consolidation/unpacking, repacking/cross-docking, and loading into a fleet of outbound trucks to deliver that day in the local market.4
- Opportunism: for hire or backhaul. The US alone has over 350,000 owner-operator trucking companies with less than 10 trucks in their fleet. They represent an important percentage of the nation’s trucks. They may lease their services to larger firms who have big contracts with shippers. But many rely on picking up loads from brokers or load boards to fill their miles (large trucking companies do as well, but have more access to big shipper requirements through established contracts and long term relationships with shippers and 3PLs).
Major players here are TMW, JDA, Descartes, Logility, MercuryGate, Oracle Transportation Management (OTM), UltraShip, Cloud Logistics, and 3Gtms, to name a few.5
International TM
Trucking fleets manage schedules based on customer demand and each route is unique; LTL carriers are managing multi-stops which are flex-based according to each order; whereas air, ocean, and rail have established schedules that shippers need to conform to. The latter have ‘one leg’ schedules — for example, Hong Kong to Seattle. Those types of journeys can be long and visibility more challenging, involving more regulations and paperwork. Let’s look at a few of the issues:
Routing: Customer options are more limited in route choices and optimization. For example, if you want speed — ship by air.6 You want cheap — ship by ocean. Carrier selections can sometimes be limited, as well, due to the ‘deals’ the carriers may have made among themselves regarding who will control which lane. Make no mistake — they do want your business.7 The TM solution here needs carrier connections for schedules, available capacity, and rates8 and charges associated with international transport. A good ocean TM solution, for example, would also keep the on-time performance stats of the carriers.
Import/Export: Nothing moves without the paperwork. Today many major trading blocs — US, EU, Japan — have automated import requirements.
Intermodal hand-offs: Ocean schedules are predictably unpredictable. The ETA is a key data point needed by multiple players — customs brokers/freight forwarders,drayage providers, long haul carriers, and customers. Coordinating a just-in-time service would be a dream come true for the drivers and truckers who line up at the gates of ports hoping to pick up their customers’ cargo in a timely way. Most solutions have EDI with ETA — emphasis on estimated. But intermodal players need more precision. Actual ship/cargo data is beginning to come from live-data-streaming services that get precision locations from GPS. Carriers have started to provide mobile apps with GPS coordinates; hence TM solutions need to subscribe to this data. The solutions have to be able to provide all sorts of ocean data such as sailing schedules, vessel numbers, port conditions/delays and so on.
Amber Road, CargoSmart, Descartes, GT Nexus, INTTRA, and Wise Tech Global (Wise) are players here.9 Users of other TMS are likely somehow integrating with one of these solutions in order to get their ocean freight booked or customs documents submitted. Air cargo is a bit trickier with carriers either having their own booking system or using solutions such as those developed by Accenture, Descartes, or Mercator.
In ocean and air, these systems are not readily comparable based on many factors. But this sector is in transition.
In Practice —
All TMS and the services provided are not equal. Users need to look beyond the marketing messages to what TM providers actually do and how they do it. For example, most TM providers today say they do international or ocean. Exactly what is happening behind the scenes is interesting though. Figure 1 portrays a few variants in ocean bookings that we put together from actual shipper/user flow charges.
As you can see from this example, ocean schedules and rates are provided through integration to major ocean TM providers. They get rates either through a neutral rating engine such as CargoSphere or Catapult or directly from the carriers (GT Nexus integrates to carriers; INTTRA integrates to Catapult.) In addition, carriers have their own fleet management/scheduling and rate making specific to regulations and their business models.
Conversely, since there are hundreds and thousands of trucking companies, building an impressive carrier network and knowing the carriers’ credentials is its own capability, which also takes years to develop.
In Figure 2 you can see a domestic TM approach. Shippers can design their load and then use the TMS to reach out to the network of carriers to get bids.
Organizations with large transportation spend work with multiple systems like a GT Nexus and JDA or Logility. But the movement is to have that single TM window on all global freight and have shipping done more expeditiously. Thus GT Nexus is developing the domestic/trucking elements of their TMS and JDA is building more direct ocean and air, for example. These are huge investments. Both these companies are realistic, though. They would like their customers to rely solely on them for everything, but they know there are incumbents. So creating a layer on top, such as GT’s visibility layer, allows interoperation between solutions that a user may already have. This is a trend that we see more TMS providers doing rather building out the missing major functions of international shipping solutions.
One last thought — if you really only use domestic services, you may just want your TMS to stay that way too. Why? The entire R&D can stay focused on domestic solutions, rather than being spread across so many requirements. It’s not a black mark against a solution provider to do the thing they do well — really well.
With that in mind, in our next issue we will look at some of the super-focused segments in the TM market.
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1 2014 numbers from US Department of Commerce — Return to article text above
2 Some are not TMS with full load planning, RFQ, loading/tending, tracking, payment and so on. Many of these solutions have elements of a full suite. And requirements vary by buyer, so they may have what one type of buyer needs, but not another. — Return to article text above
3 International shipping has a similar quantity, LCL — less than container load (vs. full container). In international, though, container management becomes another issue and cost to manage. And container owners are quite happy to charge ‘overtime’ — demurrage for containers returned late. — Return to article text above
4 TL meets warehouse meets LTL — Return to article text above
5 Our TM report due out in early Q4 will have a more exhaustive list. If you are a TM solution provider and want to participate, please contact us here. — Return to article text above
6 In general, air cargo is managed through the freight forwarder. — Return to article text above
7 As a result of their zeal to chase the bigger and better, and due to some faulty forecasts about the growth of global trade, ocean carriers are still suffering from capacity issues. They need to fill those ships! — Return to article text above
8 Read Ripples in the Rating Market in this issue. — Return to article text above
9 Note that Amber Road and INTTRA are not full TMS, but have many many international capabilities. — Return to article text above
To view other articles from this issue of the brief, click here.