Message-ID: <14032849.1075843937312.JavaMail.evans@thyme> Date: Mon, 13 Nov 2000 01:28:00 -0800 (PST) From: mike.mcconnell@enron.com To: daniel.reck@enron.com Subject: hello Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Mike McConnell X-To: Daniel Reck X-cc: X-bcc: X-Folder: \Mark_McConnell_June2001\Notes Folders\Discussion threads X-Origin: MCCONNELL-M X-FileName: mmcconn.nsf FYI m ---------------------- Forwarded by Mike McConnell/HOU/ECT on 11/13/2000 09:28 AM --------------------------- Shawn Cumberland@ENRON_DEVELOPMENT 11/11/2000 03:57 AM To: Mike McConnell/HOU/ECT@ECT cc: Subject: hello Mike: Many thanks for all of the support in the placement of the former CALME employees. We are done to just a very few at this time. It appears that your new squad is getting some traction on building the LNG business. I'm pleased to hear that. I look forward to hearing how our transportation or logistics business is developing. Perhaps we can get together sometime during the San Antonio conference to catch up. All the best. Shawn PS. the following is an interesting article about the online intermodal landscape. Hashing Out E-commerce. JOHN GALLAGHER 10/23/2000 Traffic World Page 29 Copyright 2000 Gale Group Inc. All rights reserved. COPYRIGHT 2000 Journal of Commerce, Inc. 'Dot-coms' explain how they hope to compete in intermodal market and among themselves With some 150 websites devoted to transportation, e-commerce companies acknowledge that it's difficult for potential customers to cut through the confusion and figure out who's doing what and who's going to be with them for the long term. Because of the competition between their respective railroad partners, one of the bigger questions for intermodal shippers is the relationship between Arzoon and Freightwise. There has been speculation that after Freightwise was established by Burlington Northern Santa Fe Railway, four competitors -- Union Pacific Railroad, Norfolk Southern, CSX and Canadian Pacific Railway -- teamed up with rival e-commerce site Arzoon in a response to BNSF's proposed merger with Canadian National Railway. However, both Freightwise and Arzoon claim that's not the case. "I'm continually asked, 'What's up with the four railroads and Arzoon?'" said Charley Eisele, UP senior vice president, strategic planning. "People are trying to make a whole lot out of the coincidence of these two things from a timing perspective. The reality is, it was a decision made on the underlying business model." Freightwise executives agree with that assessment, pointing out that because the industry happened to be divided along merger lines at the same time the railroads were aligning with e-commerce initiatives, it seemed too much of a coincidence that the same four railroads opposing the merger were the ones joining Arzoon. However, "I think to launch a company like this takes more than just a reaction to a merger," said Freightwise Chief Marketing Officer Sanjay Joshi. There are major differences between the two Internet companies starting with their business plans. Arzoon categorizes itself as a "shipper-centric transportation management system," whose target market is the roughly 80 percent of the transportation business that currently moves under contract. Freightwise, on the other hand, classifies itself as a transportation exchange and is targeting the remaining 20 percent of the market procured on a spot basis. Arzoon, whose primary focus is the shipper, is setting out to help manage the relationships that already exist between shipper and carrier. The priority for carrier-focused Freightwise is to make sure the capacity is there for shippers who log on to their system. In addition, Arzoon, which currently is involved only with rail and truck, wants eventually to become a transportation management system that "manages across all modes and borders," including ocean and air freight, said Eisele. Freightwise will stick to truckload and inter-modal for the time being. "We're not sure about getting involved with air freight, given the size of the market and the economics," said Joshi. "It takes a different set of products and economics than surface transportation. Maybe sometime down the line, but right now we really plan on getting entrenched in the truckload and inter-modal spot market. We think that's a lot to chew. The key is to focus on a particular footprint that we can begin to own rather than get too broad and lose focus." The fact that Arzoon and Freightwise have teamed up with different rail carriers is another cause for concern. Will there be a disincentive on the part of carriers to use each others' e-commerce initiatives and ultimately, therefore, a disadvantage for prospective customers? "The answer is the 90-10 rule," said a source from an Arzoon rail partner. "A particular shipper is in a position where 90 percent of their business is conducted via truck and other modes, and maybe only 10 percent via railroads. If the choice presented to them is to select a system that addresses all modes effectively or one that only addresses a particular mode, then the 90-10 rule would suggest that greater leverage would lie in picking the broader, multimode transportation management system. In that case, even though a railroad may have another (e-commerce) approach, it would clearly have to respond to the customers' needs in that situation." Freightwise's Joshi makes a similar argument. "Freightwise is merely another channel for BNSF to market its services," he said. "It posts a certain set of rates for what it believes to be fair for the service. It's not for Freightwise to decide what rates BNSF decides to move through its channel." UP may not decide to post its rates on Freightwise, Joshi said, "so then BNSF would have to find out what's the competitive rate relative to UP." Another question arises as to whether Arzoon may have a competitive advantage over Freightwise, particularly from an intermodal standpoint, because it is backed by both Eastern and Western carriers. whereas Freightwise is backed only by BNSF. "I would only say that the partnership we have with BNSF is not exclusive and that we're talking to other railroads as well," Joshi noted. He added, "This is an exchange to market your capacity and services. It would be very difficult for six railroads to do something on their own; there would be no critical mass. It's to the advantage of the other railroads to participate." Along with BNSF, which provides Freightwise with instant capacity, the company recently signed GE Corp. as an "anchor tenant" and equity investor that will help Freightwise reach the critical mass Joshi talks about. As both a major supplier to the rail industry (locomotives) and a potential shipper (appliances), "the goal is to use GE as something we can leverage, and work with their respective divisions as a way to reduce their transportation costs," he said. Visibility is a key advantage for potential customers of both Interment companies. "As a transportation management system with access to all modes, it allows shippers to be more efficient in the management of transportation," Eisele said. "Cross-modal visibility means that because they'll be managing their truck business under the same system