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Information Services 
Opportunities & Trends, 1 994-1 999 

Transportation 




Information Services 
Opportunities & Trends, 1 994-1 999 



Transportation 



November 1 994 




INPUT 



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M&S459A)1 10/94 



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U.S. Information Services l\/larlcet 
Analysis Program 

Transportation 

Information Services Opportunities and 
Trends. 1994-1999 

Copyright © 1994 by INPUT. All rights reserved. 
Printed in the United States of America. No part of the 
publication may be reproduced or distributed in any 
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that may result from incompleteness or inaccuracy of 
the information provided. 



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Table of Contents 



I Introduction I-l 

A. Purpose, Methodology and Organization I- 1 

1. Purpose I-l 

2. Related Reports 1-2 

3. Organization - 1-2 



II Executive Overview II- 1 

A. Key Trends and Issues Summary II- 1 

1. Trends II-l 

2. Issues - II-3 

B. Information Services Market Summary II-4 

C. Conclusions and Recommendations II-4 



III Events, Trends and Issues " III-l 

A General Business Trends and Events III-l 

B. Specific Industry Trends, Events and Issues III-2 

1. Events— 1993 III-4 

a. Passengers— 1993 III-5 

i. Airlines ^ III-6 

ii. Rail III-8 

iii. Bus " III-8 

iv. Water III-8 

b. Freight Carriers— 1993 III-8 

i. Multimodal III-9 

ii. Railroads III- 10 

iii. Trucking III- 10 

iv. Oil Pipelines III- 11 
V. Water Carriers III- 12 
vi. Air Cargo III- 12 



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Trends 


III-13 


a. Passenger Carriers 


III-14 


i. Airlines 


IIM4 


ii. Railroads 


III-15 


b. Freight Carriers 


III-16 


i. Rgdlroads 


III-16 


ii. Trucking 


III-16 


iii. Air Cargo 


III- 16 


Issues 


III-17 


a. Consolidation 


IIM7 


b. Global Economy 


III-17 


c. Technology 


III- 18 



IV Information Systems Environment IV- 1 

A. Global IS Issues IV- 1 

B. IS Applications Environment IV- 2 

C. IS Response to Environmental Forces IV-6 

1. Electronic Data Interchange IV-6 

a. Rail IV-9 

b. Water IV- 10 

c. Truck IV- 10 

d. Air IV-11 

e. Air Cargo IV- 12 

2. Summary IV- 12 

D. Impact of New Technologies IV-13 

1. EDI Message Formats IV-13 

2. Automatic Equipment Identification (AEI) IV- 14 

3. Communications IV- 14 



V Information Services Market Forecast V-1 

A. Market Overview, 1994-1999 V-1 

B. Forecast by Product/Service Market V-2 

1. Professional Services V-3 

2. Systems Integration V-4 

3. Outsourcing V-4 

4. Processing Services V-5 

5. Network Services V-6 

6. Applications Software Products V-6 

7. Turnkey Systems V-7 

C. Analysis V-7 



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VI Competitive Environment VI-1 

A Competitive Climate VI-1 

1. Mainframe Bias VI-1 

2. Transportation Expertise VI-2 

3. Electronic Commerce VI-2 

4. Integration VI-2 

B. Competitive Positioning VI-3 

1. Systems Integration Market (SI) VI-3 

2. Outsourcing Market VI-4 

3. Processing Services Market VI-5 

4. Network Services Market VI-6 

C. Selected Vendor Profiles VI-8 

1. TSI International VI-8 
a. General Description VI-8 

. b. Products and Services VI-8 

c. Strategy VI-9 

d Challenge ' VI-9 

2. Galileo International VI-10 

a. General Description VI-10 

b. Products and Services VI-11 

c. Strategy VI-11 
• 3. Integrated Systems Solutions Corporation (ISSC) VI-12 

a. General Description VI-12 

b. Products and Services VI-13 

c. Strategy VI-13 

d. Challenge _ VI-13 
4. RAILING Corporation VI-14 

a. General Description VI-14 

b. Strategy VI-14 

c. Products and Services VI-15 

d. Challenges VI-15 



VII Conclusions and Recommendations VII- 1 

A. Industry Conclusions VII- 1 

1. Global Economy VII-2 

2. Integration in the Freight Transportation Industry VII-2 

3. Freight Will Focus on Customers and Make 

Operations Serve VII- 3 

4. The CRS WiU Cease To Be an Airline Property VII-3 

5. Major Ocesin Carriers Will Force Regulation Changes VII-3 

B. Information Services Market Conclusions \TI-4 

C. Technology Vendor Recommendations VII-4 

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1. Business Knowledge Is a Key VII-4 

2. Electronic Commerce VII-5 

3. Spending Growth Is Expected To Exceed Revenue Growth VII-5 

4. Mainframe Orientation VH-6 



Appendixes 

A. Information Services Market Forecast and 



Reconciliation A- 1 

A. Forecast Database A- 1 

B. Forecast Reconciliation A-3 

B. Industry Structure, Methodology and 

Related Reports B-1 

1. Industry Structure B-1 

2. Methodology B-2 

C. Industry- Specific Definitions C-1 



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Exhibits 



II 



-1 Passenger Trends 
-2 Freight Trends 



II-2 
II-2 



III 



-1 Domestic Intercity Passengers by Mode of Travel, 1980-1992 III-6 

-2 Airline Concentration in Market Share III -7 

-3 Transportation Subsector — Freight Share Comparison III-9 

-4 Truck Carrier Relative Revenues— 1992 III- 11 

-5 Transportation Issue Summary III- 17 



IV 



-1 Global IS Issues 

-2 Application Platform Usage 

-3 External Services Usage Proportion 

-4 Use of External Services with Desktop Systems 

-5 Applications That Include EDI Component 

-6 EDI Application Platform Usage 

-7 Global IS Issues and Representative Activities 



IV- 1 
IV-3 
IV-4 
IV-5 
IV- 7 
IV-8 
IV- 13 



V 



-1 Market Forecast, 1994- 1999 

-2 Information Services Market by Product/Service Market 
-3 Product/Service Market Share Comparison — 1994-1999 



V-2 
V-3 
V-8 



-1 Systems Integration Vendors VI -3 

-2 Outsourcing Vendors VI-4 

-3 Major CRS Systems by Number of Travel Agent Locations VI-6 

-4 Network Services Market — Transportation EFT VI- 7 



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VII 



-1 Industry Conclusions VII-2 
-2 IS Market Conclusions VII-4 



-1 Transportation— Market Size Forecast by Product/Service 

Sector, 1993-1999 A-2 
-2 Transportation — 1994 MAP Database Reconciliation ($ Millions) A-3 



( 



I 



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Introduction 



A 

Purpose, Methodology and Organization 

This section identifies the purpose and scope of this report, identifies key 
issues affecting information services expenditures in the transportation 
services industry market sector, and notes how the document is 
organized. 

1. Purpose 

The purpose of this transportation industry forecast report is to describe 
the evolving transportation service industry, identify the key factors in 
these product/service markets and provide the 1994 INPUT forecast for 
information services in major segments of this industry. 

Key Issues — INPUT believes that an understanding of the issues 
confronted by the industry and its underlying sectors is significant for 
comprehension of their information services direction. With this 
understanding, appropriate market strategies for the focused information 
services vendor become clearer. 

Because transportation is generally a business service industry, its 
fortunes are tied to the economy — the global economy. Will the 
domestic and international economy recover sufficiently for the 
industry to continue the pace of technology implementation? 

• How well positioned are U.S. transportation companies to take 

advantage of an improved economy? Are they taking the appropriate 
actions to address sector problem areas, such as capacity, 
consolidation, communications and staffing? 



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Knowledge of several concepts and technologies — global positioning, 
automatic equipment identification, logistics and the pervasive EDI — 
is fundamental to understanding the directions of transportation 
service providers. 

• Smaller transportation companies without the financial resources, or 
the perceived need, for these expensive technologies may be forced to 
become involved. 

• What £ire the technology highlights of 1993 and early 1994 that may 
be predictors of future opportunity in the transportation sector? 

2. Related Reports 

Market Analysis Program: 

U. S. Professional Services Market Analysis Report 
U. S. Application Solutions Market Analysis Report 
U. S. Network Services Market Analysis Report 
U. S. Processing Services Market Analysis Report 
U. S. Systems Software Products Market Analysis Report 
U. S. Business Integration Market Analysis Report 
U. S. Outsourcing Market Analysis Report 
Electronic Commerce Program: 

Electronic Commerce: Comprehensive Market Assessment 
Electronic Commerce in Trade and Transportation 

3. Organization 

In addition to this introductory chapter, the report contains analyses of 
the industry, information services market and competitive environment 
as described below: 

Chapter II, Events , Trends and Issues, discusses changes, market issues 
and activities and competitive factors in the transportation industry and 
its segments that can have an impact on the current and future use of 
information services. 



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Chapter III, Information Systems Environment, presents a discussion of 
the overall sector's IS environment, the key application activities, 
transportation firms as technology vendors and what technologies are 
indicative of the future growth in the sector. Where significant, the 
separate transport modes are discussed individually. The chapter also 
describes various recent and ongoing technology activities within the 
segments of transportation industry. 

Chapter IV, Information Services Market Forecast, gives INPUT'S 
analysis of expenditures for information services by product/service 
market and submarket for the U.S. transportation services market and, 
where applicable, by transportation segment. 

Chapter V, Competitive Environment, includes data on vendor activities 
addressing the transportation industry and its segments by application 
area, product/service market and size. In addition, positioning among the 
vendors is discussed, as is the importance of transportation companies as 
technology vendors. A selection of vendor profiles is also provided. 

Chapter VI contains INPUT'S Conclusions and Recommendations for the 
transportation technology market. 

Appendixes: 

Appendix A contains the Forecast Database, presenting a detailed 
forecast by product/service market and submarket for the transportation 
industry vertical market. A reconciliation to the previous forecast is also 
provided. 

Appendix B discusses transportation industry structure and the 
methodology used in report creation, and lists INPUT reports that should 
be reviewed by the reader to obtain more information on this topic. 

Appendix C contains industry-specific definitions. 



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Executive Overview 



The transportation industry enters 1994 following a much better financial 
year than was discussed in INPUT'S prior report in 1992. That year's 
Fortune Transportation 50 list lost a collective $1 billion. The 1993 edition 
of the same list showed a $6.7 billion profit. Much of this can be 
attributed to lower losses for most airlines. However, within the profit 
are reorganization credits for Continental and TWA of $3.6 billion, a 
significant profit plus. 

Primary among the reasons for the turnaround are an improved U.S. 
economy over 1992 and the results of substantial transportation sector 
downsizing. Downsizing has taken the form of staffing reductions (e.g., 
two- and three-man train crews instead of four) and reductions in 
subsector capacity (e.g., airlines retired some aircraft and delayed orders 
for others). 

Because the U.S. Department of Commerce has forecast a better 1994, 
the trend toward profits should continue for the slimmer organizations. 

A 

Key Trends and Issues Summary 

Beyond the expected economic improvements, INPUT believes that there 
are other trends that will have an impact on transportation. In addition, 
there are open issues that, resolved favorably, could improve the 
fortunes of the transportation sector even more over time. 

1. Trends 

Transportation comprises the set of services that assist the movement of 
goods and people, generally for a fee. Goods include raw materials, parts 
and finished products, all of which require movement. Moving people 
relates to moving them to where they have to be or want to be. Although 
there is certainly mixing, as passenger aircraft also carry cargo, the major 



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break in transportation is the isolation of passenger and freight. In terms 
of trends, there are different factors for the two entities. 



Exhibit 11-1 

Passenger Trends 



• Major airlines stress international travel 

• Hot Southwest-type competition domestically 

• Rail competition with high speed 



Southwest runs an operation that seemingly does it all better, from on- 
time performance to keeping better track of baggage. Its structure helps: 
it flies mostly point-to-point, its average flight is short (350 miles) and it 
has leadership that heightens people performance. In defense, several of 
the major airlines (United, USAir and Continental) are structuring low- 
price subsidiaries to compete. 

Amtrak failed to increase passenger traffic as much as forecast by the 
U.S. Department of Commerce for 1993. However, its trials of high- 
speed trainsets for future use on its heavily traveled corridors have been 
impressive. Because nine of Amtrak's routes provide service that is 
parallel to heavily traveled and short air routes, INPUT believes that 
Amtrak will have the opportunity to increase ridership when high-speed 
trains roll. This is of interest in Boston, where travelers can now look at 
rail as an alternative to airport expansion. In addition, Baltimore's BWI 
airport already has an Amtrak station. Freight trends are listed in 
Exhibit II-2. 



Exhibit 11-2 



Freight Trends 



High growth for intemriodal 
Trucking will condense in carriers 
Seamless EDI and direct shipper access 



The highest growth figures in freight are in intermodal, the shipment of 
trailers and containers by railroad and ships. A record seven million 



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intermodal shipments for rail occurred in 1993. Most were containers in 
efficient double-stack configurations. This current history is bolstered by 
the planned replacement of truck trailers with containers by the two 
largest truck load companies. 

As in all of transportation, the big carriers tend to grow at the expense of 
the small, if we disregard some of the monumental business failures (Pan 
Am, et al). INPUT anticipates that this will accelerate, particularly with 
the increasing requirements for EDI and shipment tracking being 
pressed by shippers. The expense of doing business in a technology- 
driven world will be too great for the small companies. 

Finally, freight carriers are being expected to provide a seamless service, 
regardless of the numbers of carriers that may assist on any given 
shipment. Indeed, a transportation company's biggest customer is 
frequently another transportation company. 

2. Issues 

The big U.S. transportation firms are no longer domestic entities. The 
positive impact on global trade caused by the breakdown of barriers will 
shortly be evident and continue at a greater pace throughout the decade. 
In the western hemisphere, the initial impetus is the North American 
Free Trade Agreement (NAFTA), which will be a positive benefit to all 
sector firms. INPUT believes that job losses will be more than made up 
for in trade increases, which yield more goods for shipment. 

Consolidation in the transportation industry is affecting both the freight 
and passenger subsectors (five air carriers now control 80% of the 
market). In freight, this will be driven by many factors and fostered by 
the blending of the modes and the required technological interconnection 
of the players. Blending is taking place in the form of mergers, 
acquisitions and affiliations. Although the question of which subsector 
will dominate is open, the customer will surely win because all modes are 
racing to provide seamless movement. Big trucking has the edge, along 
with rail, in appearing to be content to be growing their "behind the 
scenes" business. 

