After The Meltdown:
Jim Davidson On The State of Online Exchanges.
JOHN BENDEL
TECHNOLOGY EDITOR
The Great Internet Bubble deflated only two years ago, but it already seems like another, long-ago age. The promise for trucking was total revolution. Fleets, both commercial and private, would buy everything from fuel to parts on the Internet, directly from core suppliers at bid prices.
We would find freight on vast digital exchanges where the bidding would go in the opposite direction; the lowest bid would take the shipment.
In both cases middlemen and their costs would vanish. Fleets would deal directly with OEMs and shippers. We would no longer need wholesalers, dealerships or freight brokers. The anticipated phenomenon was referred to as dis-intermediation.
Through 1998 and 1999, HDT reported one promising launch after another, particularly on the freight side. Big carriers with big IT budgets were spinning off in-house Internet technologies. They were joined by free-standing ventures, each with its own vision for totally reorganizing the way truckers did business. At the center of the trucking revolution were the web-based exchanges where shippers and fleets would come together.
But the revolution never happened. The customers never showed up. Some ventures never made it beyond the press release stage. Some sold out cheap or simply collapsed. Others pirouetted from the exchange business to the software business, abandoning public exchanges for private communities where shippers and logistics companies only do business with invited carriers.
NTE of Downers Grove, Ill., was the very first online freight exchange when it began operations in 1995. NTE, then known as National Transportation Exchange, created a market for unused space on truckload trailers. The company first used dial-up modem connections to reach customers, then expanded its scope and moved to the Internet. But by late 1999, NTE was struggling.
That's when NTE's board of directors brought in airline reservations veteran Jim Davidson as president. The privately held company has never released its operating numbers, but industry sources — even competitors — say Davidson has succeeded.
Two years after the Internet meltdown, NTE still provides a public freight exchange, though the company now looks forward to evolution, not revolution.
HDT asked Davidson for his views on the surviving transportation exchanges.
HDT: How many of those ventures are still in the online exchange business?
DAVIDSON: There aren't many. I don't know what the true number is, but I'm going to guess it's a handful.
HDT: What happened to the revolution?
DAVIDSON: The fundamental flaw that we — and I say we — all made early on is that we thought exchanges could be a dis-intermediation play. That was an error, particularly in transportation and supply-chain logistics. Relationships are meaningful and significant. I think we all sort of floated around in that euphoric state of reading our own press clippings and now reality has sunk in.
HDT: The state of the online exchange today?
DAVIDSON: The dark spot right now is the economy. Everybody is impacted by it right now. No one's out of the woods yet, but everybody's working in the right direction.
So let's take the good things that came out of that, because there certainly were a lot of good things, particularly in the area of automation and connectivity, of automating that relationship you have in place.
The whole idea of automating transactions and automating relationships so they actually execute based on what you intend that relationship to be is a good thing. There's nothing better than technology executing a sound relationship day after day based on the rules both of you agree upon.
It takes inefficiencies out of the network. It puts visibility into the network. It puts rules-based transactions in the network. All those things are good for transportation and ultimately for the supply chain. Exchanges bring a piece of that.
Obviously it's a self-serving statement because a big part of what we do is to run one. Having said that, we seem to be getting our traction creating the network, the buying network. I think it's a question of semantics whether you call it an exchange, public or private. We're making that network more efficient, whether it's through automation, whether it's through optimization, whether it's through visibility.
I think if exchanges or any other kind of trading-partner buying networks do that well, then they'll be successful.
HDT: What does that mean in day-to-day business?
DAVIDSON: It means EDI (Electronic Data Interchange) talking to XML (eXtensible Markup Language), XML talking to email, faxes talking to EDI. We have been able to do one-to-many, many-to-one, one-to-one kinds of wholesale connections around these networks. Big guys can get the same benefits from connectivity as little guys, whether they're using flat (text only) files or whether they're using the web, versus somebody who's using power EDI. The net effect is the technology has allowed all those people to talk — give information and get information in a digitized format.
HDT: Have technologies like exchanges greatly changed the transportation landscape?
DAVIDSON: Not yet. But people very quickly see vast improvement when connectivity does take place.
It started out with the ability to track packages on UPS and Fedex. Then you saw all the LTLs with the ability to do that on the web. Then you saw a lot of truckload carriers. And now you're seeing people are not scared to let their vendors and their suppliers have the same visibility that they have. So the benefits are really starting to be obvious.
But I still think there's a big factor that still relies on kind of tried and true methods. Even when we automate some of our systems for our customers they still don't want to let go of those fax machines or those phone calls. They still want to make that follow-up phone call.
HDT: They don't trust the information?
DAVIDSON: And for good reason. Unfortunately, if there were processes that had bad information, we automated those processes. So what we did was automate bad information. We just made it quicker.
Now we're saying let's get closer back to the source through integration. For example, if you're dealing with a vendor and you've sent that vendor a purchase order, it's now much easier to find out if in fact they got the purchase order, if they're going to ship based on what the purchase order requirements are.
Are they going to ship me the quantity I want? Are they going to ship me at the time I want it? That information is now easier to get. It's easier to digitize that because I'm going into somebody else's actual system. It's easier to connect to them now.
So I think people are starting to see that now we can automate system to system. Now we can actually get pretty accurate information. It's not someone taking a fax, then turning around and typing the results of that fax into their machine, thereby creating the opportunity to type two zeros instead of one zero. Or the fax is blurred and somebody says it looks like a five, but maybe it's actually an eight.
So I think some of those things are starting to happen.
Information leads to decision-making. As long as you assume people will make decisions based on the best interests of their companies, employees and shareholders, we're in good shape.
Obviously with some of the disasters we've had, sometimes that's put into question. But systems are only as good as the people who put them in place.
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