Logistics.comInternet-based Transportation ExchangesQuestionsLogistics.comIntroductionMIT Professor and Director of the Center of Transportation Studies Yossi Sheffi formally foundedLogistics.com in 2000, although the core of the company began nearly fifteen years earlier. As the market for of transportation services and logistics software has grown during this period, so has Logistics.com grown from a founding team of four to its current size of 180 employees. During 2000, the firm has moved from a software firm to its current application service provider (ASP) model. Through its various incarnations, Logistics.com has also expanded its market focus, from the trucking industry to transportation services and logistics, and expanded its products from optimization to shipping management, procurement of transportation services, and yield management. With the growth of both the firm and the field, Logistics.com is poised to become a world-leading firm in this market. For Sheffi, the biggest issues facing Logistics.com today are how to grow from a medium sized leader in the transportation services field to a billion dollar company serving logistics needs of firms across industries. Specifically, the opportunities for further expansion include a stronger presence in non-trucking transportation products and services, expansion internationally, moving horizontally into more general supply chain management, or becoming a provider of outsourced IT services in the logistics and transportation space.The Market and OpportunityBackgroundThe transportation and shipping industry is one of the largest in the U.S. Analysts1 estimate the total industry size is over $3 trillion globally, with U.S. accounting for about a third of this figure.Land-based freight comprises about $600 billion annually in the U.S., and trucking in particular accounts for about 80% of the land-based freight. In Europe, trucking makes up an even larger percentage of the land-based freight industry.ParticipantsAlthough the shipping and logistics industry is exceedingly complex, it can be broken down into two basic participants: Shippers and carriers. Shippers essentially are those firms that have freight to be moved. This includes nearly every player in the supply chain. In the context of this industry, the term “logistics” typically refers to the operational needs of shippers and encompasses shipping, inventory management, and warehousing, or “the management of inventory in motion and rest”2. Although cost is a powerful concern for shippers, they also require confidence that their freight will arrive on time and in good shape. Carriers possess the transportation assets and move the freight. In this industry, “transportation services” refers to the services intended to improve management of carrier resources. Again, although cost is a critical component of any carrier’s value proposition, the assurance of properly delivered freight is also critical. The carrier is the last party a shipper sees as their products leave the place of business, and the first party seen by the recipient (generally the upstream customer). When one considers the volumes of freight moved in a single truck shipment and its value (hundreds of thousands of dollars or even millions), the need for trust among shippers and carriers is evident.In addition to these basic participants, brokers and third party logistics providers are also involvedin the transportation services and logistics space. Brokers play the role of matchmaker between 1 Logistics in the Digital Economy: A Comprehensive Overview of Outsourced Logistics. Credit Suisse First Boston Corporation, September 25, 2000.2 A Review of the Commercial Transportation and Logistics Economy. A.G. Edwards, March 26, 2001.15.823 Marketing and the Internet 1 April 9, 2001MIT Sloan School of Management Case prepared by Ben Gibbon & Srinath Narayananshippers and carriers in the spot (or one-time engagement) market. Often, small, independent trucking firms (sometimes nothing more than a single, owner-operated truck) are the carriers in this market, and the broker not only finds freight for them, but also guarantees payment. For small firms with little spare cash, the financing role is crucial. Third party logistics providers (referred to as 3PLs) essentially give firms the ability to outsource their logistics management. Rather than simply provide software to assist in logistics management, 3PLs actually perform the services. Some of these services performed by 3PLs include inventory management, shipping, warehousing, and order management and fulfillment. When run properly, 3PLs offer firms without the resources or interest in developing logistics expertise the option to take advantage of some of the learning, technical advances and economies of scale and scope of a larger firm.Growing Opportunity – Transportation IndustryThe transportation industry and trucking in particular is a relatively mature, cyclical industry. On a macro level, industry-wide financial performance is largely a function of capacity relative to demand, fuel prices, and the performance of the economy in general. Still, the opportunity for effective transportation solutions is attractive for the following reasons. First, the industry is sufficiently large. As mentioned earlier, shipping in the U.S. is a larger industry than either healthcare or defense. Second, applications and/or services that increase efficiency or productivity in mature industries with high fixed costs are particularly valuable. In some sense, the ability to increase efficiency becomes more valuable during difficult economic periods. In other words, the market for Logistics.com’s services may be counter-cyclical. Third, the freight industry is sufficiently complex to benefit greatly from optimization and other efficiency enhancing services. Fourth, the amount of information available to and recorded by shippers andcarriers continues to increase. Technologies such as the Internet, wireless, Global Positioning System (GPS), and others provide richer data to related parties. As the data becomes more robust, optimization in the freight industry becomes more effective. Finally, despite popular intuition, the trucking industry is highly advanced technologically. Many transportation companies have assimilated advanced I/T into their business processes.Growing Opportunity – LogisticsIn recent years, firms have begun