Just as trade is the impetus for transportation, technology has become 
the glue that holds the pieces together. Electronic commerce is the 
movement of data that supports the flow of people and goods. It is 
required to provide seamless service for customers. In many cases, the 
pressure to implement EDI and shipment tracking is from the customers 
of transportation. Transportation frequently has not seen the potential 



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economies and efficiencies achievable with electronic commerce, but 
industry participants are learning. 

B 

Information Services Market Summary 

INPUT believes that transportation has shown itself to be a better-than- 
average market for professional services assistance in technology. 
Current research has not shown transporters to be shifting to the 
systems integration style of contracting, but INPUT believes that this will 
occur over time. 

Until 1993, outsourcing and the systems operations market within the 
transportation sector had been small compared with other industry 
sectors. However, the ISSC contract with Southern Pacific Rail set a 
precedent. INPUT believes that this will improve the opportunity for 
outsourcing within the sector. 

Mainframe predominance in even active sector applications projects could 
be a surprise. It should not be, since transportation companies have been 
long-time computer users. INPUT believes that this preference will shift 
to client/server and workstation development over time. However, 
vendors should be prepared to address mainframe considerations. 

EDI was part of most application development projects in transportation 
firms during 1993, with the highest percentage — 61% — of any industry 
sector. INPUT believes that this will continue to be the case for some 
time to come. In addition, the attachment of AEI tags on equipment for 
future tracking is proceeding at a fever pitch. Proper fulfillment of the 
expected ability to provide shipment tracking data based on AEI will 
require change to EDI systems to transmit this data and systems to 
process the information. This should spell technology vendor opportunity 
for assistance. 



Conclusions and Recommendations 

What is lacking in some of the current technology implementation is the 
sense of what it can do for the transport company. Do railroads believe 
that AEI-based equipment tracking can provide cost savings? Many see 
these tags as a multimillion-dollar expense that does not provide savings 
or increase their business. Technology vendors need to help 
transportation's IS organizations devise ways to utilize this explosion of 
information in ways that will benefit the business. 



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Certainly one of the benefits of more current information is to provide 
better information to shippers and their customers. Most transportation 
firms have begun to see their business less from an operational view and 
more from the customer view. Santa Fe's new system is built around the 
shipment rather than the rail car, as was the basis for prior railroad 
systems. 

Historically, transportation, with the exception of airlines, has been 
viewed as an unattractive technology market. When asked about its 
transportation business, one equipment manufacturer responded with, 
"Oh, you mean airlines." Although transportation is a relatively poor 
industry sector in terms of profit margins, INPUT expects its growth in 
technology spending to exceed growth in revenues. The primary cause of 
this in freight will be the need to integrate EDI and real-time location 
data within processing and decision systems, as well as to respond to 
customer inquiries. 

Finally, transportation knowledge and experience is a prerequisite for the 
successful vendor. Industry firms first seek those with experience within 
their subsector, then within other subsectors, but rarely beyond 
transportation. This is the case for employees as well as vendors. 
Further evidence is the success of transport firms as technology vendors, 
e.g., SABRE Technology, CSX, Conrail and Santa Fe. Breaking in is very 
hard to do without credentials and references. 



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Events, Trends and Issues 



A 

General Business Trends and Events 

As documented by the U.S. Department of Commerce in its 1994 edition 
of the U.S. Industrial Outlook, the U.S. economy grew 2.6% in 1993, a 
rate of growth identical to that of 1992. Key 1993 economic indicators 
were generally favorable, with before-tax corporate profits growing to 
11.8% (from 9.1% in 1992), and the housing and automotive industries 
both showing moderate but steady growth. Inflation in 1993, as 
measured by Blue Chip consensus of approximately 50 private-sector 
economists, was a mild 2.5%, and is projected at 3.0% for 1994, with a 
• five-year average rate of 3.3% through 1999. The heavy Midwest 
flooding in 1993 had some impact on agriculture's contribution to 1993 
GDP, but that was offset by the expenditures for repairs and replacement 
from flood damage. An unresolved 1994 federal issue is the proposed 
health care reform bill, and the effect it may have on both health care 
and the economy, depending upon when, and in what form, it is enacted. 

Most economists and business analysts agree that 1994 will be another 
year of moderate but steady growth, with the U.S. economy improving its 
growth to 2.9% and corporations maintaining earnings growth at double- 
digit levels. Much of the corporate growth is attributed to a strong and 
continuing emphasis on cost cutting and productivity gains — two concepts 
that have already contributed to corporate gains. Consumer confidence 
appears to be increasing (as exemplified by the growth in housing starts 
and auto production), and personal spending is expected to grow from 
2.9% to 3.0% in 1994. Areas of economic concern include continued 
cutbacks in defense spending, a lingering weakness in the commercial 
real estate market, corporate restructuring (specifically downsizing) that 
will further limit employment growth, and the economic problems that 
continue to plague major U.S. trading partners such as Western Europe 
and Japan. 



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Overall, however, the outlook for the U.S. economy in 1994 is for 
controlled, steady growth in the 3% range with inflation at that level or 
slightly less, and corporate before-tax profits at 10% or better. 



Specrfic Industry Trends, Events and Issues 

To understand the U.S. transportation industry one must comprehend 
that its purpose — ^the movement of goods and people — is all that links the 
group of companies into an industry. The transport modes (rail, air, 
truck, water and pipehne) do not share SIC codes. Intermode 
competition raises stronger feelings than competition among the entities 
of a mode. Government action and support is normally mode based. 

The basis of the transportation service sector is in assisting the 
movements of people and goods. Raw materials and parts are moved to 
producers whose finished products are then moved to where customers 
want them. People are moved to where they have to be or wish to be. 
The transportation sector grows to support growth in the amount of 
goods or travelers to be moved. Both are generally driven by factors that 
are not within the control of transportation. Hence, the perpetual 
struggle has been among the players to increase their share of a 
relatively fixed market for transport. There are exceptions where ' 
transportation by itself creates additional business. Two examples show 
what it takes to create business: 

Federal Express invented the next-day package delivery business. 
Did this innovation in speed induce more packages than would have 
been presented for transport, or were the vast majority of these 
packages diverted from other transportation means? 

Southwest Airlines' low fares have shown that it is possible to cause 
dramatic growth in air travel between two points: The Louisville-to- 
Chicago route grew from 8,000 to 26,000 weekly passengers. How 
many of these people were induced to fly rather than use other 
means because of the low fares, and how many would not have made 
the trip at all? 

Certainly these were substantial events that have added new transport 
business; but stories of the ability for transportation firms to create new 
business are the exception. Most of any sector firm's growth beyond the 
level of global economic growth is at the expense of an alternative 
transportation company. 



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Primarily, beyond our automobile travel and vacation activities, 
transportation companies are business support entities. The most 
common criteria for selection among the various modes are: price, service 
and timeliness. Collectively our transportation system is an economic 
enabler. However, the reverse is also true; the continued sluggishness of 
global economic growth has shown in the financial results of the 
transportation industry sector. 

In May 1994, Fortune magazine listed "The Service 500" which includes 
the largest U.S. service corporations. The Service 500 list is broken into 
eight subgroups: 100 diversified companies (like AT&T and EDS); 100 
commercial banks; and 50 each for diversified financial, savings 
institutions, hfe insurers, retailers, and utihties. 

"Profits for Fortune's Service 500 rose 28%, to $93.7 billion, the largest 
increase in five years. Productivity gains and historically low interest 
rates provided the one-two punch. Final tally showed the Service list's 
bottom line $31,1 billion ahead of its industrial counterpart." 

The Fortune Transportation 50 rebounded from being the only losing 
group in 1992 to one with a $6.7 billion group profit in 1993. The negative 
drag in 1993 by the major airlines was much less in 1993 than in 1992. 
The Fortune transportation comment is as follows: 

"Airlines finally headed in the right direction; the ten that carried over 
from last year's transportation list went from losing $4.6 billion to earning 
$1.7biUion." 

Though the statement is accurate, within this miraculous swing are the 
bankruptcy reorganization credits received by Continental ($3.6 billion) 
and TWA ($1.1 billion). With these large credits removed, airlines really 
went from a 1992 loss of $4.6 billion to a 1993 loss of $3.0 billion. 
Although this realization tarnishes the shining statement, it should not 
eliminate the positive story that airlines recorded profit turnaround in 
1993. The major U.S. airlines still lost a lot of money, but did much better 
than recent history, particularly with domestic traffic measured in 
revenue passenger miles down from 1992. 

Fourteen of the fifty companies, including five airlines, were adversely 
impacted by SFAS 106 in 1993, which INPUT estimates to have cost the 
transportation sector in excess of $275 million in 1993 profits. Because all 
corporations were required to take this one-time accounting change by 
the end of 1993 to account for future retiree benefits, it will have no 
further corporate impact. 



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The transportation list of "The 50 Largest Transportation Companies" in 
the United States, with total 1993 revenues of $174 billion — an increase 
of 13.7% over the $153 bilhon for 1992— includes: 

10 railroads, 9 profitable with a total of $2.5 billion positive 

10 airhnes, only 4 with profits of $1.7 billion 

10 trucking firms, 9 showing profits 

• 4 shipping companies, 3 profitable 

• 6 pipeHnes that were all profitable 

• 3 package speciaUsts, all showing positive results 

• 6 leasing and transportation support companies, 5 profitable 

1 bus line making a modest profit 

The 1993 losers were primarily airlines, as they were in 1992. Even 
including the nine losing airlines, the 50 largest transportation sector 
firms ended 1993 with a profit of $6.7 billion, up from $3.6 billion in 1992, 
an 86% improvement. Hence, transportation is not an unhealthy 
industry, only some of its players are financially unhealthy. Additionally, 
much of the U.S. transportation sector is poised to operate with 
substantially lower costs based on downsizing and capacity handling 
efforts. As the global economy improves, transportation should move 
upward in revenues and profits. 

1. Events— 1993 

The continued slow growth in the U.S. economy, coupled with the 
recessed global economy, remained the primary negative events 
impacting the total transportation sector's revenues and profits in the 
past year. 

Four government activities during 1993 were expected to have a direct 
impact on transport sector companies, particularly: 

NAFTA was passed in October 1993, following significant controversy in 
Washington, though the anticipation had caused many pre-passage 
activities, particularly by transportation service companies, such as U.S.- 
Mexico rail alliances. Because the passage was more a formalization of 
the ongoing easing of tariffs and border restrictions than a dramatic 



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change, no immediate alteration was evident in 1993. However as the 
multiyear event timetable unfolds with inevitable increases in trade, the 
picture for direct transportation sector growth will become clearer. 

The Clean Air Act regulations regarding cleaner diesel fuel were 
effective in October 1993, and served to increase the price of fuel for 
trucks and railroad locomotives by an estimated 3 to 8 cents per gallon. 
As forecast, this was a negative event for transport sector firms. 
However, the diesel engine technology clean-air advances made by U.S. 
manufacturers, primarily Caterpillar, Cummins and Detroit Diesel, have 
made them the hot international sellers as other countries begin to 
enforce cleaner engine standards. 

When the fuel cost increase for cleaner fuel is added to the 1993 Fuel Tax 
increase of 4.3 cents, a significant impact in bottom-line costs for both rail 
and truck is inevitable. Not so obvious is the inequity of impact. 
Because fuel is about 8% of a railroad's operating cost and 14% of a 
trucker's, the resulting impact on trucking costs is a greater factor and 
should serve to move the more price-conscious traffic to intermodal 
transport. 

Finally, the Airline Competitive Panel's August 1993 report included 
three policy-level statements and several recommendations for change. 
However, little rehef to the airline industry is expected to result in the 
near term because of the expected lag in legislative and regulatory 
change. 

a. Passengers — 1993 

The total numbers of passengers carried intercity increased by a modest 
19% in the twelve years between 1980 and 1992 (946 million to 1,123 
million). Exhibit III-l compares the breakdown by mode of travel for 
intercity passengers for 1980 and 1992. 



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Domestic Intercity Passengers by Mode of Travel, 1980-1992 



Air 


1 

J 980 (Percent) 

29.1 


1992 (Percent) 

38.8 


Amtrak 


2.2 


2.0 


Commutation 


29.6 


29.0 


Bus 


39.1 


30.2 



Source: Transportation in America, 1993 



Airlines became the largest carrier of intercity passengers during the 
1980s, increasing their share by 59%. Amtrak riders increased by 3%, but 
that was not enough to maintain Amtrak's market share, although 
commutation was included because the mostly rail mode is similar to 
long-haul rail and is sometimes operated by Amtrak. Commuter traffic 
grew by 16% and basically held its market share. Bus includes charter 
and the major scheduled carriers (primarily Greyhound). Bus ridership 
dropped by 3% during this period primarily because of the protracted 
Greyhound strike and its drop of unprofitable routes. 

i. Airlines 

Most U.S. airlines, like those of the rest of the globe, struggled through 
1993, suffering another year of all too common operating losses. It is said 
that in the last four years the world's airlines have lost more than has 
been made during the entire history of commercial aviation. The 
International Air Transport Association (lATA) blames their financial 
situation on overcapacity; too many aircraft added during the 1980s; the 
continued state of the world economy, which has reduced demand; and 
the impact of liberalized regulations, all of which fostered fare wars to fill 
the planes. U.S. air carriers have also blamed the government's lenient 
behavior toward the bankrupt carriers, but 1993 saw all three — 
Continental, TWA and America West — back from the brink. In fact, their 
reorganization credits were significant in making the 1993 airline picture 
look bright. 

In 1993, U.S. airlines successfully moved to correct some of the ills 
created in the 1980s. First, they reduced capacity by retiring planes, 
reducing some hubs and pushing out aircraft orders. In addition, they 
negotiated better union agreements and strove to establish more 
reasonable yield patterns. Were it not for the depressed passenger 



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traffic, more than two of the ten largest carriers could have shown profits 
in 1993. As it was, only the high-flying Southwest ($170 million profit) 
and America West ($37 million) were profitable without bankruptcy 
credits. 

Market share concentration continues to be a major airline industry 
factor. Exhibit III-2 compares the relative market shares of the major 
players in 1993 and 1991, and looks back at a good year — 1985. 



Exhibit III-2 

Airline Concentration in Market Share 



Carrier 

United 


1993 (Perc^t) 
21.2 


19S1 (Percent) 
18.7 


Carrier 

American 


1985 (Percent) 

13.3 


American 


20.4 


20.2 


United 


12.5 


Delta 


17.4 


16.8 


Eastern 


10.0 


Northwest 


12.2 


12.4 


TWA 


9.6 


Continental 


8.9 


9.7 


Delta 


9.0 


USAir 


7.4 


8.0 


PanAm 


8.1 


TWA 


4.8 


6.7 


Northwest 


6.7 


Southwest . 


