Traffic World: Food fleets grow organically through Internet exchanges

Key points:

Companies recognise the advantages of closed trading communities that offer economies of scale without undermining established commercial relationships
FoodFleetXchange enables food industry participants to pool their buying power for the purchase of fleet supplies
The number of Internet exchanges in this sector has dropped dramatically over the past two years

by Ken Cottrill

According to Traffic World, the logistics weekly of the Journal of Commerce Group, the partnering of AmeriQuest and two food industry trade organisations highlights the rise of private Internet exchanges

Transport and logistics company AmeriQuest and two food industry trade organisations, Food Distributors International and the National Grocers Association, have partnered to establish an online buying service for independent truck fleet operators in the food industry.

The alliance underscores the rise of private Internet exchanges as companies recognise the advantages of closed trading communities that offer economies of scale without undermining established commercial relationships. It also points the way to the future shape of such exchanges in that the venture, called FoodFleetXchange, plans to add online freight matching services to its portfolio.

FoodFleetXchange enables food industry participants to pool their buying power for the purchase of fleet supplies, including tyres, lubricants, batteries, brakes, engines, tools and truck bodies. Cherry Hill, New Jersy-based AmeriQuest has about 450 locations across North America and serves the needs of the 81,000 power units owned and operated by its independent fleet manager members, said Joe Ciolino, executive vice-president. "Their procurement comes through us and they own most of the equity in AmeriQuest," he explained.

The FDI and NGA will add more than 100,000 power units to the purchasing pool. FDI members are food distribution companies that supply and service independent grocers and food service operations throughout the US, Canada and 19 other countries. The association and its food service partner, the International Foodservice Distributors Association, have 227 member companies that operate 1,244 distribution centres with a combined annual sales volume of $170bn. The NGA represents the retail and wholesale grocers that make up the independent sector of the food distribution industry. An independent retailer is a privately owned or controlled food retail company.

Combining the customer bases of all three organisations creates one of the biggest full-transaction Internet exchanges of its kind, Mr Ciolino said. It is an approach that AmeriQuest prefers. "What we are trying very hard to do is not reinvent the wheel," he stressed.

In February his company purchased Internet business-to-business transport exchange, FleetXchange.com, from Neodsic Inc. "At the same time we had private-labelled a version of the FDI fleet exchange as a partnership for the FDI," he said. While this project was going on Mr Ciolino was negotiating with the NGA to establish a private-label site for the trade organisation. The two associations decided to combine their efforts for the Internet project, since there was a membership overlap of about 30%. "You could say that we morphed a couple of sites into the new fleet exchange site," said Mr Ciolino.

AmeriQuest owns FoodFleetXchange, which is open to members of the trade associations as well as any other commercial entity in the food industry that meets the entry requirements. Users have to bring at least 50 truck units to the table and, although there are no minimum volume requirements, members are alerted if their transaction traffic levels fall below the viability threshold.

When a company signs up it still can buy from its regular suppliers, but as a member it has access to the national pricing programme arranged by AmeriQuest. When the goods are delivered and the delivery receipt is signed, "The whole process takes off on its own. The pricing matrix is applied and at that point the payment is triggered to the supplier," said Mr Ciolino.

Companies that use multiple vendors receive a single invoice. The cost savings obtained by aggregating members' business varies, but Mr Ciolino estimated that most buyers "realise savings between 5% and 10% above and beyond their negotiated pricing today for a midsize fleet".

A freight load-matching service will be added when AmeriQuest can find a suitable partner, said Mr Ciolino. This will enable members to identify opportunities for combining volumes on specific routes to reduce the number of empty backhauls.

Again, the preferred approach is not to develop a service internally but to look outside for the expertise. The company has been approached by a number of operators, he said, but has yet to find the right partner or a deal that is mutually beneficial.

Mr Ciolino is confident that growing organically through private e-marketplaces is the way to go. The number of Internet exchanges in this area has fallen dramatically over the past two years, and key to AmeriQuest's survival is its national network of offices, which complements its online network, Mr Ciolino believes.

A fatal mistake made by many dotcoms was that they assumed they could call suppliers and demand favourable prices because they were about to launch an Internet site, he said. "They would tell them we are going to give you 50,000 tyres a year, trust me, but it just doesn't work like that in this sector," said Mr Ciolino.

Source: Traffic World.