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Around the World in Real Time

Logistics providers are a key link between manufacturers and stores. RFID could help them speed deliveries, improve the flow of information and secure the supply chain.
By Elizabeth Wasserman
Aug 01, 2005—More than 90 percent of international trade now involves shipping goods in sea-going vessels, including 95 percent of all goods bound for the United States, according to a study by the management consulting firm A.T. Kearney. But moving goods from factories to retail stores is becoming increasingly complex and that's leading to problems—problems radio frequency identification could help solve.

The logistics industry includes trucking, rail and shipping companies, which tend to transport bulk freight, and air cargo companies, which focus primarily in the express shipment market. But most manufacturers, rather than sort out the labyrinth of shipping lanes, ports, customs, trucking and air cargo issues, outsource the flow of goods and information management to logistics providers.

3PLs and 4PLs may be in the best position to provide end-to-end RFID solutions along heavily traveled and lucrative transportation routes.
Third-party logistics providers—or 3PLs, as they are known—provide transportation and warehousing arrangements, and act as brokers between shipping and other transportation companies and customs officials along certain specified trade routes. Due to the increasing volume and complexity of global trade, and a rash of consolidation between some freight, trucking and air cargo companies, manufacturers are increasingly outsourcing the management of their entire supply chain to fourth-party logistics providers—4PLs—that have global reach and access to different modes of transportation.

A 2004 study by the consulting firm Capgemini found that 79 percent of North American companies outsourced to 3PLs; so did 76 percent of firms in Western Europe, 84 percent in Asia Pacific and 67 percent in Latin America. The companies said logistics providers help them gain strategic advantage in the marketplace by ensuring that their goods get transported to the right destination at the right time.

But manufacturers pay a price for this service: The data they receive about their products during shipment is often inadequate, and companies lose visibility of their products. When Capgemini surveyed these companies about what future IT-based logistics services they may need in their businesses, the overwhelming response—53 percent in North America, 61 percent in Western Europe, 59 percent in Asia Pacific and 48 percent in Latin America—was a need for RFID and asset tracking services.

A.T. Kearney recently surveyed supply chain executives from 183 companies that account for nearly one-third of the total goods shipped overseas to and from the United States, including players in the retail, consumer packaged goods, automotive, chemicals and high-tech industries. "One of the biggest complaints we got from 90 percent of the executives we interviewed was that the data that they get back is fairly untrustworthy and not sufficient to run a sophisticated supply chain," says Omar Hijazi, the principal analyst who authored the report. "There are so many intermediaries, ports, carriers and shipping companies, and a lot of it is done manually." The manual data sometimes contains typographical errors or arrives after the fact.

It's a situation that offers logistics companies a huge opportunity to provide value-added RFID services to their customers that promote efficiency and visibility. RFID could also help companies meet government initiatives to secure containers in the supply chain. But companies are experimenting with RFID only as far as their budgets will allow. The airlines have had to set back any timetables for introducing RFID in their air cargo operations due to widespread financial problems in the industry. Trucking, shipping and rail companies also run on thin margins in competitive fields but are experimenting with RFID.

The 3PLs and 4PLs may be in the best position to provide end-to-end RFID solutions along certain heavily traveled and lucrative transportation routes. The goal would be to capture quality data about cargo shipments and sell that information on a real-time basis to customers. But logistics providers are concerned that in this cutthroat business, customers will come to expect RFID services as a cost of doing business and won't be willing to pay extra to cover the expense of building an RFID infrastructure.

There's also competitiveness among logistics providers, and the industry faces huge technical challenges. (To learn how the logistics industry is solving these issues, see the box on the opposite page.)
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