3.5 


2.6 


Continental 


4.9 


America West 


2.4 


2.9 


People Express 


3.3 


Alaska 


1.2 


1.2 


Republic 


3.2 


Others 


0.6 


0.8 


Others 


19.4 



U.S. Department of Transportation 



Four of the top ten major airlines in 1993 did not even make it out of the 
"others" category in 1985. Four of the top ten 1985 airlines no longer 
exist. The 1993 top five have a better than 80% share; in 1985 it took ten 
airlines to capture an 80% share. United became the market share 
leader for 1993, surpassing American for the first time since before 1985. 
Of the top ten in 1993, only four increased their share over 1991 (the big 
winner — United — + 2.5%o, and American + 0.2%, Delta +0.6%o, Southwest 
+ 0.9%o). Beyond the airlines that have disappeared since 1985, the 
biggest concentration of losers has been the airlines not in the top ten, 



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dropping from a 19.4% share to 0.6%. The big get bigger and the small 
struggle for a piece of a smaller share. 

a. Rail 

Railroads, primarily the 22-year-old Amtrak, moved 50 million passengers 
in 1993, up significantly from 1992. Amtrak succeeded in covering 79% of 
its operating costs in 1993, the same as in 1992. The taxpayer portion 
increased from $500 million in 1992 to $642 in 1993. Amtrak still holds to 
its projection of self-sufficiency by the year 2000. While Amtrak's 3% 
growth in intercity passengers was as projected, its operation of 
commuter rail for local governments swelled and now constitutes 56% 
(45% in 1992) of its total passenger traffic. The testing of high-speed rail 
offerings, all based on European technology, began in 1993 and is 
expected to be complete during 1994. 

Hi. Bus 

Greyhound, the only Fortune-listed bus carrier, recorded a profitable 
year ($7.5 million), its second in a row. Charter operators, though none 
are major carriers, continue to do a brisk and profitable business. 

iv. Water 

Water passenger travel is almost exclusively for vacation and business 
conference cruises, and was historically treated as travel and 
entertainment by Fortune. However, this year Fortune included Carnival 
Cruise Lines in its transportation 50 list. The high-profile company 
entered the list at number 25 with profits of $318 million on revenues of 
$1.6bimon. 

b. Freight Carriers— 1993 

Like much of transportation, in freight there are numbers that will make 
everyone the biggest in something. Exhibit III-3 shows the split of 
domestic freight in 1992 and the revenues for transportation subsectors. 



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P Exhibit III-3 

Transportation Subsector — Freight Share Comparison 



{Percent^ 
Rail 37.4 


1 

' '^city Tons 
1 Percent) 

25.0 


Revenues 
{$Billions) 

30 


Percent 
8.3 


Trucl< 27.6 


43.1 


293 


80.1 


Oil pipeline 19.3 


16.3 


20 


5.5 


Water 14.3 


15.4 


9* 


2.5 


Air 0.4 


0.1 


10* 


0.8 



• includes international revenues Source: Transportation in America, 1993 



Rails haul the most long-distance freight. Trucks move the most freight, 
but for shorter distances than trains, and take in the most revenue. 
Pipelines make more than twice as much as water, for similar amounts of 
tonnage. The real revenue-per-ton winner is air, which makes more 
than water although it carries a relatively minuscule tonnage. 

Excepting the large numbers of small companies in transportation, there 
are few major freight carriers that remain exclusively within their 
traditional niche. UPS is the largest U.S. transportation company and is 
regulated as a trucking firm, but it has a similar aircraft capacity to rival 
Federal Express. CSX is the largest rail-based company in revenue 
terms, but its subsidiary, Sea-Land, carried more containers over water 
than any other U.S. water carrier. Federal Express is the biggest U.S. air 
cargo carrier and, to the disgust of the trucking industry, its more than 
30,000 ground vehicles are not ICC regulated. 

L Multimodal 

Fostering the marriage of modes is the high growth of multimodal means 
of freight transport. Multimodal is the movement of a specific shipment 
by more than one transportation mode. Although the most common style 
is called intermodal, involving truck and rail, "multi" includes water and 
air cargo. With the exception of bulk commodities like coal, petroleum 
and grain, the common envelope for goods is becoming the shipping 
container. Much is happening with these common transportation 
elements, such as: 



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• The U.S.'s two largest trucking firms, JB Hunt and Schneider 
National, are shifting their trailer fleets to containers. 

• Double-stack railroad capability, which uses special cars that carry 
containers two high and doubles train capacity without increasing 
length, accounted for almost 80% of all rail container movements in 
1993. Until the completion of the Sarnia Tunnel between Canada and 
the U.S., expected in 1994, this form of rail transit was not possible to 
the U.S.'s northern neighbor. The tunnel will allow CN North 
America (the partially government owned Canadian railroad) to run 
these higher cars straight through to destinations in Canada. 

• The growth in railroad intermodal continued to outpace almost all 
other growth factors in transportation with a 1992 to 1993 increase of 
7.9%, and a record seven million movements. Rail industry people say 
that it could have been even more had they had more rolling 
equipment and better working load/unload yards. Most of the big rails 
are increasing capacity as fast as they can. 

Indeed, except for the limited numbers of goods that move directly from 
producer to consumer in one truck, most shipments change hands 
several times during their passage. Making movements "shipper 
seamless" increases the need for transportation sector companies to work 
together. 

ii. Railroads 

Rails enjoyed another great year, with traffic growing for the seventh 
consecutive year, though at a modest 2% for ton-miles. Railroad's 
primary commodity, coal, was off three percent, which repeats last year's 
volume drop. Railroads were also hurt by the record flooding problems in 
the midwest — damage alone was estimated in excess of $250 million, with 
Burlington Northern taking one of the biggest hits. The rails' long-term 
effort to reduce train crews, automate for better equipment utilization 
and reduce operating costs has occurred. The hot growth area is 
intermodal, which has more than doubled over the past ten years and is 
even turning a profit. In light of the permanent nature of these changes, 
the rail outlook is very bright. 

Hi. Trucking 

Trucking continued its lead in total cargo volume and revenues, though 
profits for part of this highly fragmented mode are very slim. The truck 
mode has three basic carrier types: truck load (TL) carriers, who move 
full trucks for shippers; less-than-truckload (LTL) carriers, whose 



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shipments are usually bigger than packages, but that must be shifted 
from truck to truck to msdntain efficiency and utilization; and private 
carriers, who are owned and operated by shippers. Some splits of this 
traffic are calculated to isolate certain significant elements: local delivery 
and package, which is part of LTL, but does not include the air carrier 
Federal Express (which would have been about 2.5% by itself). Exliibit 
III-4 shows the relative revenues for truck carrier types in 1992. 



Truck Carrier Relative Revenues — 1 992 







Carrie Typ^ 

Local delivery 


Revenue (Percent) 
41 


Private carriers 


30 


For hire — ICC carriers 


29 


Truck load (TL) 


16 


Less-than-truck load (LTL) 


13 


Package 


5 • 



Private carrier revenues are inferred rather than actual because they are 
part of their served companies, but their volumes exceed those of the for- 
hire carriers. Industry experts believe that private cartage will diminish, 
as evidenced by the growth in contract carriers Ryder System ($5.3 
billion) and Penske Truck Leasing ($902 million). 

iu. Oil Pipelines 

Oil pipelines (gas pipelines are included in the energy sector) are a major 
factor in the movement of goods, though they deal in just one commodity. 
In 1992 they were responsible for 55% of all petroleum ton-miles (water- 
41%, truck-3%, rail-1%). Most pipelines are owned by oil companies or 
their subsidiaries, and are very profitable because of the few employees 
required for operation. The revenues and amount of tonnage is related 
to the use of petroleum within the U.S. and the sources in any given 
year. For almost two decades the pipeline industry has had bursts of 
traffic increase with lengthy static periods. Since 1975, the total mileage 
of petroleum pipelines has remained basically unchanged at about 
170,000 miles. Financially, since an almost fourfold growth in the late 
1970s, both revenues and profits have cycled up and down through the 
years (revenue ranges between $6.3 billion to $7.8 biUion and the profit 

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range is between $1.9 billion and $2.5 billion) with 1993 a year at the high 
end of these ranges. Fortune's listed pipeline companies have the 
distinction of being the only mode subgroup with no losses. 

V. Water Carriers 

Waterborne freight varied by subsector, with profits for oceangoing 
carriers and hard times for domestic, particularly inland barge carriers. 
The record-setting floods on the Mississippi River system during the 
spring and summer of 1993 disrupted traffic: Up to 1,000 barges were 
stuck — the equivalent of 60,000 truck loads — for protracted periods. The 
two months of disruption are estimated to have cost the carriers about $3 
milhon per day. Barges carry about 13 % of all the U.S. intercity freight 
traffic, primarily bulk cargoes, e.g., grain, coal, petroleum, fertilizer, 
cement, etc. Industry revenues are broadly stated at between $ 1 billion 
and $2 billion annually. Barge rates are artificially low because of the 
vast overcapacity that exists. In the late 1970s and early 1980s the 
federal government provided tax credits and loan guarantees for barge 
and towboat construction (to help the shipbuilders). During this period 
the number of barges swelled from 13,000 to 18,500 (a 42% increase in 
fleet capacity). Today's rates remain about half the 1980 level. 

The "big two" of U.S. ocean trade are American President Lines (APL) 
and CSX's Sea-Land subsidiary. They have challenged U.S. policy 
makers to alter the regulations that force them to buy U.S. -built ships, 
staff with U.S. crews and other regulations that make their costs and 
prices uncompetitive. Their threat is to "re-flag" some or all of their 
ships. The concern in Washington is related to the military significance 
of maintaining a registered merchant marine for use in time of war. 
Because little seems to be happening in Washington, the January 1993 
U.S. private fleet of 384 oceangoing merchant ships (with gross tonnage 
in excess of 1 million tons) may shrink again. 

ui. Air Cargo 

Based on ton miles, air cargo is hardly even a factor in the overall freight 
picture, with only a 0.4% share. However, the 1993 traffic growth for air 
cargo was very good when compared with passenger traffic. The U.S. Air 
Transport Association (ATA) reports 3.6% growth over 1992; the 
Association of European Airlines (AEA) reported a 6% growth; and the 
Airports Council International (ACI) observed that Latin America was 
even hotter, with a 12% increase. These increases are a surprise during 
a poor year for economic growth. 



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2. Trends 

The U.S. Industrial Outlook for 1994, prepared by the U.S. Department 
of Commerce, predicts an improved economy and guardedly projects a 
better year for the four primary transportation industries — airhnes, 
trucking, railroads and water transport, though slightly different by 
group: 

"Airline traffic is projected to grow about four percent domestically and 
seven percent internationally, but the industry will struggle to achieve a 
balance between costs and fares. Regional airline growth will continue to 
outpace that of the larger carriers. Railroad traffic is forecast to continue 
to grow modestly, with revenue ton-miles projected to increase three 
percent. Passenger-miles traveled on Amtrak are projected to grow 
about four percent. Truckers can expect revenue growth of about six 
percent in 1994, but cost pressures, especially in wage and benefit areas, 
will squeeze profit margins in most markets. Increased trade and 
stronger freight rates should improve the performance of U.S. -flag liner 
companies operating in Asian markets. Domestic-flag liner traffic 
between Alaska and the lower 48 states should grow about three to four 
percent." 

U.S. Department of Commerce and industry experts project the 
transportation industry as a whole to grow, in some segments 
dramatically. 

INPUT believes that the transportation industry will continue to 
concentrate the number of entities through various mechanisms: 
merger, purchase, bankruptcy and affiliation, driven by attempts to reach 
the appropriate size, to counter the pressure of industry globalization and 
provide the capital resources to compete. Though all segments will see 
the creation of global megacarriers, the most obvious changes will be in 
the fragmented trucking segment, where the cost of entry is small. The 
new costs of competition will be too great for most existing firms. Also, 
the weaker business entities in all segments will fail to keep up and thus 
extinguish themselves, and the stronger, more nimble competitors will 
grow faster than the industry. 

Specific trends for the most active segments can be instructive. 



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a. Passenger Carriers 

i. Airlines 

The year 1993 was not one for returning profits for the major U.S. 
carriers, though some came very close. American Airhnes lost less for 
the year ($110 million) than the cost of the flight attendant strike ($180 
million). For 1994, Standard & Poors economists predict potential profits 
for airlines of $1 billion, based on traffic increases of 3% to 4%. The 
Federal Aviation Administration's twelve-year projection has an annual 
growth rate of 3.9% domestic and 6.6% international revenue passenger 
miles. The important trends are: 

• The success of Southwest and its direct, low-cost flights has prompted 
several major carriers to create an "airline-within-an-airline" with 
similar features. It is expected that this form of price competition will 
continue through the decade. 

• American states that the impact of general business downsizing and 
growth of electronic communications could cost it 11% of its business 
travelers by 1998. 

Employee ownership, like that recently achieved by United, may be 
the future model over the long term for labor-intensive 
transportation carriers. 

• The number of hubs in the U.S. should decrease to 28 or less over the 
next few years as carriers rationalize route structures. However, the 
hub-spoke style will continue to predominate in the U.S. 

• Although the U.S. aircraft fleet will grow slowly over the next five 
years, noise level regulations will force the retirement of almost half 
the current 4,300 planes by decade end. This will be felt most by the 
newer airlines that use leased older air craft. 

The hottest growth aireas for airlines in the short term will be found 
in Asia and Latin America. Pacific Rim growth is 20% to 25% annually 
and China leads with growth projected in excess of 30%. 

INPUT accurately projected the beginning of the loss turnaround for 
airlines in 1993 and that it would be too late in the year to produce 
absolute profits. INPUT believes that 1994 will see a return to 
profitability for most major U.S. airlines. The big three U.S. carriers are 
poised to take advantage of this growth and will successfully expand 
globally. Finally, the new start-up airlines (there have been 26 since the 



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end of 1990) will cause price pressure on the majors and take over many 
of the short-haul routes. 

INPUT continues to beUeve that airhnes will release control of their CRS 
businesses by the end of the decade. A sign of the pressure that 
promotes separation is the European Community Council of Transport 
Minister's CRS "code of conduct," issued in September of 1993, specifying 
that CRSs must be disconnected from their parent company's internal 
computers and that they must exist as a distinct legal entity. American 
and its SABRE system, which holds a 10% share of the European CRS 
market, is in direct conflict with this regulation. 

ii. Railroads 

Amtrak passenger rail fell far short of the U.S. Commerce Department's 
prediction of a 7% increase in passenger miles for 1993, with actual 
results showing a 2% increase. This is in line with longer term 
projections of between 2% and 3% growth through the end of the decade. 
Amtrak's contract to provide U.S. passenger service is due for renewal in 
1996. 

