In the last article on The World of Transportation Management, we pointed out that not all TM technologies are designed to serve the same customers or the same markets. Within this very complex market there are unique functionalities, which are “must-haves” in the global transportation game.
In this article, we will explore a few of these points of light and why they are so important to the market today.
Services and Solutions
Ports are busy places, often with lots of congestion and coordination challenges. They also represent an integration point between countries, companies, freight carriers and information systems. Amongst these complex intermediary and intermodal cross roads is the challenge of drayage. Relying on big and complex equipment down to a simple chassis, containers are removed from ships, placed in a findable location in the port and then picked up for delivery for the next leg of the journey.
All these services and equipment have to be procured. A major amount of container movement in and out of the port is handled by the drayage carrier. They may move a container a few feet or out of the port into a warehouse or to an end customer a hundred miles away. The drivers and their equipment that perform these services, must integrate with the freight forwarders and ocean carriers from whom they get their business. On any given day around the world, thousands of new shipments arrive, creating new business opportunities for the drayage company.
Drayage firms can be quite small — one man/one truck — or a larger fleet. And, just like any other transportation environment, there is tons of paperwork — rating, bidding, contracting, receiving, creating a manifest (after all, you are moving cargo), appointment scheduling, dispatching, confirming the pick-up (time and date stamping), paper work that the port might require (port passes) and receipt/proof of delivery, as well as invoicing. Beyond these, the carrier needs their own license and certification to operate, as well as integrate to and manage special relationships they may have developed with freight forwarders.
A drayage network can serve not only as the intersection point between the buyers and seller, but also provide a host of business functionality for the drayage company to manage their business. A network, like IAS, helps integrate chassis owners, trucking companies, freight forwarders, ocean carriers and the ports to allow for both on the ground coordination1 as well as much of the business activities for the drayage operator.
Global Trade Management
GTM — import/export management — is a discrete area generally considered to be part of the TM market, since the most critical aspect of GTM is when a product is about to be moved.2 However, the reality is, that assessing whether a firm should even do business with an organization, broker or individual, should happen at the first point of engagement. Decades ago when my IT team built and managed export/denied parties screening for our large global firm, I kept questioning: Why, after we had already taken the orders, built the product and so on, were we then checking to see if we could actually ship this? Why even take the order? In those days, the threats seemed obvious and well, less threatening. I was told that the denied parties list issued by the government changed frequently, and therefore checking before shipping was the one most effective point.3 This was the root of denied party screening activities in corporations, which mostly stands today — export activities reside in logistics.
In addition, international movement of goods and the requirement regulation and document was — and is — often outsourced4 Today, not just governments, but consumers, are also interested in the source.5
As a focus area of significant value, GTM solutions provide content, services and/or technology. Areas of expertise are quite explicit in the types of commodities, documents, trade zones and regulations covered in these solutions. If you have never seen in action an organization that provides trade content, just envision a large team of experts who speak several languages, know the specific trade regulation of a country and trading block. At their desk, they are often sitting right under the flag of the country they monitor with pounds of government publications sitting on their desk and links to various government and referential web sites.
These Customs content experts are searching, following the treaties, regulations and statements of trade representatives in order to provide the most accurate current content and education on the meaning of the regulations and process support.
The GTM market has players who are strictly content providers and others who provide the process support (functionality) for export and/or import. This includes customs, security filings and, in today’s world, other requirements for specific government agencies that have licensing or other restrictions on the types of commodities.6 For example, in order to sell pharmaceuticals in the US, a firm needs a license from the FDA;7 importing most food products needs COOL labeling8 (Country of Origin), electronics often need WEEE and RoHS9 compliance reporting; and firms who are in the jewelry/gems business, need Conflict Minerals10 reporting.11 Many TM solutions have some of these, and behind the scenes, there are many partnerships to provide content and expertise.12
Load boards are a US phenomenon, emerging from the birth of the internet. Past models of procuring carriers for your truck load or LTL required a knowledgeable person — broker, freight forwarder, using fax and phone (TM systems came later with linkages pre-built to large carriers13) — to find carriers, do background checks and so on. This was a difficult environment for small truckers — owner/operators (of which the US has hundreds of thousands) to compete.
The web brought the phenomena of market place and thus the birth of the load board. Today, there are many load boards — DAT and Truckstop are the most notable neutral boards. There are even load boards that very large brokers use to post their loads to carriers. Landstar is such an example. Load boards are even used by large carriers who want backhaul or need to augment their capacity with for hire carriers.
A successful load board14 sees so much traffic and rates that they can provide a benchmark of the current rates by routes, type of freight and equipment. This turns out to be an advantage to both sides. For example, some carriers just don’t want to do certain routes. These may be unpopular routes for some carriers but allow other carriers, who do want to make those extra bucks, a chance to bid higher prices. Conversely, very popular routes allow the buyer to see some competitive play in the bidding to achieve a better price.
As best articulated by Geoff Comrie of 3GTMS, “Implementing rates is one area that people continue to underestimate or under plan during a Transportation Management System (TMS) installation. On the surface it seems relatively easy. However, once you dig into how your company uses its transportation rates, you start to get a feel for the complexity and level of detail that needs to be addressed.”
An important member of the TM market is the Rating Engine.15 These are neutral 3rd parties (rather than embedded in a TM or proprietary system of the carrier), who integrate to thousands of carriers and become the conduit for rate shopping and rate offerings between buyers and sellers. Buyers can be shippers, as well as their intermediaries — freight forwarders, brokers and/or TM technologies (TMS, TM networks). Service providers and carriers can post their rates, and use the engine for evaluating their rates before bidding, to ensure a competitive rate.
