The economic pressures to control freight expense is accelerating growth drivers for transportation management system (TMS) solutions as businesses recognise the importance to improve transportation processes to combat the impact of fuel costs and other cost increases, according to Gartner.

Worldwide TMS software revenue is on pace to total $648 million in 2008, a 20.6 per cent increase from 2007 revenue of $538 million. The market is forecast to total $730 million in 2009, and it will experience consistent growth through 2012 when the industry will reach $963 million.

“Freight spending is sizable and real, and therefore has a major impact on corporate cost containment and profitability,” said Chad Eschinger, research director at Gartner. “A $1 billion organisation will typically spend $100 million on logistics, with transportation costs comprising $50 million or more of overall logistics spending. Regardless of the size of organisation, transportation costs are rising, driven largely by high fuel and driver costs and, if left uncontrolled, will negatively impact corporate profitability.”

Furthermore, transportation costs are most often direct expenses paid by the organisation to service providers (such as carriers), which means that cost reductions directly affect profitability.

Mr Eschinger said that business applications (such as TMS or transportation routing and scheduling) that can reduce total miles, reduce empty miles, better use freight capabilities or minimise unnecessary moves are in high demand, and this business is growing above supply chain management (SCM) application averages. Technologies that can monitor vehicles and drivers — for example onboard telematics — are also on the rise for fleet operators and carriers.

Although, historically, demand for TMS solutions has been constrained and confined mainly to larger shippers (those spending $100 million or more in annual freight), Gartner said that the current economic downturn could also lead to significant growth in the use of TMS by midsize and small shippers.

“Until recently, small shippers, with less than $25 million in annual freight spending, were not seen as viable prospects for TMS providers because of the inability to build a reasonable business case,” said Mr Eschinger. “However, new delivery options to source TMS solutions have emerged, including software as a service (SaaS), managed service or outsourced service, as well as enhanced offerings from enterprise resource planning (ERP) suite providers. These options have opened up the market to a much-broader cross-segment of shippers.”

In terms of geography, North America and Western Europe remain the largest and most mature regions for TMS solutions, accounting for 86 per cent of the TMS market in 2007. Although North America was once the sole focus of many TMS vendors, Western Europe is becoming well covered, and some vendors now sell and support their TMS in multiple geographic markets. They have also added some of the multilingual, multicurrency localisation needed to plan and manage freight in other parts of the world. Gartner predicts that this will expand the market for TMS further by opening up previously untapped markets such as Asia/Pacific, Latin America and Eastern Europe.

Additional information is available in the Gartner report “Market Trends: Transportation Management Systems Worldwide, 2007-2012. » The report is available on Gartner’s web site at http://www.gartner.com/DisplayDocument?ref=g_search&id=773415&subref=simplesearch.