Much of the attention in passenger rail is in watching the movement 
toward higher speed trains. Of the top 25 airline markets, nine are short 
to medium distances that could be served by high-speed rail. The 
Northeast Corridor is one of these congested prime traffic markets that is 
also the subject of Amtrak tests of offerings from six bidder groups to 
provide high-speed trainsets. Contract award is scheduled for late 1994 
and service for 1997. Other high-speed projects are under consideration 
for Texas (using the French TGV trainset between Houston, Dallas and 
San Antonio) and California (Los Angeles to San Jose). 

INPUT sees higher speed rail as enhancing this segment's growth in the 
longer term, as airport and road congestion increase. This is particularly 
true in the Boston- to- Washington corridor. Shorter travel time and 
downtown terminals have made the Washington-New York Metroliner 
the favored travel mode. In addition, Massachusetts is viewing rail as a 
possible alternative to expansion of the crowded Boston airport. Higher 
speed capability would increase the potential of rail picking up travelers 
from air carriers and the roads. Lufthansa, the German airline, uses 
high-speed rail links not only to airports, but to replace some of its short- 
haul flights. This may be the model for U.S. airlines to provide an 
integrated people transport service. 



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b. Freight Carriers 

INPUT foresees a continued blending of surface freight, i.e., rail, truck 
and water, primarily driven by the close relationship and information 
exchange required to support the seamless movement expectations of 
shippers and customers. Whether it is called intermodal or multimodal, 
the survivors will perform it by providing customer service regardless of 
the shipment carrier transfers. 

i. Railroads 

The U.S. Department of Commerce predicts the ton miles hauled by rail 
to continue their growth by 2% in 1994, but this is mainly a reflection of a 
resumption of coal shipments caused by economy growth. Though 
projected volume increases for the next five years are a modest 1% to 
1.5%, this continues the segment's modest historical increases. 
Intermodal is rail's real growth area, projected at 3% to 5% annually over 
the next five years. This mode is cheaper for shippers and highly 
profitable for rail, particularly with the expanding double-stack capability. 

INPUT believes that the actions of other transport modes combined with 
the capacity increases by railroads will cause intermodal to exceed 
current government projections. The shift from trailers to containers, 
the establishment of truck/rail affiliations, and the expected positive 
effects of NAFTA should see rail intermodal setting a new record in 1994. 

a. Trucking 

The trucking segment is projected by the U.S. Department of Commerce 
to maintain its domination of the U.S. freight market. Its share of 
revenues was 78% during 1993, an increase of 1% over the prior year. 
The trucking segment contains the largest U.S. transportation company 
and the world's second largest firm, UPS, in terms of revenues and 1993 
profits that were in excess of $800 million. This segment also contains 
the largest number of carriers, some 44,174 separate firms. By the end 
of the decade the number of firms will be drastically cut, probably by 
better than half, as the small "mom and pop" and the medium-sized 
carriers are eliminated by the sophisticated, well-managed large carriers. 

Hi. Air Cargo 

The rapid growth of air cargo businesses is expected to grow moderately 
at an annual 5% to 6% rate through the decade. Competition will be hot 
globally, particularly in small package delivery. Federal Express reported 
17% growth in its international priority package revenues, though trends 
seem to be toward less time-dependent package offerings, Asia and Latin 



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America show growth beyond other areas of the globe for the non- 
package U.S. -based carriers. 

INPUT beheves that the next decade for transportation will be the 
emergence of a transportation industry from the mode segmentation that 
persists. This will be most evident in freight, where the mode of transit 
will become even more transparent and of little concern to the shipper. 

3. Issues 

Transportation is the benefactor and victim of the worldwide economy. 
When global economic growth is weak, or when substantive barriers to 
trade exist, transportation is negatively impacted. With the world's 
economy mending and worldwide pressure to reduce barriers becoming 
effective, trade and transportation should soar in this decade. Exhibit III- 
5 shows some of the issues that can impact transportation's growth. 

Exhibit lli-5 

Transportation Issue Summary 



• Consolidation 

• Global Economy 

• Technology 



a. Consolidation 

Consolidation does not just mean mergers and acquisitions; rather, it is 
defined as the forming of a compact mass. This is what the sector needs 
to achieve if customers' expectations of seamlessness are to be met. In 
airlines this is code-sharing, where systems are code integrated to use a 
single flight number to cross airline boundaries. For freight to achieve 
this requires similar integration, within and among the transport modes. 
EDI and advanced tracking systems offer the base for this. 

b. Global Economy 

Trade, and its enabler transportation, has long been a global issue. A 
growing economy in the U.S. alone does not support the transportation 
infrastructure. The import and export of goods and the travel of people 
to support international trade is required. Global economic improvement 
is what the U.S. transportation sector seeks. 



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to support international trade is required. Global economic improvement 
is what the U.S. transportation sector seeks. 

The passage of NAFTA became a bipartisan effort in Washington and it is 
only one of several free trade agreements in current discussion that will 
affect the future of the U.S. transportation sector. Already, NAFTA has 
made a visible impact in Canadian transportation. An interesting visible 
sign of NAFTA's impact in transportation is found on the rails in Canada. 
Canadian Pacific (CP Rail) has recently "Americanized" its trademark by 
adding stars and stripes to its familiar maple leaf symbol. Not to be 
outdone, Canada's number-two railroad, the more conservative state- 
owned Canadian National Railroad (CN Rail), followed with a name 
change to CN North America. Both railroads' changes are reflective of 
the historic cross border economic pattern that NAFTA formalized. 

Under discussion is the General Agreement on Tariffs and Trade (GATT), 
with 117 of the world's nations involved. The purpose of the agreement 
is to achieve a new set of "fair trade" rules. The U.S. is generally in favor 
of the purpose because significant lowering of tariffs is expected. The 
real problems of the U.S. trade imbalance are believed to be in the non- 
tariff barriers erected in many countries, particularly Japan and China, to 
foster growth and protect their own businesses. Regardless of these 
barriers, GATT should be good for transportation because lower tariffs 
mean more shipment of goods. 

After NAFTA, the western hemisphere's free traders now talk of an 
American Free Trade Area (AFT A) — a gradual hemispheric free trade 
area. The expectation of gradual movement is because of the concern 
over the financial stability of many Latin American countries, i.e., those 
south of Mexico and the Caribbean Islands. Colombia's President Gaviria 
looks for AFTA by 2000, and as the new head of the Organization of 
American States (OAS) he may be in a position to become the 
hemisphere's champion. INPUT believes that the extension of the free 
trade area will make sense in the longer term. Prerequisites include: 
AFTA countries must attain a modicum of financial stability; NAFTA 
fears must prove to be generally unfounded; and there must be a 
resolution of the Cuba-U.S. impasse. Of course, Latin America may feel 
that the U.S. should heal itself financially before a hemispheric 
partnership can be built. 

c. Technology 

Can the U.S. transportation sector firms effectively use their superior 
technology to extend globally? In railroads, Santa Fe has sold its control 



©1994 by INPUT. Fteproductlon Prohibttod. 



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system to Canada's CN North America. Union Pacific achieved a similar 
arrangement with FNM, Mexico's National Railroad. This is technology 
sharing previously unknown in transportation and provides a close 
linkage between the partners as well as income to the seller. INPUT 
believes that this will become a pattern for other U.S. transportation 
technology leaders. 

The U.S. Department of Defense has opened its satellite-based Global 
Positioning System (GPS) to the world. Its accuracy is expected to 
improve airline and ocean navigation, allow the worldwide locating of 
equipped shipping containers, be part of dispatch-to-truck 
communications, and even provide data for more accurate maps. The 
transportation downside is that other government-supported navigation, 
like Loran C and Omega, may become early victims. However, those 
producing GPS equipment will find the market exploding, particularly to 
support the millions of weekend sailors. 

Automatic equipment identification (AEI) tags are being attached to 
freight transportation components, from locomotives to truck trailers and 
containers, at a rapid pace. The tags will allow road, rail and water 
carriers to accurately track movements as tagged equipment passes by 
stationary interrogator units. Railroads are the most aggressive in AEI, 
with an American Association of Railroads (AAR) mandate to tag all 
equipment that moves interline (i.e., on more than one railroad) by the 
end of 1994. This alone will tag over 1.5 million pieces of equipment. 



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Information Systems 
Environment 



A 

Global IS Issues 

As in all industry sectors, transportation has objectives that are 
technology driven or technology enabled. Some are to catch up with the 
competition and others are designed to create an advantage, at least 
temporarily. Now, more than ever since the invention of the wheel and 
the domestication of animals, transportation sector players are working 
together — even across mode lines. Exhibit IV- 1 Usts the primary issues 
that IS must confront. 



Exhibit IV-1 



Global IS Issues 



Focus on customer service systems 
Achieve apparently seamless services 
Lower operating costs 
Respond to government actions 



Transportation sector firms have traditionally had a focus on operations 
and have often lost sight of their role in serving customers. Even the 
trucking companies, which get the highest service grades from shippers, 
are not immune from having more concern for tires and fuel than a 
customer's needs. Although transportation operational systems are still 
significant, IS is being asked to build systems that are more shipment 
oriented. These different systems ideas often require a business feel that 
may not be present even among the business people of the transport 



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company. This has tended to make outside help for these system 
developments a requirement. 

As the frequency of being both customer of and shipper to other 
transportation firms increases, the need for better and more timely 
communication of information also increases. This is particularly true 
since the company in control of a shipment may be buried deep within 
transportation layers far from the true shipper. A continuous flow of 
information, as in electronic commerce, is often the only way to keep 
things moving and provide customers with any real shipment data. Some 
transport companies try to acquire the pieces to do it all themselves, thus 
creating megacarriers. Even this extreme action does not always solve 
the communication problem because it is only a collection of different 
mode-based companies. The creation of seamless transfer through a 
chain of transport suppliers is an issue even for the megacarrier. 

In the price-competitive transportation marketplace, cost reduction has 
been part of the justification for all but government mandated actions. 
Even in mandated situations, the complaint of increasing costs often 
slows implementation, e.g., positive train separation's linkage with ATCS. 
However, technology as the enabler of cost savings is the mover of 
projects, as when the caboose and brakeman at railroads were replaced 
by the end-of-train box. 

Finally, transportation IS has to contend with the action of government 
and unions more than most industry sectors. Though many would argue 
that the changes are valid and necessary, their creators claim that they 
should be allowed to regulate themselves. These mandates can take the 
form of the unbiasing of CRS systems and the realignment of radio 
frequencies, which will cost rails dearly. 



IS Applications Environment 

INPUT has created and maintains a database containing application 
system projects collected through questionnaire responses and interviews 
with project managers at various businesses and government agencies 
within the U.S. The data is current, having been collected during 1993 
and early 1994 as part of INPUT'S continuing process of data gathering to 
support its goals related to the delivery of up-to-date market information. 
The full base contains information on more than 2,500 application 
systems divided by standard industry sector classification (SIC codes). 
Relevant to this research study is the material extracted concerning 
transportation sector firms, as compared with the entire database. 



IV-2 



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Exhibit IV-2 compares application platform use between all industries and 
the transportation sector. 



Exhibit IV-2 



Application Platform Usage 



Desktop 



m 



Mainframe 



Minicomputer 



42 



35 




DaII Industries 
□ Transportation 



16 



14 



■\— h 



+ 



0 20 



40 60 
Percent 



80 100 



Because of rounding, numbers do not add to 100% 



Analysis of this data shows that transportation sector application projects 
tend to be significantly more mainframe based than the average of those 
for all industry sectors in INPUT'S sample. INPUT believes that the main 
reason for this relates to the substantial numbers of large firms within 
transportation that have been involved with computers for decades. 
These would include airlines and major railroads that have been major 
computer users since the 1960s. This, combined with established 
information services organizations, supports the favored status of 
mainframe solutions. 

To provide a picture of the use of two particular service markets within 
the transportation sector, INPUT did an applications sample analysis of 
professional services (PS) and systems integration (SI) vendors. 
Combined, these are two of the primary support functions related to 
application development. Exhibit IV-3 shows the use of these services, 
comparing the usage of the full sector database with transportation 
sector applications. 



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External Services Usage Proportion 



Professional 
Services 



Systems 
Integration 



Both 



12 
14 



41 




20 40 60 

Percent 



nAII industries 
EI Transportation 



80 100 



Transportation sector firms tend to use external service support for their 
application projects much more frequently than the average of all sectors. 
INPUT'S application projects sample shows that 55% of all transportation 
sector projects involve either professional services or systems integration 
contractors. This shows that transportation firms know that they are in 
need of external expert advice and assistance with application systems. 
This should place this sector's firms among the targets for the vendors of 
these services. - 

Finally, INPUT analyzed the use of external services for desktop systems. 
Desktop systems are those in which the application is implemented on a 
client/server or workstation processor. This definition would not 
eliminate the existence of a mainframe within the network, but these 
solutions require that the processing be done within the desktop 
environment. Exhibit IV-4 shows the results of this analysis in all 
industry sectors and in the transportation sector. 



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Use of External Services with Desl<top Systems 



All Applications 




Desktop 
Applications 




55 



HaiI Industries 
□ Transportation 



20 



H H 

40 60 

Percent 



+ 



80 100 



INPUT analyzed the impact of desktop systems on the normal patterns 
for a sector using external services. On average, the total base of 
projects showed little difference in the use of these services for desktop 
applications (36% overall, 37% for desktop solutions). However, when 
viewed by industry sector, some surprising differences were obvious. No 
industry sector displayed the average. Some sectors became much 
heavier users, while others showed a tendency to use fewer external 
services with desktop systems. The transportation sector was one of the 
latter; use dropped from 55% to 33%. Certainly this sector's lower- than- 
normal use of desktop solutions for application projects (Exhibit IV- 1) is 
matched by this result. However, INPUT believes that the primary 
reason is the high level of PC-based turnkey packages created to solve 
generic transportation issues. An example is the need for all players to 
become involved in EDI to effect seamless transfers and the availability of 
inexpensive PC software to meet this need. 

Although INPUT believes that the variation between companies may be a 
better predictor of opportunity than total sector analysis, the tendencies 
shown for a sector can be valuable to vendors. INPUT'S current analysis 
of the transportation sector shows that mainframe solutions are clearly 
dominant; firms in this sector tend to be high users of professional 
services; and, their use of desktop systems tends to be for prepackaged 
solutions rather than as the application implementation. 