The rating engine service will often store rate history, which is important in today’s crazy transportation rating world. As it turns out, many actual rates and charges are pretty fungible. Therefore, sellers and buyers need to store agreements (contracts) and market rates (fuel costs, currency conversion of that day), so that these rates can be confirmed (audited) for invoicing later on.
Rating functionality can exist within the TM systems and is segmented by:
- Buy-side — procuring (shopping rates), evaluating bids (often within the TMS), and contracting (agreeing to a rates). Some TMs will connect to the neutral rating engine such as INTTRA to Catapult and CargoSphere; or directly between the system such as GT Nexus connecting to all ocean carriers; or may do both, such as Descartes connecting to many carriers as well as SMC³ for North American ground transportation. There are also a few standalone rate shopping modules as well as web sites where users can enter their cargo and get some competitive rates.
- Within a cloud, TM participants can also get benchmark rate data to assess the deal. For example, MercuryGate’s RateFriend aggregates and provides rate data from the community of users. GT Nexus’s shipper benchmarking data is also derived from the shared data of users.
- Sell-side — rate making. Carriers create their tariffs, often with detailed descriptions, policies, and the charges associated with these. Service limitations, additional services, fuel surcharges and so on are also part of the calculation. In transportation, these can change daily.16
- Intermediaries, such as brokers and freight forwarders, add their rate uplift on top of these and then provide the rate to the end-customer.
Freight Pay and Audit
Service organizations, freight pay and audit services, have been reviewing and cleaning up invoices in transportation for decades. Even today, with so much automation, a large percent of documents are paper-based or in non standard formats, requiring manual reviews of invoices.
As TM systems develop more automation, freight audit and pay can often be managed within the TMS. This has challenged the service providers to also become more technically focused, providing information platforms for rates, EDI, electronic payments, benchmarking services and so on, to enhance their value proposition. CTSI is such an example, evolving from just services to include lots of technology.
Some freight audit firms’ sole job is to find the errors — the cash — hidden in the mis-invoiced freight bills; whereas others will provide an advisory service to help firms negotiate better terms with the carriers. For some companies, Freight Audit and Pay services can help them manage their cash flow. Cass Information Services is an example. Since they are also a bank, they can assist with timely payment.
Barriers to Entry
If these capabilities are so important, ‘why don’t more companies build their own vs. partnering;’ is one question we often get asked. Not so well understood (unless you are an ‘industry insider’) is just how much expertise it takes to understand and manage these processes. Finding knowledgeable workers remains a challenge for existing companies even without so much automation, and the need for great customer interface personnel remains.
These organizations are totally reliant, as well, on superior trust-based relationships amongst the players. That relationship can take years to establish.
It also takes years to build up the network of participants. Having the connections between buyers, sellers, banks and other service and software companies to handle the transactions, is a very long process.
Trust also means the management of sensitive data. With so much of the information being ‘flung around,’ such as bank account numbers, customer locations, rates and freight (thieves would love to know what carriers have which cargo), there requires a highly advanced, highly secure system with a host of certifications.
Many of these processes discussed above are highly regulated, which also require intense focus by these firms to ensure that they maintain — for themselves and their customers — the regulatory and industry compliance required to operate effectively and securely in the world of transportation management.
For more reading:
1 You can read more about the issues and solutions in our article about port congestion. — Return to article text above
2 Definitions vary on the meaning of GTM, from import/export Customs Compliance to broader definitions including many TM functions. But for this discussion we will stick with Customs, Compliance, Security Filing, and import/export. — Return to article text above
3 The reality often was that the sales people, in the enthusiasm to book a sale, were the least likely to dampen a sale by screening the prospect. — Return to article text above
4 … more on Customs Brokers/Freight Forwarders — Return to article text above
5 This sense of concern about quality, safety, workers’ rights and fair trade has catalyzed much of the Lacey Act, Dodd Frank and other legislations as well as the track and trace market. However, that does not seem to stop the search for cheaper and cheaper labor. Read the WSJ article on yet lower wages in apparel. — Return to article text above
6 Commodities have a variety of additional government regulatory oversights such as the Lacey Act governed by the US Fish and Wild Life Service.The Lacey Act includes such commodity as pashmina, endangered species, lumber, etc. — Return to article text above
7 The FDA’s Importation of Drugs Outline — Return to article text above
8 The USDA’s Country of Origin Labeling — Return to article text above
9 The European Commission’s Waste Electrical & Electronic Equipment — Return to article text above
10 Disclosing the Use of Conflict Minerals — Return to article text above
11 Many PLM solutions like a PTC provide WEEI/RoHS and Conflict Minerals reporting. — Return to article text above
12 For example, SAP and Oracle get content from Customs Info/Descartes; GT Nexus gets functionality from Integration Point; SAP and Oracle get denied parties from MK Data Services/Descartes; or JDA will get content from AmberRoad. — Return to article text above
13 But remember, during this era there was not any full-built TMS in market. — Return to article text above
14 Many load boards also have products and others services that are useful for small fleet operators such as accounting software, insurance, etc. — Return to article text above
15 Read Ripples in the Rating Market from our last issue. — Return to article text above
16 Carriers are legally obligated to post their rates. — Return to article text above
To view other articles from this issue of the brief, click here.