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  • 1.  
  • 2. Traditional 3PL versus e-Logistics Companies The Wall Street View November, 2002 Laurie Hahn, CFA Deutsche Bank Securities, Inc. Airfreight & Surface Transportation Team
  • 3. E-Logistics: The Emergence of a New Threat
    • During the late 1990’s, the e-logistics industry was born and roared onto the competitive landscape.
    • In little less than 12 months, over 100 e-logistics companies appeared.
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  • 9. E-Logistics: The Emergence of a New Threat
    • New participants were well-funded:
        • Venture capitalists were constantly looking for new technology driven investment opportunities.
            • Provided start-up/seed funding enabling first-to-market.
        • IPO/Investment banking provided access to capital markets and an even larger pool of funding.
  • 10. E-Logistics: The Emergence of a New Threat
    • Transportation/Logistics industry was a logical choice for investment.
        • Information was becoming increasingly important, necessitating the need for improved technology.
        • For many shippers, transportation function was last frontier of rationalization, technology appeared to be the answer to lower costs and improved productivity and efficiency.
  • 11. E-Logistics: The Emergence of a New Threat
    • E-logistics firms had goals:
      • creation of value by eliminating the middleman (i.e. the 3PL)
      • creation of value by commoditizing the services of traditional transportation providers
            • Truckload Carriers
            • Less-than-Truckload Carriers
            • Airfreight Providers
            • Ocean Freight Providers
  • 12. E-Logistics: The Emergence of a New Threat
    • In our opinion:
    • More HYPE than Reality!!!
    • We viewed the e-Logistics participants as little more than a minor annoyance for the traditional 3PLs.
  • 13. E-Logistics: The Emergence of a New Threat
    • Market size was ample for new entrants without disrupting the growth prospects of the traditional 3PL.
        • Only 15% penetration into shipper’s transportation operations.
        • Only 7% penetration into shipper’s distribution operations.
        • Growth of transportation/logistics/SCM outsourcing fueled 20% annual industry growth for better than 10 years.
  • 14. E-Logistics: The Emergence of a New Threat
    • Shippers facing increased pressure to
    • non-core corporate functions.
  • 15. E-Logistics: The Emergence of a New Threat
    • Increasing complexity of supply chain due to:
          • globalization
          • inventory practices
            • Just-In-Time
            • Just-In-Case
          • search for productivity and efficiency
          • increasing need for continual information flow
            • Glass Pipeline - the Holy Grail of SCM
  • 16. E-Logistics: The Emergence of a New Threat
    • More appropriate uses of managerial, intellectual and financial resources:
          • Research & Development on core product offering
          • Organic Growth
          • External expansion via market share gains or acquisition/merger
          • Improved financial performance via earnings growth and increased returns on invested capital
            • Creating additional shareholder value.
  • 17. E-Logistics: The Emergence of a New Threat
    • As the complexity associated with the outsourced tasks increased, the need for
    • Experience and Value-Added Ideas
    • increased in importance.
    • Created growth opportunities for the mature participants.
  • 18. E-Logistics: The Emergence of a New Threat
    • Funding for new entrants was at the whim of outside parties:
      • so many ideas floating around, investors had options.
    • Technology diminished the importance of the 3PLs transactional business:
      • However, transactional business generated predictable stream of revenue/cash flow from core operations.
      • Cash flow was more than adequate to fund growth & expansion, as well as necessary technology investment.
  • 19. E-Logistics: The Emergence of a New Threat
    • For the e-logistics providers, technology overwhelmed the concept.
            • Internet was the overriding driver of the business.
            • First-to-market & “hits” became mantra for these businesses.
    • 3PLs had substantial headstart (i.e. true first-to-market) in terms of technology.
            • Movement of freight and SCM drove the business.
            • Technology seen as a tool to facilitate the core operations.
  • 20. The Threat is Quieted
    • Two primary issues interrupted the growth potential of the e-logistics industry:
  • 21. The Threat is Quieted
    • NASDAQ/Internet Bubble Burst
            • Profitability once again became important
            • Viability of technology driven business models questioned
            • Valuations became increasingly inflated scaring off would be investors
            • VC funding dried up
            • Equity markets currently unavailable to many of these businesses, further limiting availability of much needed funding
  • 22. The Threat is Quieted
    • Traditional 3PLs responded to the threat
            • Saw the Internet as a tool to create efficiencies, lower costs, and provide better information (real-time)
            • Utilized sizable presence in the logistics arena to fund technology enhancements
            • Took best practices and technologies from the e-logistics companies and applied them to their own business models.
  • 23. The Threat is Quieted
    • Quickly became apparent that services offered by e-logistics companies were rudimentary, comprised of procedures that could be easily automated:
    • Load-matching
    • Rating Systems for shippers & carriers
    • Tools for Selection Criteria (ex. Price)
    • Online Freight Bidding
    • Online connection between shippers and carriers
    • Online routing and mapping
    • Online tracking and tracing
    • Data warehousing
    • Fleet utilization software
    • Purchasing Co-Ops
  • 24. The Threat is Quieted
    • However, logistics and SCM is more than a sequence of automated processes.
    • Traditional 3PLs created additional VALUE-ADDED services:
    • Carrier selection
    • Rate negotiation
    • Transportation
    • Warehouse management
    • Shipment consolidation
    • Freight forwarding
    • Inventory management
    • Product assembly
    • Product returns
    • Order processing
    • Order fulfillment
    • Information services
  • 25. The Threat is Quieted
    • Companies emerged offering software & technologies performing same functions as the e-logistics companies; allowed traditional 3PLs to automate certain functions and services as a complement to their traditional and value-added services.
            • i2 Technologies
            • Descartes
            • Manhattan Associates
            • EXE
  • 26. The Battle Goes On
    • While failure and consolidation has eaten into the e-logistics ranks, the stronger players remain.
        • Examples:
            • DAT Services
      • Viable Business Model
            • View technology as a tool and not the end all solution
      • Many supported by stronger parent company
  • 27. The Threat is Quieted
    • However, we believe the 3PLs now have the upper hand:
          • used sizable industry presence to capture additional market share as outsourcing trend continues
          • no funding issues, core operations provide necessary cash flow
          • recent events increase complexity of logistics tasks, further necessitating need for experience and value creation
  • 28. Impact of Recent Events
    • Attacks of September 11th resulted in substantial supply chain disruptions globally and across nearly all industries.
        • Examples:
            • Automotive
            • High Tech
    • In our opinion, given these disruptions, supply chain management is likely to be elevated to a new level of importance within all shippers’ organizations.
  • 29. Impact of Recent Events
    • Complexity of supply chain management increases:
        • Firms will be forced to examine inventory management techniques
            • Balance minimizing inventory carrying costs versus cost of production disruptions
            • Adjust inventory management to Just-in-Case in order to smooth any disruption
            • Examine need for global sourcing of raw materials
  • 30. Impact of Recent Events
    • Complexity of supply chain management increases:
        • Firms will be forced to ensure access to all modes of transportation and reduce reliance on any one mode
            • Domestic
            • International
  • 31. Impact of Recent Events
    • Weak U.S. and Global Economies
        • Increases the need for shippers to focus on operational and financial improvements
            • Rationalize all non-core operations as a means of improving financial performance and increasing shareholder value
            • Will likely drive further growth in the outsourcing of transportation and supply chain management functions
            • Provides further growth opportunities for the traditional 3PLs
  • 32.
    • Q & A
  • 33.