April 2002

In theory, industry exchanges (or portals or marketplaces or whatever else one calls them) are great. Buyers can source new suppliers; vendors can reach new customers; new and existing trading partners can improve communications and shorten the supply chain. But there is one very important element missing from most exchanges: freight. How do businesses buying through an exchange get their purchases delivered?

In many cases the shipper will have regular relationships with a transport service provider, but such relationships may not always be in place when and where they're needed. A shipper could, for example, be sourcing from a new supplier in a part of the world its carrier does not serve - say a clothing manufacturer normally buying from the Far East but now sourcing from Turkey.

Or a shipper could be buying a one-off item (not a core product) which its normal carrier does not handle. Perhaps a manufacturer of widgets, shipped by a parcels carrier, needs to buy a large piece of production plant that parcels carriers do not handle. It is also possible a shipper wants to try a different carrier to see how it compares with the normal service.

Any buyer - or seller - could go on to one of the many freight exchanges or auctions. In the deep-sea shipping world, for instance, they could use CargoSmart, GT Nexus and INTTRA, while for finding and contracting carriers they could try Freight Traders. Yet none of these, as far as we know, is yet linked in to another industry exchange - for instance, the exchanges for apparel, electronics, fast-moving consumer goods and so on.

Freight Traders "allows public exchanges to link to our site," but only mentioned one - Farmec, which deals in agricultural machinery. And those that provide links to Freight Traders cannot pass information to it because, says managing director Garry Mansell, "volumes of traffic aren't high enough."

We have also found few exchanges that have any other freight connections, although Farmec is among them - at least to the extent that it refers users to two carriers, Danzas and P&O Nedlloyd. Mascus, an exchange handling "pre-owned" equipment for transport, agriculture, construction, materials handling and forestry, also has a direct feed to Danzas. Shippers can obtain no-obligation delivery quotations before they purchase the goods so they have an idea of total cost.

"We want to offer a professional service to our customers," explains Paul Simpson, product manager. "We didn't just want a link to another Web site, which can confuse the shipper and make it difficult to obtain quotes. We wanted to find a professional company that can move heavy equipment across borders throughout Europe. We currently serve the UK, Finland and Sweden, but will expand. We're open to other freight companies that fit our desired profile, but so far Danzas has been most suitable."

The Danzas link went live in January; so far there have been numerous enquiries, but no firm orders.

It is thought other marketplaces may be talking to freight companies or freight exchanges. The chemical industry is particularly interested in forming relationships with freight companies that can handle hazardous goods. CargoSmart has said it is "actively pursuing" partnerships with other industry exchanges and can "see value in this type of collaboration," but nothing has yet been cemented.

Left out of the equation

There appear to be several reasons why freight is being left out of the marketplace equation. As Freight Traders' Gary Mansell says, volumes through many of the exchanges are still low. "We're not interested in the spot market; an exchange would have to provide at least 50 million euros' worth of freight annually for us to be interested."

Many exchanges are still too tenuous to be very attractive, which may be why some have such small volumes in the first place. Freight companies, whether in portals or not, want to do business with stable exchanges, the type of company they would wish to be associated with in any case.

Since the whole marketplace concept is still fairly new and not well developed, many exchanges are more concerned about attracting members and getting them trading than in broadening the range of services they can offer. "In order to offer new services, exchanges have to attract enough buyers and sellers first," points out John Watton, UK marketing director at Ariba, which provides software for exchanges. "So far that has not happened. Originally public exchanges looked at offering a broad range of services, but because the business isn't coming, people became sceptical and the focus began to narrow."

Which is why more companies are turning to private exchanges. Barclays Bank launched Barclays B2B in 2000 to offer supply-chain management consultancy services for companies with a minimum £250 million turnover. These involve professional services, sourcing and establishing private trading networks.

"We have found some UK companies want links to Federal Express or DHL from their private exchange," admits Clive Freeman, head of procurement solutions. "But most of this has happened in the States, where Claris, our software provider, is based. Most of our private exchanges deal in indirect goods and have shipping methods already in place."

Private links

E-Logistics (no relation to this magazine) began as a logistics exchange but now develops private exchanges for its customers, which usually include freight and logistics companies. "All our software is designed to link with exchanges, but any links are done privately," explains director of marketing Matthew Barry. "Toshiba, for example, posts details of its freight needs - say a truckload of TVs from Portsmouth to Leeds - and its preferred suppliers view the details on the site and can bid for the job. Carriers can see all of Toshiba's jobs and quote for the ones they want. It helps them with backloads and other efficiencies, and also helps Toshiba get the best freight provision for each movement.

"We did talk to public exchanges, but they don't have the liquidity to support our system - and a lot of their members already have freight links in place. There is an expectation of demand for freight, but no actual demand. There are so many business processes involved in going on to an exchange in the first place that companies don't have time to bring in freight."

In addition, Barry points out, delivering goods effectively raises fundamental issues about the nature of a trading relationship. Key factors, he says, include quality, performance measurement, and the way companies engage with a new carrier - obtaining its terms and conditions, insurance, references and so on. "Invariably a shipper ends up phoning the potential carrier anyway in the end, losing the benefits of being online."

Things could change. Barry sees the key driver towards the improved use of exchanges as being a repository of data "to show what is happening across the whole supply chain." Shippers will come on first, then their existing carriers, then other modes of transport, through a third party. "We are concentrating on developing private exchanges in the UK, and then elsewhere in Europe. We already have E-Logistics Greece for ferry and road operators in Greece and the Balkans, and we can link that to the UK. And a company like Toshiba with a private exchange can still access other carriers through these links."

But it will take time to put freight firmly on the exchange map, Barry believes. "First people in the exchange have to get used to the technology; then they get acceptance from their workforces; then they broaden the scope of the exchange and start to add value."