©1994 by INPUT. Reproduction Prohbited. 



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c 

IS Response to Environmental Forces 

In most industries, there are firms that break new ground and push 
forward while the rest of the industry tries to keep up. To some, this has 
come to mean the appHcation of technology to industry problems in 
innovative ways. In the 1960s, the technology definition for airlines came 
from the pioneering SABRE reservation system of American Airlines. 
Not only did this establish a new expectation for service, but it made 
airlines one of IBM's largest customers for decades and created the CRS 
industry. 

The most common application found in INPUT'S sample of projects active 
during 1993 hardly qualifies as a new innovation. Rather, it is an 
indication of a major effort by transportation to implement an existing 
concept — EDI. No discussion of transportation technology would be 
complete without an explanation of where transportation is going with 
EDL 

1. Electronic Data Interchange 

The glue that allows transportation to function and that has improved 
efficiency is electronic data interchange (EDI). Projects at almost all but 
the smallest sector companies are in the process of adopting or expanding 
EDI capabilities. Many times this is to keep business rather than attract 
it. 

Transportation firms, which could have extended the lead they once had 
in the implementation of EDI, are now frequently doing EDI at the 
insistence of firms in the other industry sectors they serve. This is not to 
say that transportation firms are not heavily involved in EDI processing. 
Rather, the transportation sector's expenditures for electronic commerce 
constitute about 18% of the total spent by all industry sectors. 

However, transportation is working hard to implement EDI applications. 

Exhibit IV-5 presents an extraction from INPUT'S sample of those 
projects indicated as having an EDI component. Shown is the percentage 
of projects for all sectors and those within the transportation sector. 



IV-6 



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Applications Ttiat Include EDI Component 



EDI Applications 



All Industries 



Transportation 




61 



-I— 1 1 h 



20 



40 60 
Percent 



80 100 



In INPUT'S sample, transportation showed the highest percentage of any 
other industry sector with regard to EDI; 61% of projects are EDI 
oriented. This is particularly significant when compared with the 36% 
average found for the entire sample of projects. Whether the sector's 
impetus is derived from its customers' pressure or participants' own 
desires, transportation is moving rapidly on EDI. 

INPUT performed an analysis of the platforms used by respondents for 
EDI application implementation. Exhibit IV-2 showed that transportation 
applications exhibited a much higher use of mainframe platforms than 
the percentages shown by other sectors. Exhibit IV-6 compares the 
implementation platform percentages for the entire INPUT sample to 
those indicated as within the transportation sector. 



©1994 by INPUT. Repfoduction Prohibited. 



IV-7 



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Exhibit IV-6 



EDI Application Platform Usage 



Desktop 




Mainframe 



l\/linicomputer 



57 



DaiI Industries 
□ Transportation 



18 
20 



H 1- 



20 



40 60 
Percent 



80 100 



Because of rounding, numbers do not add to 100% 



Analysis of this data shows that more than half of the transportation { 
sector's EDI application projects were on mainframes. This exhibit is 
comparable to Exhibit IV-2, except that transportation's preference for 
mainframes is even stronger with EDI projects. This is in contrast to the 
generally high use of desktop environments for EDI exhibited by the 
overall percentages. 

In summary, transportation sector expenditures for electronic commerce 
are percentage-wise lower than in many other industry sectors. 
Secondly, EDI appears to be an IT application priority within 
transportation. Finally, transportation shows a high use of mainframe 
EDI relative to the overall sample. INPUT believes that 1993 application 
development levels for EDI will continue for several years until 
transportation EDI expenditures reach or exceed parity with those of 
other sectors. In addition, INPUT believes that transportation will alter 
its mainframe preference to favor client/server environments as IS 
departments become comfortable with that technology. This platform 
shift will probably be accompanied by an increased need for external 
services (specifically PS and SI) at the desktop and client/server levels, 
which is not the current trend. 



IV-8 



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a. Rail 

Most major railroads have centralized their dispatch and control 
operations. Union Switch &. Signal, in Pittsburgh, has two; CSX and 
Union Pacific installed one for Burlington Northern. Santa Fe and 
Southern Pacific used Digital Concepts for their central sites. Although 
the sites are expensive (UPs cost $50 million), their annual savings in 
reduced locomotive idle time alone provide a rapid payback. 

Pressure to move forward on the Advanced Train Control System (ATCS) 
continued from the National Transportation Safety Board, particularly 
the planned feature called "positive train separation." The full ATCS 
system proposes that trains be controlled from central computer sites, 
rather than by the engineer in the cab. The Canadian government has 
pushed Canadian railroads even harder, but CP Rail has been trying 
longer and harder than anyone else and has yet to make it work. The 
crusade for this feature began in 1986 and railroads believe that it can be 
provided without the massive systems that will be required for the full 
ATCS. 

A future issue for railroads involves a change in the radio frequencies by 
the Federal Communications Commission planned for 2004. The 
equipment to effect this change is expected to cost in excess of $1 billion. 

Also in rail: 

• Santa Fe's new customer-oriented systems answered the system 
requirements for CN North America so well that the latter bought a 
copy of the system. CN North America is owned by the Canadian 
•government. This places two of North America's major railroads — 
with combined revenues for 1992 of $6.3 billion — under the same 
system. The Santa Fe system is mainframe based, using IBM's DB2 
relational data base consisting of four on-line applications that focus 
on the way bill, a railroad's document that specifies the customer 
order. The system also allows the railroad's customers on-line PC 
access to shipment information. Santa Fe says that it is in 
negotiations with another railroad for its system. 

Conrad's ACCESS system does EDI for the railroad's customers and 
can provide real-time shipment status reports. The system is PC- 
based and connects to Conrail's mainframe for data. Atlantic 
Container Lines and Hershey's Chocolate, USA were early users. 
The primary advantage, according to Conrail, is the quicker billing 
time provided by the system. 



©1994 by INPUT. Reproduction Prohbrted. 



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Union Pacific has re -engineered its decision support systems, e.g., fuel 
costs and train schedules, into a large parallel processing system 
based on an NCR 3600 and a Teradata mainframe. The system 
functions in a client/server environment. 

b. Water 

The major 1994 systems story in the water subsector is Ocean Carriers 
Electronic Access Network (OCEAN). The system is the culmination of 
an effort that required the U.S. Maritime Commission to allow the ocean 
carriers to act together through the Information Systems Agreement 
(ISA). The ISA members include American President Lines, A. P. Moller- 
Maersk Line, P&O Containers, Sea-Land (part of CSX), Crowley 
American Transport, Hapag- Lloyd and Orient Overseas Container Line. 
These firms established or joined the group to unify and standardize EDI 
and other transmissions for their subsector. The result is a PC-based EDI 
package created to ISA specifications by TSI International. Expectations 
are for the system to clear beta test by late 1994. 

Synchronous Planning and Real-time Control System (SPARCS) is a 
Macintosh-based system from Navis of Oakland, CA. It provides 
enhanced planning for the loading and unloading of ships at American 
President Lines and Matson Navigation. The system is being expanded to 
integrate logistics with truckers and customer service and to eliminate 
many of the formerly manual operations. 

c. Truck 

RoadRider is the result of a four-year joint development by JB Hunt and 
IBM. The truck-cab end of the system is a ruggedized, touch-screen IBM 
PS/1 with the capability to utilize three different communications links 
via radio or satellite to the company's centralized headquarters. The 
system is designed to provide continuous location and status information 
for dispatchers as well as onboard capabilities. Data entered by drivers is 
immediately available to dispatchers, rather than by the old way of 
telephone communications. Hunt estimates that even with only a third 
of the trucks on line, truck utilization is up 5%, phone costs are down 60% 
and fleet managers can do their jobs rather than answer driver phone 
calls. The system is said to provide the support for the service required 
by JIT auto makers and to consistently meet schedules for efficient 
intermodal operations. 

The package battleground is in the customer's PC, with free tracking 
software from Federal Express's PowerShip or UPS's MaxiShip. Though 



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provided as a way to track packages, most customers use the built-in 
label printing and reporting capabilities. The future for these could be 
the ability to track shipments with other carriers. For the package 
companies, there is more business after the software is installed. 

d. Air 

Canada's CRS, Gemini, was the object of long and bitter litigation among 
the owning parties. Air Canada, Canadian Airlines International (CAI) 
and PWA Partners. The problem: CAI wanted out so that its partial 
buyout by American Airlines could be completed. It finally happened; Air 
Canada reservations are Galileo-Canada and CAI will be a SABRE 
customer. 

The breakup of the Canadian CRS Gemini, with Canadian Airlines 
International becoming a SABRE customer and the creation of Galileo 
Canada (to be owned by Air Canada), does not alter the overall 
processing services market. This split moves some reservations activity 
to SABRE, and will cost CAI $115 million in fees, but it does not modify 
the total CRS activity. However, this does draw to a close the lengthy 
legal struggle among the former Gemini partners. 

Worldspan CRS (TWA, Delta, Northwest and Abacus) contracted with 
IBM for a new mainframe-based information system to consolidate its 
travel services into a single system. 

American began testing wireless LAN notebook computers for roaming 
customer service attendants to assist travelers with rebookings when 
counters get full. American anticipates expanding service to the curbside 
for baggage checking and boarding passes. 

Travelogix and System One (Continental/EDS) began joint marketing a 
PC product in Canada for travel agents that translates data into CRS 
formats. The software is available in either Windows or Macintosh 
versions. 

Watch airline seats for faxes, games, news, etc. In-Flight expects more 
than 500 aircraft (currently American West and USAir) to be equipped 
with its FlightLink digital phones that include an RJll phone jack for 
data. Southwest offers fax and data on its AirOne phones manufactured 
by Claircom Communications (a subsidiary of McCaw Cellular 
Communications), which also counts Air France, American, Northwest 
and United as customers. 



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e. Air Cargo 

The two largest airlines in Japan, Japan Airlines (JAL) and All Nippon 
Airways (ANA), are moving to prepare for substantial increases in air 
cargo volumes. JAL expects nearly 20 times more volume in the year 
2000 than it handled in 1990 and is increasing mechanization and robotics 
use to deal with the increases. ANA is upgrading its cargo support 
systems by 1995 to enhance its freight management. 

2. Summary 

Each of these technology events displays some response to the global 
issues; in some cases more than one is addressed. Exhibit 1V=7 repeats 
the list of global IS issues from Exhibit IV- 1 and adds the relevant 
applications projects to complete the picture. 

Beyond the classification of the discussed application events to the issues 
list, there are other interesting points found in the descriptions: 

• The level of mainframe use for major systems is higher than might be 
expected, like RoadRider, the new Worldspan System and Santa Fe's 
system, 

IBM is partnered with transportation companies JB Hunt and 
Worldspan. 

Some systems were, or will be, marketed, such as Santa Fe, Conrail 
and Union Pacific. This introduces new transportation sector 
technology vendors. 



©1994 by INPUT. Reproduction Prohibited. 



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Exhibit IV-7 

Global IS Issues and Representative Activities 



• Focus on customer service systems 


-Rail 


- Centralized dispatch and service centers 




- Santa Fe shipment-focused systems 


- Freight 


- Enhanced tracking with AEI 




- Direct customer system interface offerings 




- Direct driver/engineer communications 


-Air 


- Wireless notebook customer service 




- Digital aircraft phones 


• Achieve apparently seamless services 


- Freight 


- Expanded EDI and EFT capabilities 




- AEI tracking 


• Lower operating costs 


- Freight 


- Reduce idle time 


- Rail 


- Train-based technology 


- Truck 


- RoadRider system 


- Air Cargo 


- Two Japanese systems 


• Respond to 


government actions 


-Air 


- Split of Gemini CRS 


-Rail 


- Pressure for ATCS 




- Radio frequency changes 



p 

Impact of New Technologies 



1. EDI Message Formats 

The controversy over message formats — EDIFACT or ANSI X.12 — rages, 
but few in transportation seem to be very concerned. In 1987, a 
committee of the United Nations developed what it called "the only 
acceptable international standard for EDI" — EDIFACT. North American 
transportation firms continue to use, as they have for years, the ANSI 
X.12 code structure. ANSI X.12 is also the predominant code for Pacific 



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Rim countries. Although the issue would seem to loom large, the easy 
availability of PC-based translation software makes it insignificant. 

2. Automatic Equipment Identification (AEI) 

Both the American Trucking Association (ATA) and the American 
Association of Railroads (AAR) are in the process of implementing the 
standardized international coding scheme used for location tracking of 
freight containers and freight transport equipment. There are three 
basic components of these systems: vehicle mounted transponders (tags), 
stationary interrogator units (radio reader/transmitters), and the 
computer systems to collect and utilize the data. The tags are small, 
normally passive electronic devices that currently are about 2 inches by 9 
inches. Two tags, one on each side, are placed on each unit. The tag 
contains a specific number, unit type, ownership identification and an 
indication of the vehicle side. Interrogator units are located at fixed 
locations along railroad tracks, highways and in transfer yards. When 
activated by an interrogator, the transponders respond with their 
contained identification data. 

There are seven tag types in all: locomotives, rail cars, end-of-train 
devices, shipping containers, trailers, chassis and tractors. The AAR has 
mandated that all interline equipment (that which moves on another 
company's tracks) will be tagged by the end of 1994. It is expected that 
more than 2 million pieces of equipment will be tagged by 1995. With two 
tags per unit, the cost will exceed $60 million for just the tags. Additional 
expenditures include interrogator units ($20,000 to $30,000 a piece) and 
communications and software to hold and use the data. Amtec of Dallas 
is the primary supplier of the tags and interrogator units. 

3. Communications 

The desire for companies to communicate directly with their dispersed 
traveling entities (like truck drivers and railroad engineers) has spawned 
the growth of several competing systems. Some are based on satellites 
like Qualcomm's OmniTRACS, others on cellular (UPS's multivendor 
solution), or JB Hunt's hybrid of three different modes. Still others are 
traditional radio-based systems. One of the most aggressive 
communications initiatives is the Iridium Communication System, led by 
Motorola, but supported and owned by many companies around the 



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world. Iridium proposes the launch of 66 low orbit satellites over the next 
ten years that will support digital communications to anywhere on the 
globe through cellular-like phones. The phones are expected to be dual 
mode, allowing access through terrestrial cellular networks as well as the 
* satellite network. 



©1994 by INPUT. Reproduction Prohibited. 



