Online exchange helps trim shipping costs

Computer World –

With empty truck space a huge cost concern for companies like butter maker Land O'Lakes Inc., the ability to share transportation costs with other shippers is very attractive.

"We spend $300 million a year on carriers," says Jim Lord, director of strategic initiatives and alliances for the dairy group at Arden Hills, Minn.-based Land O'Lakes. "If trucks are coming back empty, it adds up fast."

That's where Nistevo Corp. comes in. A provider of

Web-based collaborative logistics networks in Eden Prairie, Minn., Nistevo enables Land O'Lakes to pool carrier resources with Minneapolis-based General Mills Inc. and 14 other shippers through Nistevo.com, its private, Web-based freight and logistics exchange.

The Capacity Game

Throughout the logistics supply chain, shippers are looking to collaborate with partners to save on transportation costs. Shippers tend to buy truck capacity in one direction. When the truck returns empty, it costs shippers more while carriers earn less. In fact, almost 19% of all trucks on the road are unfilled, says Frank Bernhard, an analyst at Omni Consulting Group LLP, a consulting firm in Davis, Calif.

That wasted capacity costs U.S. firms $30 billion per year, says Kevin Lynch, founder, president and CEO of Nistevo. Nistevo attempts to fill excess capacity with its collaborative electronic logistics service, which lets shipping partners work together via the Internet to cut transportation costs and boost truckers' sales.

With the Nistevo network, they can collaborate throughout the logistics process, from managing complex contracts to loading empty trucks.

Web-based logistics management also lets companies collaborate beyond their own enterprisses with suppliers, carriers and other shippers.

"Nistevo's application allows for the reduction of empty back-haul mileage on a large scale, allowing for an average of 5% to 18% cost savings in back-haul, as well as significant savings through managing contract leakage," says Ting Piper, an analyst at research firm IDC in Framingham, Mass.

Nistevo boasts some big-name customers, including Monsanto Co., The Pillsbury Co. (now part of General Mills), Fort James Corp. and Graphic Packaging Corp.

Of the myriad e-commerce initiatives in which General Mills is involved, Web-based collaborative logistics using Nistevo's service offers the $6.7 billion company "the greatest opportunity for immediate impact," says Randy Darcy, senior vice president of operations at General Mills. "It was clear to us that unlike a lot of technology companies claiming they had product and didn't, Nistevo had it, and it was up and running."

Darcy estimates that Nistevo will help General Mills save between 4% and 7% of its total logistics expenditures through reduced administration costs and better use of capacity. Using the Nistevo network to share truck capacity with Fort James alone should save General Mills about $800,000 of the $3 billion that it spends annually on logistics.

"We're already able to do some things with the tool, even though we're not completely up and running yet," says Darcy. General Mills is using Nistevo's contract management component and some of its execution capabilities.

Rules of the Road

Nistevo's alliance partners work jointly to determine rules governing who pays for additional miles traveled to load another firm's freight, what to do about a canceled shipment and how to divide savings. Nistevo builds such rules into its contract management software.

Identifying their own "rules of engagement" will be the key to shippers' success, says Darcy. "We simply couldn't do this without Nistevo's Web-based application," he says. "At the same time, the application is no good unless companies know how to work together."

Trucking industry professionals say they agree that the future of logistics is in Web-based collaboration. According to a statement from the American Trucking Associations Inc. in Alexandria, Va., "Failing to build systems that allow for electronic collaboration among trading partners could spell doom for companies hoping to thrive in the transportation industry."

The Buzz: State of the Market

The Shipping Magnates

While it strains credulity to hear executives claim that their companies face no real competition, it's difficult to pinpoint Nistevo's direct rivals. Certainly, some competition comes from other transport exchange start-ups like Celarix Inc. in Cambridge, Mass.; Logistics.com Inc. in Burlington, Mass.; and nPassage Inc. in Seattle. It also comes from established supply-chain giants like i2 Technologies Inc. in Dallas and Manugistics Group Inc. in Rockville, Md., which are poised to offer similar functionality.

Yet none of those companies provides exactly what Nistevo offers, says Adrian Gonzalez, an analyst at Dedham, Mass.-based research firm ARC Advisory Group Inc.

Ideal Application

Nistevo and its contemporaries are playing in the online logistics-exchange market, which Boston-based AMR Research Inc. estimates will grow from about $150 million today to $3 billion by 2004. "Transportation is decentralized and geographically dispersed," says John Fontanella, an analyst at AMR. "It's an ideal application for the Internet and B2B technologies."

Nistevo appears to be at a disadvantage because it focuses solely on truck transportation within the U.S. while its rivals manage international freight across all modes of transportation.

Analysts warn that the company has to broaden its focus. "Nistevo must build capabilities around adding more value-added services such as opttimization tools, enhanced workflow management, alerts and analytics, dynamic pricing capabilities, multimodal capabilities and international offerings," says Ting Piper, an analyst at IDC.

But then again, domestic trucking services represent 80% of the transportation market, says Gonzalez, and "there's a danger sometimes with young companies trying to do it all at once and failing."

Nistevo will slowly "move up the supply chain," says Kevin Lynch, the firm's founder, president and CEO. "Our plan is to dominate [domestic trucking] and move to European trucks and move up the order cycle."

And thanks to its deal with General Mills, Nistevo has appeared "on a lot of people's radar screens," says Fontanella. "Nistevo pioneered the concept of time-forward transportation management using an exchange marketplace, and the General Mills win confirms the concept."

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