Software & Services

Logistics Companies Face Off With IT

Industry wrangles with rising costs, tougher security requirements, and increased competition.

September 16, 2005

9 Min Read

InformationWeek 500 - Logistics & Transportation The past year was a mixed bag for transportation companies. The price of gasoline and diesel fuel continued to soar, requiring transportation companies to pass those costs on to customers. Oil is trading at all-time highs. The price of jet fuel is rising even faster than crude oil and is even more expensive than last year's already exorbitant rates. Highway tolls are up, too. In addition, the transportation sector is feeling the effects of a new USA Patriot Act requirement that 2.7 million U.S. truck drivers submit to criminal background checks and fingerprinting.

Despite bruising competition in the package-delivery business, FedEx Corp. and UPS Inc. have increased revenue and profits. The companies are duking it out for market share, while relative newcomer DHL Express, a division of the German postal service Deutsche Post, is investing $1.2 billion in the U.S. market. "From a technology standpoint, we're working with our [IT] suppliers to get the best information on pricing, to make the most rational and aggressive decisions we can," says Rob Carter, FedEx's executive VP and CIO. "We run this company on business intelligence and information."

FedEx, which reported $29.4 billion in revenue last year, supports fast growth in international shipping in markets such as China, India, Europe, and the Middle East with APIs for its customers that let them tap into FedEx's delivery system. The company's largest customers can run servers at FedEx data centers that integrate with their ERP systems and connect right to FedEx's computer systems. That cuts time and costs. "You don't want something someone has to key a bunch of stuff into," Carter says.

UPS is investing in big IT projects that give it cost and service advantages over DHL. A project called "package-flow technologies" has cut training time for workers who load trucks in UPS's centers and has reduced the time it takes to load by labeling each package with information about what truck it belongs to, what shelf it should sit on, and even what direction it should face. "We need to reduce our operating costs as new competitors like DHL come into the U.S.," VP of IS Cathy Callagee says. The system also can download specific delivery requests to drivers' tablet computers.

CNF Inc., a freight transporter and transport-management company, reported revenue last year of $3.7 billion but lost $115.9 million. It's in the process of transforming itself from a group of holding companies into an operating company and consolidating three quasi-independent IT organizations. CNF cut 10% of its IT staff and has started sharing systems across its less-than-truckload and logistics units, CIO Jackie Barretta says.

Conditions are competitive in shipping, but they're downright brutal for the major airlines. At Delta Air Lines Inc., which lost $5.2 billion last year and last week filed for Chapter 11 bankruptcy protection, IT initiatives are about getting rid of costs. A project called "operation clockwork" aims to cut turnaround times at gates from an hour to 40 or 45 minutes for wide-body jets. The initiative includes computerized announcements about boarding, which CIO Brian Leinbach says could cut the staff at each gate to one agent.