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IV-16 



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Information Services 
Market Forecast 



A 

Market Overview, 1994-1999 

In 1993, the transportation sector's information services expenditures 
grew at a 10% rate, consistent with the prior year. In addition, the 
INPUT forecast for the next five-year period remains unchanged, with an 
aggregate CAGR of 10%. This year-to-year consistency does not hold in 
each of the product/service sectors, but the negative shift in some areas is 
compensated by positive movement in others. The primary change is 
' found in the continued shift from traditional professional services to 

systems integration. Exhibit V-1 graphs the five-year period. 

There is projected growth in all product/service markets through the five- 
year forecast period. However, the trend of each market is unique and 
growth diminishes for some (turnkey systems, processing services and 
professional services exhibit single-digit growth), while dramatic 
increases are found in others — for example, network systems and 
systems integration lead with 19% and 20% respectively. Even within a 
category, some submarkets are on a different track than others; 
applications software for workstation/PC environments is projected to 
grow at 22% within a 14% category. 



I 



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Exhibit V-1 

Market Forecast, 1994-1999 




1994 1999 
CAGR 10% 



Some product/service markets and submarkets display a cyclic pattern 
over time, driven up by a new product or service and coming back down 
as the direct market becomes saturated, a different market offers a 
competitive approach, or sector spending slacks off. This last can be 
driven by the poor economic conditions, and the fact that the sector can 
only sustain so many major technology projects at one time. Seemingly 
unrelated factors, like government actions, can also affect spending. 

B 

Forecast by Product/Service Market 

With the exception of the changes previously noted, this year's forecast 
mirrors last year's in terms of CAGR growth. This stability reflects 
INPUT'S prior forecast for a late 1993 slow-growth recovery, with only 
single percentage point changes for most markets. INPUT still predicts 
that this will be the case — a recovery more noticeable in retrospect than 
as a current event, and that the pace of growth will be generally 
conservative through the forecast period. 

Exhibit V-2 presents INPUT'S forecast for the transportation sector by 
product/service market for the period 1994 through 1999. 



V-2 



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Exhibit V-2 



Information Services Market by Product/Service Market 



Processing Services 



2,400 



3,100 



Network Services 
Applications Software 
Systems Integration 
Outsourcing 
Turnkey Systems W^^^ 
Professional Services 



500 



] 1,200 



540 



] 1,060 



270 

1111 670 



"1994 

01999 



320 



600 



CAGR (%) 
6 

19 

14 
20 

13 
8 



490 



290 
1400 



+ 



+ 



+ 



500 1,000 1,500 2,000 2,500 3,000 3,500 



Market Size ($M) 



1. Professional Services 

Expenditures for professional services will grow at a rate of 8% in 1994, 
with a dollar volume that is sixth out of the seven markets, increasing 
from $269 miUion to $290 milhon. The CAGR is forecast to drop to 6% 
over the forecast period, while user expenditures grow to only $395 in 
1999, as it becomes the smallest product/service market. 

Professional services firms' fortunes are tied to the successful conversion 
to systems integration and outsourcing. Just as the user preference is 
for application systems, client/server solutions and microcomputers for 
small systems, the large system projects will go to these more complete 
services. Though some large-scale projects will always make use of 
professional services firms for assistance, the competition for other work 
will increasingly come from other vendor types. 



MVTL 



) 1994 by INPUT. Reproduction Prohbited. 



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INPUT continues to project that vendors who have historically featured 
professional services — Big Six firms, niche specialists, etc. — will proceed 
in the future by featuring systems integration based on their business 
analysis capabilities. Professional services will diminish as a standalone 
activity. Smaller firms will move into affiliations that allow them to share 
in SI projects. Those who remain strictly professional services suppliers 
will find business as subcontractors in specific niche areas of the sector. 
Beyond competition from SI firms, the professional services offerings to 
support turnkey and application systems sales by those firms will also cut 
into the direct professional services market. 

2. Systems Integration 

Systems integration, currently the smallest market, is the second fastest 
growing product/service market, with a CAGR of 20% from 1993 to 1994. 
The market will grow from $225 million to $271 million. This will make 
SI the fourth largest in total dollar volume. 

The growth in SI is predicated on the desire of the sector user to select a 
single vendor for major systems implementation and the fact that the 
vendor must commit to risk sharing for the longer term agreement. 
When successful, both sides v/in. SI is projected to grow significantly, 
based on a record of successes and on vendors getting better at selling 
and executing these projects. 

Helping rail and truck segment firms make full use of the information 
gathered by wireless communication capabilities in vehicles should be an 
SI opportunity that grows over the next decade. 

3. Outsourcing 

Systems operations expenditures are expected to show the highest 
growth, at 36% in 1994, increasing from $237 million to $322 million. The 
two submarkets, desktop services and network management, are 
projected to grow at 15% and 25% through 1999. The entire 
product/service mgirket is forecast to grow at 13%, bringing total 1999 
expenditures to $606 million. 

The Southern Pacific/ISSC outsourcing contract signed in late 1993 was 
the primary reason for the year-to-year jump of 78% in the applications 
operations submarket. The approaches of other bidders (EDS and Perot 
Systems) were based on re-engineering rather than the more traditional 
ISSC agreement. The ten-year, $415 million contract is the first major 



©1994 by INPUT. ReQroduction Prohtoited. 



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outsourcing contract in the railroad sector and may set an example for 
others, if it is perceived as successful. 

Systems operations contracts tend to require lengthy negotiations. They 
are large in gross dollar volume and extend for a lengthy period. The 
ability of a systems operator to structure an agreement, take over 
control, achieve efficiencies and continue to provide quality services is the 
key to turning initial investments into net profits. INPUT believes that 
the trend in businesses to strip away all but core units will continue to 
keep this product/service market busy addressing opportunities through 
the forecast period. . , 

4. Processing Services 

Processing services showed a 6% increase in transportation expenditures 
from the 5% recorded the prior year, growing from $2.3 million to $2.4 
billion. Though improved, this was the slowest growing product/service 
market this year, a trend that is expected throughout the forecast period.' 
The CAGE from 1994 to 1999 is projected at 6%. 

Opportunity exists for this market because of its size. However, the 
transportation sector is largely made up of small companies at which 
computers sit on a desktop and basic functions, even rudimentary EDI 
linkages, are readily accomplished. Even larger players are turning to 
workstation/PC and network solutions. 

The primary application within the processing services market is 
reservation systems, with the airline CRS systems the predominant 
entity. The expenditures cover only the revenues for transactions and 
service agreements, not the expenditures for reservations of the owning 
airlines. Should airline ownership of CRSs cease, which INPUT believes 
is inevitable over the next five years, this product/service market would 
grow dramatically overnight. By way of example: current fees are about 
$2 per reservation, with almost 40 billion passengers served by the major 
airlines annually. Reservation charges could yield an extraordinary 
expenditure total, even with cut rates for high-volume airlines. 

The breakup of the Canadian CRS Gemini, with Canadian Airlines 
International becoming a SABRE customer, and the creation of Galileo 
Canada, to be owned by Air Canada, does not alter the overall processing 
services market. 



©1994 by INPUT. Reproduction Prohtoited. 



V-5 



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5. Network Services 

INPUT forecasts that network services will become the second largest 
services market very rapidly, probably by the end of 1996. User 
expenditures are expected to grow by 18% between 1993 and 1994, from 
$427 milUon to $505 million, making this the third fastest growing 
product/service market. The CAGE through 1999 will be 19%, with total 
expenditures exceeding $1.3 billion during the fmal year. 

The driver is the network applications submarket with expected year-to- 
year growth of 23%. The primary cause of this growth is the rapid pace 
of deployment of wireless communications devices by the trucking and 
rail segments. To support this increase, at least two new communications 
satellites are expected to be launched in 1994 by the consortium that 
includes American Mobile Satellite and Telsat of Canada. 

INPUT believes that this submarket will grow steadily, but that growth 
will slow as communications capabilities become saturated. Growth will 
resume as more capacity becomes available. The growth in this 
submarket is also a predictor of opportunity in other markets' ability to 
fulfill the growing need for systems to make use of the new flow of 
information from vehicles. Location sensing and improved 
driver/engineer communications are only the beginning as sector firms 
seek ways to justify the expense of interconnection. 

6. Applications Software Products 

Applications software expenditures by transportation companies will 
grow at a rate of 14% between 1993 and 1994, with dollar volumes 
moving from $427 million to $544 million. INPUT projects a CAGR of 
14% through 1999 as the market grows to over $1 billion, taking third 
place among the product/service markets. 

Within the submarkets, workstation/PC products maintain an increasing 
portion of the demand for applications software, growing at a 23% CAGR. 
Though mainframe and mini submarkets show modest growth, the trend 
toward microcomputers is at the expense of the other submarkets. Since 
micro software costs less than mainframe and minicomputer equivalents, 
this trend also causes the growth in total dollars to be moderated. The 
workstation/PC submarket's growth is caused by the impact of using 
intelligent workstations for connection to mainframes, the trend toward 
client/server, application downsizing, and the need for useful software for 
vehicle-mounted units. 



©1994 by INPUT. Reproduction Prohiiited. 



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7. Turnkey Systems 

Expenditures for turnkey systems increased by 9% in 1994 over 1993, 
rising from $310 million to $337 million. This level is projected to 
decrease to a CAGR of 8% through the forecast period, reaching $494 
million by 1999. 

Though expenditures for turnkey solutions continue to grow annually 
through the forecast period, the trend toward workstation and PC 
products will hold the increases to a modest level in this highly 
competitive market. The trend toward workstation/PC systems could be 
used by turnkey producers to move products to these machines, which 
serve to hold down prices. In addition, sector buyers often look for 
software products to run on existing machines or choose to purchase 
their equipment separately to achieve the lowest price. This tendency 
will continue throughout the forecast period as user sophistication 
improves along with applications software quality and utility. 

The slowest growing submarket in turnkey systems is the equipment 
component, reflecting the growth in workstation/PC systems fashioned 
with cheaper hardware. 

c 

Analysis 

The trends evident in this product/service market discussion are further 
borne out by the changes in expenditure share of total sector 
expenditures projected for each product/service market in Exhibit V-3. 



MVTL ©1994 by INPUT. Reproduction Prohbited. V-7 



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Exhibit V-3 

Product/Service Market Share Comparison — 1994-1999 





[ 19^4 ' 




1999 




Sector Total 


■Jiiiiiii- 11 

4,672 


100% 




7,572 


Percent 
100% 


Professional Services 


290 


6% 




395 


5% 


Systems Integration 


271 


6% 




665 


9% 


Outsourcing 


322 


7% 




606 


8% 


Processing Services 


2,403 


51% 


3 


,145 


42% 


Network Services 


505 


11% 


1 


.205 


16% 


Applications Software 


544 


12% 


1 


,062 


14% 


Turnkey Systems 


337 


7% 




494 


7% 



Because of rounding, numbers do not add to 100% 



Though all product/service markets show growth through the forecast 
period, Exhibit V-3 shows the significant change in the share of sector 
expenditures based on INPUT'S forecast. 

Losing share are: 

• Processing services, the biggest share loser, dropping from 51% in 
1994 to 42% in 1999 • 

• Professional services, going from 6% in 1994 to 5% in 1999 
Gainers are: 

Network services, with the largest increase, from 10% in 1994 to 16% 
in 1999 

• Applications software, up from 11% in 1994 to 14% in 1999 
Outsourcing, moving up from 5% in 1994 to 8% in 1999 

• Systems integration's share going from 6% to 9% in 1999 

Only one submarket, turnkey systems, stays at an even 7% share in both 
periods. 



V-8 



©1994 by INPUT. Reproduction Prohbited. 



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Competitive Environment 



This chapter presents a view of the environment for information services 
vendors within the transportation sector, in the following sections: 

• Competitive Climate 

Competitive Positioning 

Selected Vendor Profiles 

INPUT'S data is gathered through monitoring published data, in-depth 
interviews with transportation users, vendors who market to the sector, 
and published financial data. The data is constantly reviewed, analyzed, 
cross-checked with alternative sources and updated accordingly. The 
result is a set of over 3,000 continuously updated files on IS vendors as a 
basis for extraction in creating sector reports. 



1. Mainframe Bias 

Although there exists a shift to client/server- and workstation-based 
systems, the bigger firms of the transportation sector remain 
predominantly mainframe operations. This can be meaningful in several 
ways to the technology vendor. Transportation firms are targets for 
mainframe-oriented vendors of equipment and services. INPUT believes 
that they will stay with this direction for their mission-critical legacy 



Secondly, as they gradually shift to downsized platforms, their substantial 
investment in mainframe systems will need to be carefully considered by 
vendors as client/server development proceeds. An expected 
requirement will be to integrate legacy and new systems on different 
platform levels. 



A 



Competitive Climate 



systems. 



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Finally, transportation sector organizations will be familiar to technology 
vendors. With the exception of a few firms, their IS organizations tend to 
be centralized and traditional in structure. Although this would seem to 
be contradicted by the next point, transportation firms often buy 
technology through their IS organizations. 

2. Transportation Expertise 

Vendors with true industry expertise have the edge in the transportation 
sector. Transportation executives are not impressed by just Big Six-type 
credentials and look for a proven industry track record. This is evident in 
the success of transportation companies as technology vendors. In any 
industry, how many $50 million software packages are sold, like the 
Santa Fe system was to CN North America? 

The most effective solution is the building of affiliations with 
transportation credentialed firms. This does not necessarily mean firms 
that focus exclusively on transportation. It could also be those with a 
substantive business in transportation based on their technology niche, 
such as fuel control systems or EDI. 

3. Electronic Commerce 

Much of transportation is being pressured to install technology hardware, 
like AEI, that in aggregate is very expensive to the transportation sector. 
As technology vendors know too well, the equipment is less than half of 
the story. INPUT believes that the tracking promised by the attachment 
tags will require significant expenditure for promise fulfillment. This 
expenditure will fall first on the owning firm to provide the wide access to 
this information to be effective in providing customer advice. 

The result will be an additional reason for rapid expansion in EDI 
capabilities by all parties. This will include the addition of new message 
structures to existing software and increases in the flow of transactions 
over the networks. 

4. Integration 

Like all companies, transportation has its share of disconnected systems 
in need of interfaces. The real issue is the integration of the data soon 
available from AEI and direct driver/engineer communications within the 
systems and operations of the companies. Although electronic commerce 
will provide the means to locate and communicate this data, the next 



©1994 by INPUT. Reproduction Prohibited. 



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stage is to actually use this information for decisions, maintenance and 
enhanced control of assets and people. 

It is INPUT'S contention that significant systems integration assistance 
will result firom this coming need area. 

B 

Competitive Positioning 

Though the majority of vendor names are familiar, particularly to those 
functioning within the transportation sector, what differs in the 
transportation sector is the relative importance of the various 
product/service markets evidenced by their revenue generation. 

