January 21 —

The growth of private online communities offers more evidence that solid business applications are emerging out of the Internet froth. Soon everyone in the freight business probably will want one, which is fine by Jim Davidson, president and CEO of online transportation marketplace NTE Inc., which recently completed such a solution for Carrollton, Texas-based third-party logistics provider Direct Logistics.

A small player in the $50 billion U.S. direct mail business, Direct Logistics has been using NTE's public e-marketplace to procure transportation services for more than a year. In collaboration with NTE it has created a private version that enables its customers - direct mailers that buy distribution services from Direct Logistics - to transact business electronically using automated pricing and execution capabilities customized to the 3PL's operations. The site automatically calculates costs when customers input relevant details such as shipment size and coverage. Other online goodies include analytics and financial settlement capabilities.

Part of the new entity is a feature called e-Truckmail that is branded as a Direct Logistics service and accessed via the 3PL's website but hosted by NTE. Bulk mail shippers that are members of the online community can use e-Truckmail to buy transportation services from carriers. NTE already has negotiated competitive rates with these carriers.

Glenn Lemons, Direct Logistics president and CEO, said the new private venture benefits his company by automating processes that previously were largely manual. "We are in the spreadsheet world," he said, and the solution pitches Direct Logistics into the automated world. He believes that having automated, web-based services geared to the Direct Logistics platform will enable his company to quadruple in size without having to add personnel or in-house facilities.

That means it will be able to compete more effectively with larger players. "Hopefully for clients using larger consolidators, it will give them faster delivery times for time-sensitive shipments and the cost will be comparable to the big boys," he said. Moreover, his ambition is to grow e-Truckmail so that it becomes as big, if not bigger, than Direct Logistics, thereby delivering another business.

That is music to Davidson's ears. NTE would host such a business and the online traffic it generates would strengthen his public e-marketplace. "We make our money in two ways," said Davidson: by developing and running private exchanges of this kind, and by processing transactional traffic including that generated by private sites. "We get the opportunity to build these things and increase our transactional flow and increase the number of carriers in our system," he pointed out.

And it is cost-effective for NTE to do this. "Typically we have anywhere from 65 percent to 80 percent of core technology that is fairly repeatable in most of these solutions," he said. In other words, only 20 percent to 35 percent of the technology that NTE already has in place has to be customized to each private application. That cost advantage can be passed on to the customer, providing a relatively low-cost route to having an own-brand presence on the Internet. "That is a great way to get your feet wet," effused Davidson.

Companies that are not already NTE members pay an up-front fee that covers customization as well as ongoing transactional fees. The more transactions processed on the site, the more the company can offset these costs. Davidson said that in addition there is a demand from bigger transportation buyers already using NTE's e-marketplace for services that improve the visibility of transactions.

Does this bring NTE into competition with large software vendors in the supply-chain management space? To some extent it does but Davidson stressed that NTE is only concerned with the transportation element of transactions. Furthermore "we are not a software company," he said. Some 3PLs also could be classed as competitors but NTE's biggest rival in this market is "the way I have done business for 20 years" - mindset, he noted.

As this mindset changes, the likelihood is that private communities of this type will become more commoditized and a catch-up strategy for latecomers rather that a recipe for rapid growth. More freight companies will be expected to offer some sort of private online community to customers, Davidson acknowledged, but "the challenge will be, are there going to be enough companies out there that can readily develop the solutions that are strategic but have a tactical price tag?"

That is the market NTE is tapping. "They (NTE) are using me as a guinea pig," said Lemons, and will be able to offer similar offshoots to "thousands" of other companies. NTE is talking with prospects in the retailing and manufacturing sectors and a major customer of its public exchange, Toshiba, is developing a private version of its own.

Look for other vendors to beef up their offerings in this area, particularly as more web-based applications are marketed to midlevel enterprises and buyers demand instant value from such solutions. Davidson agreed that the rise of private online communities is part of the new realism that now characterizes the online space. Buyers no longer expect to solve all their problems with Internet applications but are saying, "I don't want to take this to committee and take six months to implement something and I don't want to spend more than $150,000 or $200,000," he said.