September 4, 2000

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Marketplaces Help Shippers Pare Costs

Toshiba International saves as much as 65% on loads shipped through exchange

By Alorie Gilbert

More on marketplaces:

E-Data For A Price (8/28/00) Ariba Leads The Way In B-To-B Marketplaces (6/12/00) E-Marketplace Vision Collides With Reality (6/12/00)

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ighteen-wheelers and interstate highways may seem far removed from the Internet, but truckers and shippers are starting to pair up on the information highway via a plethora of online marketplaces. Toshiba International Corp. is using one such marketplace, the National Transportation Exchange, to cut the cost of a portion of some of its daily shipments by an average of 25%.

Toshiba Corp.'s $200 million industrial products division in Houston started using the exchange in June to ship electric motors, motor controls, and other industrial goods to customers nationwide. It was drawn to the site by the opportunity to ship goods at lower rates than those it negotiated through fixed contracts with shippers. Some carriers on the exchange offer rock-bottom rates in order to avoid sending trucks out without full loads. So far, Toshiba International, which spends $400,000 annually on shipping, has saved as much as 65% on loads shipped through the exchange. "I didn't realize the market dynamics are as volatile as they are," says John McCarthy, the division's traffic manager. As the largest single-source shipper out of Houston, McCarthy says, he already commanded a "pretty good discount" from his carriers.

Despite the considerable savings, Toshiba International has shipped only 10% of its 1,200 shipments a month through the National Transportation Exchange. It has been limited by the fact that the exchange typically finds carriers for only three out of 10 shipment requests that Toshiba International posts on its site; the rest are routed back to contract carriers. The exchange also doesn't support expedited air shipments, shipments that require flat-bed trucks, or shipments that cost less than $150, which together make up more than 7% of Toshiba International's shipping activity.

"They're still maturing as a business," McCarthy says. "We're early on in deploying this and hope to eventually ship more freight through them."

Analysts say a 30% match rate is too burdensome for some shippers to bother with exchanges, and note that with more than 50 shipping and logistics marketplaces on the Web, none has gathered a big enough mass of buyers and sellers to overcome the liquidity problem. "It's been a tough adoption rate," says Peter Coleman, a Banc of America Securities analyst. "It's a chicken-and-egg problem. Ultimately, shippers who want better prices and more-efficient execution drive adoption. Carriers and truckers are still worried that this is cutting into their market share."

Toshiba International has also had to confront a staff resistant to changing the way it works and to trusting the Web for shipping. It has trained five people to use the exchange and plans to increase that number to 12 this month. But users aren't too keen on the amount of data entry required to use the system. Each user spends an average of 30 minutes a day typing in customer information and shipment parameters, such as pickup and delivery times. Eventually, Toshiba International plans to cut down on that manual labor by integrating its Baan back-office system with the exchange to download customer information automatically.

Even so, McCarthy says the savings outweigh the data-entry work. To reach the same number of carriers that the company reaches through the exchange, McCarthy's staff would have to make 70 to 100 calls to various carriers a day, he says; most companies have to work from a short list of carriers because they don't have the resources to make that many calls.

That's where exchanges have a real advantage, Coleman says. "They allow you with the same manpower to reach out to more people to make sure you get the best price," he says. "And as more and more people come online, you increase the efficiency and speed of the supply chain."

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