1. Systems Integration Market (SI) 

Exhibit VI-1 

Systems Integration Vendors 







Vendor 


U.S. Market 




Share (percent) 




ISSC 


20 


SAIC 


18 


EDS 


8 


Andersen Consulting 


6 


SABRE 


4 



INPUT believes that there is significant opportunity for SI firms in the 
transportation sector, primarily because of the projected growth. 
Additionally, much of the market (44%) is scattered among many players. 

ISSC is the leader in transportation SI, primarily driven by the sector's 
mainframe history. SAIC, because of its substantial government 
contacts, has garnered a significant share. Most of its effort is in 
supporting all levels of government on IVHS (Intelligent Vehicle Highway 
Systems) and toll collection facilities. 

The relatively small shares of major SI vendors EDS and Andersen are 
testament to the difficulty posed by limited industry exposure. In 
addition, many big SI players tend to place their marketing efforts in 



MVTL 



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sectors in which they perceive the most business potential exists — which 
historically has not been transportation. 

Systems integrators can prosper if they can develop the means for their 
clients to cost effectively utilize the data generated by the expenditures 
for tracking equipment. A vendor's capability to support business re- 
engineering and produce complete solutions will be advantageous. 

2. Outsourcing Market 

Exhibit VI-2 

Outsourcing Vendors 





a$. Market 
Share (percent) 


ISSC 


18 


EDS (non-CRS) 


■ 4 


SAIC 




Affiliated Computing 


2 


RAILING 


2 


Litton 


2 



Until 1993, outsourcing had not been as substantial a factor in 
transportation as in other sectors. INPUT believes that this has been 
caused by sector structure and culture. Structurally, transportation is 
made up of a few very big firms and a multitude of small companies. The 
large firms have been running their own systems operations almost since 
the advent of the computer. Small firms did not have this need until the 
era of the microcomputer. Culturally, the megafirms have seen the 
computer as a competitive tool, rather than the backroom automation 
enabler that is the mirror of those at other sector firms. In 1993, both of 
these barriers were broken by ISSC. 

ISSC acquired the outsourcing contract for Southern Pacific Rail, the first 
major such contract in the railroad industry. The ten-year, $415 million 
deal includes application development, disaster recovery, new technology 
implementation and systems operations. This contract enlarges the 
previously modest lead of ISSC in transportation sector systems 
operations. 



VI-4 



©1994 by INPUT. Reproduction Prohibited. 



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INPUT believes that things will continue to change in a positive direction 
for the outsourcing product/service market. A single contract like ISSC's 
with SP Rail has a big impact on such a small service market and it has 
the potential to generate more interest in outsourcing within the 
transportation sector. 

3. Processing Services Market 

The overpowering product/service market is processing services, which is 
primarily driven by the now 30-year-old airline CRS systems. The 
presence within this industry of these pioneers of technology, and the 
size of these systems, is unique in U.S. industry sectors. This particular 
product/service market, though dropping in share (from 51% to 42%), is 
important to vendors because of the potential opportunities from 
anticipated moves by airlines to generate capital or spread their expense 
by selling at least some of their interests. 

Currently only one CRS system, System One, has even partial non- 
airline ownership. With that exception, and American's sole ownership of 
SABRE, all CRS systems are owned by consortiums of airline owners. 
These systems have really become almost a utility that provides travel 
agents, corporate travel departments and the public with the automated 
means to examine schedules, check prices and make reservations. 
Although the systems are the primary source of reservations to airlines 
(greater than 80% of their reservations), they have become fairly generic 
and are more a utility than an offering giving any airline significant 
market advantage. This last is proven by the success of Southwest 
Airlines, which prospers without being part of any CRS systems. Exhibit 
VI-3 shows the major CRS systems by number of travel agent locations. 



©1994 by INPUT. Reproduction Prohbited. 



VI-5 



TRANSPORTATION SECTOR 



INPUT 



Major CRS Systems by Number of Travel Agent Locations 



Vendor 

Galileo International 


Locations 

30,400 


Percent 
30 


SABRE 


22,000 


22 


Amadeus 


18,900 


19 


Worldspan 


11,350 


11 


System One 


8,000 


8 


Others 


10,000 


10 



Source: Galileo International Ma/i<et Research 



Galileo International is believed to be the largest CRS worldwide, but 
American's SABRE is the biggest within the U.S. Although Amadeus, 
owned by several European carriers, has more locations, Worldspan 
supports double the terminal base. Abacus (owned by nine Asian 
airlines) runs in the same Atlanta facility as Worldspan. System One, 
operated for Continental by EDS, is the fifth largest CRS. The others, in 
order of relative size, are Axxes — Japan Airlines; Abacus — ^Asia; 
Fantasia — ^Australia; and Infini — ^All Nippon Airlines. 

The demise of Canada's Gemini CRS had little affect on the CRS terrain. 
Because the former Gemini locations will now function as part of the 
Galileo conglomerate, where they were prior to Gemini's demise, the 
locations numbers have not changed. 

INPUT believes that further compression of these systems will occur 
before too long. Additionally, it is likely that American Airlines will sell at 
least part of SABRE by 1997. This will be expensive, so there are not too 
many potential bidders. 

4. Network Services Market 

A significant portion (about 25%) of the sector's network services market 
is for EFT. Based on INPUT'S analysis of 1993 EFT application 
development in transportation, there will be increases in these ongoing 
support services for the added EFT traffic. Although EFT does not 
always travel on commercial value-added networks (VANs), a portion 



©1994 by INPUT. Reproduction Prohibited. 



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does utilize these suppliers. Exhibit VI-4 lists the major VAN suppliers 
and their percentage of EFT-oriented expenditures. 

Network Services Market— Transportation EFT 





fen 


d 


or 



General Electric Information Services (GEIS) 

RAILING 

Kleinschmidtl 

Sterling Software 

TransSettlements 

ADVANTIS 



U.S. Market Share (Percent) 

28 
20 

4 

7 

4 

3 



GEIS should be no surprise in the top position, since it is the U.S. EDI 
network services leader. GEIS's presence is significant in all 
transportation subsectors. RAILING, an AAR subsidiary, is second, with 
most of its business in railroads and their partners. Kleinschmidt's 
primary subsectors are rail and trucking. Sterling's full set of electronic 
commerce products and services includes a significant number of 
transportation firms. TransSettlement's focus is the growing trucking 
subsector. 

ADVANTIS, created by the recent combination of Sears and IBM, is 
expected to increase in significance in the future. IBM's outsourcing deal 
with Southern Pacific Lines and partnership with JB Hunt on RoadRider 
should give it an interesting entree to network support. 

Transportation sector firms also provide support for their trading 
partners with EFT. Some of these firms are American President Lines 
(APL), CSX and Union Pacific. 



©1994 by INPUT. Reproductkjn Prohbrted. 



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c 

Selected Vendor Profiles 

1. TSI International 

45 Danbury Road 

Wiltx)n, CT 06897 

Phone:(708) 761-8600 

President & CEO: Constance F. Galley 

Status: Private Corporation 

Total Employees: 150 > 
1992 Revenues: $10 to $20 million* 
* INPUT estimate 

a. General Description 

TSI International, founded in 1967, develops and markets software 
products for IBM mainframes and PCs focused on solutions for the 
delivery of data to production systems. In 1978, TSI introduced the 
KEY/MASTER data input software system, which became the leading 
system of its type. In 1989, Warburg, Pincus Ventures chose TSI for its 
financial support in the development of an EDI product. The result of 
this capital infusion was the Trading Partner mainframe EDI translation 
, software product, introduced in 1990. In 1990, TSI also acquired the 

license and customer base for TransSettlements' TransSlate EDI 
package, and Foretell Corporation, the marketer of PC-based translation 
software. 

b. Products and Services 

Approximately 40% of TSI's revenues are based on its EDI mainframe 
and PC products, with the remaining 60% from its industry standard 
KEY/MASTER products. TSI has kept to its core business of software 
sales and its acquisitions have fit this model. Its long history in EDI has 
brought it into contact with transportation companies, though often as 
part of a contracts with shippers, like Wal-Mart. 

Specific EDI products include: 

Trading Partner, a mainframe-based EDI management software package 
that can process all varieties of EDI messages and map them to a cHent's 
applications. 

Trading Partner PC, the first Windows implementation of an EDI 
translator, supports most network interfaces and handles all standard 



VI-8 



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EDI formats. Also available are a line of "kits" for spoke companies to 
major hub shippers, e.g., Sears and Allstate Insurance. Many more are in 
the process of development. 

TransSlate, an EDI translation package for all platform levels, licensed 
from the network operator TransSettlements. 

c. Strategy 

TSI has traditionally sold its EDI management ideas and software to 
major trading companies (hubs) then proceeded to assist its suppHer 
companies (spokes) with connections. The largest of these has been Wal- 
Mart, with at least 1,500 suppliers. This strategy is effective because one 
major sale begets multiple opportunities, many of them within the 
transportation sector. 

The direct transportation project OCEAN for the major U.S. ocean 
carriers is really similar to TSI's basic hub-and-spoke approach. OCEAN 
is the creation of Trading Partner sets to fit the specific needs of the 
ocean carriers. The only difference is that the carrier's hubs will be 
spokes to other hubs. 

In addition, industry experts suspect that TSI may be close to the 
marriage of its two product sets, manual and electronic data entry. This 
would open its large Key/Master client base to easy addition of EDI 
capabihties. 

d. Challenge 

TSI has historically not been involved in the operation of communication 
networks. In one respect this has been a blessing to its bottom line, 
because few companies make much money from their EDI network 
operations. The converse of this could present TSI problems because its 
competition can provide full EDI services. Because of the first issue, TSI 
has been more successful financially. 



©1994 by INPUT. Reproduction Prohibited. 



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2. Galileo International 

9700 West Higgins Road 
Rosemont, IL 60018 
(708)518-4000 

President & CEO: Allen Z. Loren 

Status: Private Corporation (Ownership = 50% by three North American 
carriers/50% by eight European carriers) 
Total Employees: 2000 + 
1992 Revenues: Not published 

/■ 

a. General Description 

Galileo International was formed in September of 1993 by the 
combination of Covia Partners (Air Canada, United Airlines and USAir) 
and Gahleo (Aer Lingus, Ahtalia, Austrian AirUnes, British Airways, KLM 
Royal Dutch Airhnes, Olympic Airways, Swissair and TAP Portugal). 

The early heritage is found in the United Airlines Apollo Reservation 
System, which began service for that airline in 1971 and became the 
second (American's SABRE was the first) to place terminals in travel 
agencies, in 1976. Although most individual airhne reservation systems 
were capable of "interline" reservations prior to the existence of travel 
agent terminals, it was this placement that is registered as the official 
beginning of the CRS (computerized reservation system). It was also 
during that period when airlines' reservation systems were connected for 
reservation feed to other travel service companies' systems, e.g., car 
rental and hotels. This system eventually became Covia, a separate 
affiliate of United, then Covia Partnership, with half ownership sold to 
four European airlines plus USAir. At the same time, Galileo was being 
developed jointly by a group of three European airlines plus Covia, which 
was joined by five other European airlines. In 1989, Air Canada, part 
owner of Canada's Gemini CRS, became the seventh Covia partner. In 
1993, the two separate CRS systems were brought under a single 
operating center near Denver, Colorado. Finally, in 1994, Galileo 
International took over the operation of Air Canada's (}emini CRS. 

In reality there are three distinct CRSs and one shadow CRS within one 
operating center: Apollo, Galileo, (Gemini and Southern Cross, but these 
appear to the travel agent as one CRS. 

Self- described as one of the world's largest non-government data centers, 
Galileo has a massive operation that includes: 



©1994 by INPUT. Reproduction Prohblied. 



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• 23 mainframe CPUs: 19-CRS operations; 2-RoomMaster, CarMaster, 
Leisure Shopper products and communications management; 2- 
testing and E-mail. Combined processing capacity is 1, 120 MIPS. 

• 3,750 disk drives, with 4.8 terabytes (trilhons) 

• 348 tape drives and three tape silos (library of 135,000 tapes) 

• Combined, the average daily number of transactions processed is 57 
milhon, with recorded peaks in excess of 2,000 messages per second. 

b. Products and Services 

Galileo is reputed to be the world's largest CRS, although American's 
SABRE system has more U.S. locations. The primary function is in 
supplying travel agent automation. Their standard products include: 

• AirUne reservation booking at over 450 airlines, providing last-seat 
availability, carrier-specific displays, guaranteed booking and seat 
maps 

• Focalpoint - Windows-based that allows the CRS access as well as 
local PC applications 

• GlobalFares - an advanced international faire quote package 

• RoomMaster - allows access to accurate hotel room information 
covering 191 vendor companies and 28,000 properties 

CarMaster - allows access to accurate auto rental information for 51 
rental companies. 

c. Strategy 

Galileo's is a global strategy to be the largest service provider with high- 
quality service and superior products for the travel agent. 

Galileo has established a set of National Distribution Companies in 40 
countries to market its products. These are locally owned enterprises 
within travel-related businesses (many are local airlines) which provides 
a regional view for local customization of the CRS product and local 
sales/service force. 

Galileo appears to be the model for a CRS structure that is a utility for 
travel agents, rather than the single airline competitive weapon of a 
generation ago. Certainly it remains fully controlled by airUnes, yet 

©1994 by INPUT. Reproduction Prohblted. VI-1 1 



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provides services to an industry interested in the broader travel services 
business. The future will tell whether this different style of ownership, 
with its single subsector view, can provide the automation services travel 
agents require, move beyond the traditional airline reservations bias, and 
make money. 

3. Integrated Systems Solutions Corporation (ISSC) 

560 White Plains Road 
Tarry town, New York 10591 
Phone:(914) 333-3030 
Chairman & CEO: Dennie M. Walsh 
President: Sam Palmisano 
Status: Subsidiary 
Total Employees: 10,274 
Total Revenue: $1.84 bilhon 
Noncaptive revenue: $657 million 
Fiscal Year End: 12/31/92 

a. General Description 

ISSC was formed as an operating division of IBM in 1991 and was . 
established as a separate subsidiary in March of 1992. Its original 
formation was the combination of several IBM services: systems 
operations, systems integration, consulting, voice and data networking, 
applications software development, and business recovery services. The 
primsiry client (64% of revenues) of ISSC was and remains other units of 
IBM. 

In December of 1992, IBM and Sears, in a joint venture, formed 
ADVANTIS. This venture was the combination of the two companies 
networks under a single entity. Although the financial details are 
unknown, IBM holds the majority interest in ADVANTIS. ADVANTIS 
network support and operations became part of ISSC in 1993. 

