Logistics & Transportation: IT Keeps Logistics Vendors Rolling - InformationWeek

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9/16/2004
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Logistics & Transportation: IT Keeps Logistics Vendors Rolling

New software and systems help shipping companies and airlines cope with higher fuel costs and heated competition.

In the transportation and logistics sector, competition is tough, fuel costs are high, and customers are getting pickier. In response, companies are using technology to create nimbler workforces, enhance customer service, and personalize services. All the while, they're making hard choices about which projects get funded and which don't.

"We gravitate toward initiatives that make it easy to do business with us," says Rob Carter, executive VP and CIO at FedEx Corp. FedEx's $1 billion IT budget isn't increasing, and the company is locked in a bruising battle with United Parcel Service Inc. for market share in its flagship express-package-delivery business. Still, the No. 1 express-delivery company is spending on technology that can "embed FedEx into our customers' supply chains," Carter says.

Last month, FedEx introduced software that lets customers print jobs directly from Microsoft Office on their PCs to any of the 1,200 Kinko's stores--then FedEx delivers the jobs to clients. FedEx bought the copy-shop chain for $2.4 billion earlier this year. Meanwhile, FedEx is changing its distribution systems to support the smaller loads that customers are shipping and to keep up with international growth that's adding the most to the company's profits.

At UPS, making drivers' schedules more precise could save $600 million a year in fuel costs and drivers' time by 2007, VP of engineering Mark Hopkins predicts. The company is rolling out a computer system called "package flow technologies" that aims to make UPS's delivery business more efficient. With 13.6 million packages and documents delivered daily, there are lots of steps to tighten up. Using history, forecasts, and information about missed deliveries to pick the best routes, the system plots all of a driver's stops for the day onto a portable computer. Drivers get an electronic list of all their packages and stops in order, and workers who load the trucks also get a more precise plan. If it works, the system could save UPS 100 million driving miles a year, which translates into 14 million gallons of pricey gas.

High fuel costs are dogging the airline industry as well. Jet fuel is up, to about $1.40 a gallon, which has thrown budgets out of whack. "It's been brutal for everybody," says Bob Reeder, senior VP and CIO at Alaska Airlines. "It's certainly keeping us on the border of profitability." Service has largely recovered since the terrorist attacks three years ago, but major and low-cost carriers are dropping fares, keeping profits further under pressure.

One of Alaska Airlines' biggest IT projects in the past year has been a new work-scheduling system that assigns crews to the busiest parts of an airport and reduces staff when it's slow. The system is operational only in a half-dozen of the 57 cities Alaska Airlines serves, but the airline plans to deploy it systemwide over the next couple of years. Most important, Reeder says, is that it hasn't eliminated any jobs.

INDUSTRY LEADERS
Company Revenue in millions Income (loss)
in millions
United Parcel Service Inc.
$33,485
$2,898
DHL Express
$27,571
$161
FedEx Corp.
$24,710
$838
United Airline
$13,724
($2,808)
Union Pacific Corp.
$11,551
$1,585
Burlington Northern Santa Fe Corp.
$9,413
$777
CSX Corp.
$7,793
$246
APL Ltd.
$5,523
$429
Ryder System Inc.
$4,802
$131
Penske Truck Leasing Inc.
$3,400
--
Yellow Roadway Corp.
$3,069
$41
Stolt-Nielsen Transportation Group Ltd.
$3,026
($316)
Schneider National Inc.
$2,900
--
Menlo Worldwide LLC
$2,891
($2)
Alaska Airlines Inc.
$2,445
$14
Sirva Inc.
$2,350
$47
Con-Way Transportation Services
$2,212
$195
UniGroup Inc.
$1,809
--
Landstar System Inc.
$1,597
$51
ABF Freight System Inc.
$1,370
$78
Hub Group Inc.
$1,360
$8
Saia Motor Freight Line Inc.
$502
$14
Enterprise Rent-A-Car Co.
--
--
Financial data is from public sources and company supplied.
Revenue is for latest fiscal year.
Dashes indicate companies requesting financial information not be disclosed.

SNAPSHOT
INSIDE COMPANIES
Average portion of revenue spent on IT 3%
Companies using radio-frequency identification 25%
Companies globally sourcing products and supplies 50%
HOW COMPANIES DIVIDE THEIR I.T. BUDGETS
Hardware purchases 16%
IT Services or outsourcing 13%
Research and development 3%
Salaries and benefits 31%
Applications 22%
Everything else 15%
INDUSTRY FINANCIALS
Average year-over-year revenue change 9%
Average year-over-year net income change 42%
DATA: INFORMATIONWEEK RESEARCH
See year-over-year shifts in business-technology practices for this industry.
Compare and contrast this year's data with last year's.

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