as rail, the economics of rail will be much more visible. And we believe that with comparable reliability, the economics will be compelling to the point where rails will garner a greater share of those customers' total transportation buy." Joshi claims a big difference between Freightwise and other exchanges is that when a shipper is looking for transportation options between specific origin-destination pairs, Freightwise allows customers to make side-by-side comparisons between truck and intermodal. It is this price and service transparency, Joshi says, that will save its customers money: "We're giving customers three to five choices between truck and intermodal, not 50, so that they can see service and price parameters." Intermodal e-commerce ventures such as Freightwise also bring up the question of competition with traditional intermodal marketing companies. Joshi points out that its fee for doing a lot of what small and midsize IMCs do currently -- such as load matching, tracking and tracing and order processing -- is 3 percent, which is split between the buyer and seller of the services. This compares to the 18 to 20 percent that customers traditionally have paid for retaining an IMC. "I don't think all brokers will embrace us," Joshi conceded, but at the same time, "there will be a segment of brokers who will begin migrating into higher-added-value services, for example, the third-party logistics side rather than the classical brokerage. They'll get into things like inventory management on behalf of shippers and leave back-end processing to firms like Freightwise." Webmodal, which is a purely intermodal e-commerce venture whose vision is to "make intermodal much more like truck in the eyes of the shipper," points out that it can take customers several days to receive a bid from a traditional IMC. "We can immediately configure door to door intermodal solutions that we can put together using our underlying carrier relationships," said Webmodal founder and CEO Chris Kravas. "We do business with a lot of large U.S. railroads and with 37 drayage companies. We give everybody access to all the information they might need to make decisions on price vs. service tradeoffs, and which carriers make most sense based on what the shipper is trying to do. And we do it without the traditional one-to-three-day wait that typically happens in response to a normal request for (intermodal services)." Kravas said the company has invested time and expertise in developing what it calls a "first-ever" schedule engine that works door to door. "Traditionally, the industry hasn't had a schedule engine that involves the 'dray-plus-rail-plus-dray' services, so there's been pretty much a reliance on rules of thumb. But the truth is, it doesn't take anywhere near eight days for most origin-destination pairs. We have a very robust way of representing the capabilities of the dray carriers as well as the rail carriers, so that much more truck-like transit can be shown to be viable." Because of this, Webmodal sees itself as more of a technology and e-commerce company than a traditional IMC, and considers itself more a vendor than a competitor. How does a small or midsize IMC work as a customer of Webmodal? "Not all small IMCs are set up to do business with all of the railroads or with a large set of drayage companies," Kravas said. "What we do for them is give them a low-cost way to access, a comprehensive array of intermodal products and services available in the U.S. We've established ourselves as a business partner with a large base of first-rate drayage companies across the country. So if you're an IMC with an opportunity to handle freight in a new market, Webmodal allows you to put together a service and pay only a modest fee." Kravas wouldn't disclose the company's fee structure, only that it charges per shipment for a web-based order and a "slightly higher" fee for a phone or fax order. A smaller IMC also could use Webmodal to put in place a private version of its technology that would enable the IMC to better manage its business. "That would range from pricing, order fulfillment, customer service -- kind of the whole spectrum of capabilities that would allow an IMC to take advantage of our system," Kravas said. Everyone's waiting to see who's going to survive the transportation dot-com fallout. Before that happens, however, Freightwise may find itself as big a competitor with Arzoon as it is with a company like Webmodal. "We're starting from different points," said Freightwise's Joshi, "but down the line, yes, I can see" more head-to-head competition between the two companies. In addition to establishing itself in that 80 percent of the market devoted to transportation contracts, UP's Eisele notes that Arzoon also has a catalog-capability function, which eventually can be used to auction capacity in the spot market -- the market in which Freightwise is establishing itself. "We will very much have the capability to enable spot market buying," he said. As Webmodal's Kravas pointed out, "It's going to be an interesting next six months." Arzoon-A.T. Kearney partnership Consulting firm A.T. Kearney, a unit of Dallas-based EDS, and Arzoon, which provides Internet-based services for managing transportation work processes worldwide, have formed a strategic alliance. A.T. Kearney was one of the first to establish a dedicated practice helping shippers manage transportation more effectively on a global basis. Its clients now will have direct exposure to Arzoon's transportation management trading network, which provides online services for managing the full life cycle of work processes across all modes, systems and enterprises. Similarly, Arzoon and its clients can access "select" A.T. Kearney consulting services, the company said. That includes inbound transportation management, supply-chain and distribution rationalization, carrier selection and process improvement, Arzoon said. "Superior transportation management has emerged as a critical success factor in the increasingly competitive world of commerce," said Randy Garber, transportation services co-leader of A.T. Kearney's operations services practice. "We think service companies, manufacturers and retailers that incorporate the speed, simplicity and efficiency of the Internet into their supply chains will lead their markets." The plan is for both A.T. Kearney and Arzoon to gain valuable understanding and insights into how the Internet creates great efficiencies in both the strategic and tactical needs of transportation professionals, Garber added. "We believe that the knowledge gained from this collaboration will benefit our clients as well as Arzoon's customers involved in the $1 trillion global freight transportation market," Garber said. An Arzoon official said the company was "very pleased" to be associated with A.T. Kearney, which Arzoon described as a "premier problem-so1ver." A.T. Kearney has a global presence that includes 62 offices in 37 countries. Arzoon.com, San Mateo, Calif., is a year-old Internet startup that describes itself as a company that is working on "the transformation of the worldwide transportation market into a networked community." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.