In transportation ISSC has had some significant successes: 

In March of 1993, Hertz Corporation signed a five year, $80 million 
contract for ISSC to take over operations of IBM-based systems, 
provide business recovery services, and a majority of applications 
development. 



©1994 by INPUT. Reproduction Prohbited. 



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• In December of 1993, Southern Pacific Rail Corporation signed a ten 
year, $415 million outsourcing contract with ISSC - the first for the 
railroad sector. The contract call for complete IS management 
including: systems operations, application development, business 
recovery, and new technology implementation. 

In addition to the obvious, this precedent could produce more interest 
in outsourcing within transportation, enhance ADVANTIS as a 
transportation industry VAN network suppher and provide ISSC an 
inside track on other railroad projects, eg. ATCS and AEI. 

b. Products and Services 

ISSC's products and services are fairly standard: systems and network 
operations, systems integration, technology consulting, applications 
development and maintenance, and business recovery services. In fact, 
IBM has offered most of these services for some time, but not in a unified 
combination. ISSC feels that this new combination will unleash the 
inherent potential and create a technology powerhouse. 

c. Strategy 

The strategy is simple, to establish IBM-ISSC as a world-class supplier of 
systems operations, systems integration, business systems recovery and 
network services. Much of this terrain IBM had historically left for others 
as they concentrated on manufacturing and operational software. This 
new strategy places them firmly in competition with EDS, CSC, SHL 
Systemhouse, CAP GEMINI and Perot Systems. Based on IBM's recent 
financial performance it is doubtful that anyone will cry foul as they did 
in the 1960's. 

d. Challenge 

Although ISSC has shown very good results, will they be able to break 
from the culture and history of IBM to succeed. ISSC was created 
without their own sales force, which could prove to be a problem. Their 
entry to customers is only after the regular IBM salesman has identified 
prospects on product sales calls. 

Their traditional outsourcing approach to Southern Pacific against the 
more aggressive re-engineering approaches offered by EDS and Perot 
Systems. Will this conservative style of proposal continue to be favored or 
will it prove to be not what the customer in seeking? The transportation 
sector may be just the right place for ISSC to prosper. 



©1994 by INPUT. Reproduction Prohbited. 



VI-13 



TRANSPORTATION SECTOR 



INPUT 



4. RAILING Corporation 

50 F Street, N.W. 
Washington, D.C. 20001 
Phone: (202) 639-5500 
President: Henry W. Meetze 
Status: Subsidiary 

Parent: Association of American Railroads (AAR) 
Total: Employees: 130 
Total Revenue: $ 18,000,000 
Fiscal Year Ending: 12/31/93 

a. General Description 

RAILING was founded in 1982 to provide network services for the 
transportation industry's railroad sub-mode, including: EDI, industry data 
bases (eg. railcar locations) and software products. Although primary 
clients include the major North American railroads, RAILING also 
provides services to short lines, equipment leasing firms, shippers, other 
network applications vendors and government agencies. Railroads still 
provide about two thirds of RAILING'S revenues. 

b. Strategy 

RAILING was established as a for-profit subsidiary of their parent non- 
profit association. They seek to provide quality services to all areas of the 
transportation industry. 

Although RAILING is perceived as a captive processing service for the 
railroad industry they are their data bases and network capabilities are 
used by other transportation firms and other industry sector firms for 
railroad information. Ghent satisfaction has and continues to be rated 
very high, particularly within their niche market. Competition could be a 
major future factor fi-om more full service VAN providers, particularly 
with AEI information pressing their capacity. 

The most significant recent event was their RFP sent in late 1993 for an 
outsourcer to enhance railroad inter-communications, including the 
creation of a computer network and repository system. The RFP for a 
network could signal the replacement of Railinc as a major transportation 
information processor. However, since RAILING frequently contracts for 
major development projects, this could be their preparation for increased 
demand. 



©1994 by INPUT. Reproduction Prohbitad. 



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c. Products and Services 

Network services provides about 90% of RAILING'S revenues, with the 
remainder from software products. 

RAILING does not discriminate their network apphcations services form 
their data base access traffic. INPUT believes that their data bases are 
the key to much of their transactions. 

GLM - Gar Location Message service collects transactions from railroads 
to maintain the base of equipment locations. 

Data Exchange System - consolidates equipment hiring and repair 
information and provides electronic information to equipment owners. 

EDI - The RAILING system provides traditional EDI for over 400 clients. 

Data Bases: 

TRAIN II (Telerail Automated Information Network) is an international 
freight car data base. Gvirrently over 150 clients use this data that tracks 
the movement of railcars, trailers and containers via railroad nationwide. 

UMLER is a computerized version of the Official Railroad Equipment 
Register containing information on more than 3 million registered 
railcars, trailers and containers. 

RAILING also recently added an accident reporting system for access by 
all railroads. Data is supposed to be entered within 30 days of an accident 
and is made available to other railroads to avoid prolonged delays in 
addressing preventive measures. 

d. Challenges 

RAILING is primarily a captive processing service for the rail industry. 
Use by others is generally restricted to communication regarding railroad 
shipment legs. The advent of more sophisticated tracking (AEI), train 
control and dispatch could press their capability to keep up. Their new 
accident reporting system, which shortens the time for accident reporting 
to 30 days would seem out of place for an industry headed for "real-time" 
location information. 



©1994 by INPUT. Reproduction Prohbited. 



VMS 



TRANSPORTATION SECTOR INPUT 



(Blank) 



VI-16 



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Conclusions and 
Recommendations 



One hundred years ago, in a pre-wired world, transportation and 
communication moved at the same speed to support the relatively limited 
trade of that era. Now information moves at light speed and packages 
move globally from here to there almost overnight. Transportation, 
communications technology and commerce were and remain bound 
together. 



Industry Conclusions 



INPUT'S transportation report last year summarized the sector's business 
future in this manner: 

"The key to the sector's recovery is primarily economy-related. INPUT 
believes that a steady recovery will begin in late 1993. Though many 
sector firms have learned how to make money in slow times, the whole 
sector needs a strong economy and year-end 1993 will probably not show 
widespread profitability." 

The prediction was accurate and transportation's deep cost-cutting moves 
of the recent past made 1993 a good year, although the U.S. economy for 
the whole of 1993 grew at a modest 2.6%. Transportation's showing was 
attributable to the firms that have learned to make money even in slow 
times. The exception in true profits was airlines. Industry experts 
believe they require a U.S. growth rate of better than 3.6% to universally 
achieve profit. 

The U.S. Department of Commerce predicts U.S. economic growth to be 
3% for 1994. INPUT concurs with this estimate for the U.S. However, 
INPUT behoves that the impact of economic globalization should produce 
a more positive influence on transportation sector firms than would be 



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indicated by viewing U.S. growth alone. Exhibit VII- 1 hsts INPUT'S \ 
conclusions derived from this study of industry trends and actions. 



Exhibit VII-1 

Industry Conclusions 



• Global economy improvements will enhance transport's opportunity 

• Integration in freight transportation subsectors 

• Freight will focus on customers and make operations serve 

• The CRS will crease to be an airline property 

• Major ocean carriers will force regulation changes 



1. Global Economy 

The positive impact on global trade caused by the breakdown of barriers 
will soon be evident and will continue at a greater pace throughout the 
decade. Within the western hemisphere, the initial impetus is NAFTA— 
that began in 1994 and will proceed to provide further enhancement as 
other trigger points are reached over the next few years. 

The establishment of a trade block in the Americas, which would exist in 
a world with several blocks, e.g., Asia and Europe, will not produce the 
trade improvement promised by the General Agreement for Tariffs and 
Trade (GATT). This agreement has the potential to intensify global trade 
and reduce the patchwork of nontariff barriers built to protect a nation's 
businesses. INPUT believes the benefits of increased free trade will 
induce improved levels of transportation, the enabler of trade. 

2. Integration in the Freight Transportation Industry 

INPUT believes that a true transportation industry for freight in North 
America will emerge. This will be driven by many factors and fostered by 
the blending of the modes and the technological interconnection of the 
players. This will be needed to provide the service for customers who 
wish to become mode insensitive. This blending will take the form of 
mergers, acquisitions and affiliations. Although the question of which 
submarket will dominate is open, the customer should win since all are 
racing to provide seamless movement. 



VII-2 



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3. Freight Will Focus on Customers and Make Operations Serve 

The historical focus of freight transportation has been on operations-like 
the movement of a rail car to the end of the line. This is changing as 
more focus is placed on customer needs and supplying operations to 
support the customer. The Santa Fe system, that has also become the 
CN North America system, is developed with a base in customer 
shipments, not railroad equipment. This system is no longer unique in 
transportation, but is an obvious example of the new era. The level of re- 
engineering and development that is required presents a substantial 
vendor opportunity. 

4. The CRS Will Cease To Be an Airline Property 

Pressure continues on airlines to release their hold on CRS systems. In 
reality, the only major CRS system that is owned exclusively by one 
airline is American's SABRE System. Although many other airlines 
operate their own reservation systems, their presence as a travel agent 
service is relatively restricted. Other major systems are all owned by 
consortiums of airlines, except System One, which is partly owned by 
EDS. INPUT believes that American will sell at least part of SABRE, its 
very successful CRS system. Further, INPUT believes this will occur 
before the end of 1996. The price tag will be large, hence the roll of 
potential bidders is short. Will there be a CRS growth opportunity to 
support a growth in rail passengers? 

5. Major Ocean Carriers Will Force Regulation Changes 

American President Lines and CSX's Sea-Land subsicUary have jointly 
warned they will reflag at least some of its ships. This change in the 
country of registry would allow it to avoid the restrictive regulations on 
which it blames its inability to be competitive. The transport companies 
feel that the U.S. government must either relax the regulations or 
compensate the carriers for the differences in costs it faces. 

The U.S. government has always maintained that a U.S. merchant 
marine is essential to national security. It argues that in time of war, 
ships are needed to carry military personnel, equipment and supplies into 
war zones. The government contends that this could not be assured of a 
ship registered in Panama or Liberia. 

Because the administration is preoccupied, INPUT believes that the two 
ocean carriers will be persuaded to delay their announced year-end 1994 
decision. Furthermore, accommodations will be made to retain them as 



©1994 by INPUT. Reproduction Prohibited. 



VII-3 



TRANSPORTATION SECTOR 



INPUT 



U.S. merchant carriers. In the long run, U.S. -registered ships will drop in 
either case because of business economics. 



B 



Information Services Market Conclusions 

Technology is: 

• The enabler of consolidation and seamlessness 



• The avenue to added efficiency and cost savings 

• The tool for the shippers to exert some control over movements 

Technology people who only see these attributes may relearn the 
mistakes of the past. These have been the selling points of automation 
since the beginnings of IBM. The very idea of the automated tracking of 
rail equipment goes back to a 1960s attempt using bar code labels 
attached to cars and trackside readers. The attempt ended because the 
labels could not be kept clean enough for reading. Had it worked, 
railroads could have become the predominant force in freight 
transportation. 

INPUT believes that AEI and EDI present the means to vastly change the 
fabric of freight transportation. Exhibit VII-2 lists the resulting market 
conclusions. 



Exhibit VII-2 

IS Market Conclusions 

• Technologists must provide business solutions 

• Electronic commerce will be part of these solutions 

• Growth in technology spending will exceed the growth in industry 
revenues 

• Mainframe systems and solutions are part of transportation 



c 

Technology Vendor Recommendations 

1. Business Knowledge Is a Key 

Successful technology vendors must have the prerequisite industry 
experience. Affiliation and acquisition of industry firms may be required 
to attain this expertise. 

VI 1-4 • © 1994 by INPUT. Repf eduction Prohibited. MVTL 



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INPUT believes that vendors who acquire the needed sector business 
knowledge and know the technology directions will find considerable 
demand for their services. Firms already servicing this sector will have 
an advantage. Sector knowledge is the key, as evidenced by the success 
of some sector firms translating their technology leadership into 
identities as SI and SO vendors, even outside their submarkets. 

2. Electronic Commerce 

A good deal of the implementation pressure for shipment tracking and 
EDI is from transportation customers. An interesting result of the 
review of current transportation customers is that they are other 
transportation service companies. This is primarily due to the fact that 
the majority of shipments change carriers in transit, as evidenced by the 
growth in intermodal transport. However, transportation as an industry 
is often in a reaction mode to the logistically savvy retail and 
manufacturing sectors. 

The Wal-Marts and GEs have come to view logistics, the management of 
their inventories even while in transit, as critical to success. General 
Electric has even gone so far as to establish the largest electronic 
commerce network in the U.S. (GEIS), originally built for internal 
service. To support logistics and maintain its customers, transportation 
firms must rapidly evolve the means to support their customers' demands 
for real-time information. 

The hardware and basic software exists and is being implemented rapidly. 
Making it work without seams, providing inclusion of transport 
competitors and developing the next levels of systems are post- 
connection opportunities. 

3. Spending Growth Is Expected To Exceed Revenue Growth 

As is already clear, expansion of revenue for transportation is limited. 
Successful vendors will need to understand that transportation firms are 
committed to technology spending. Internal IS organizations will soon be 
forced to find cost savings and operational efficiencies to compensate for 
technology expense. 

INPUT believes that vendors will need to lead transportation IS to the 
benefits even more than in the past. This time technology must fulfill the 
promise to the business. 



©1994 by INPUT. Reproduction Prohibited. 



VII-5 



TRANSPORTATION SECTOR 



INPUT 



4. Mainframe Orientation 

INPUT'S research shows a substantive bias toward mainframe solutions. 
Although this will change over time, vendors should be prepared to 
support mainframe solutions and integrate legacy systems with their 
nonmainframe solutions. Those who do, and help IS organizations 
maintain their prior investments, will do well in the transportation sector. 



©1994 by INPUT. Reproduction Prohibited. 



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Appendix: Information Services 
Market Forecast and 
Reconciliation 



A 

Forecast Database 

Exhibit A- 1 presents INPUT'S detailed 1993- 1999 forecast for the 
transportation sector. 



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INPUT 



Exhibit A-1 

Transportation — Market Size Forecast by 
Product/Service Sector, 1993-1999 



ProdiJct/SiAivJe** 111 


Growth 


........... 

1995 1996 




)8 1999 


CAGR 
94-99 






($m i$m 




I) (^M) 


(%) 


Sector Total 4,214 


11% 4,672 


5,136 5,646 


6,218 6,8 


48 7,572 


10% 


Professional Services 269 


8% 290 


313 334 


357 3 


76 395 


6% 


- 1^ Pnnci iltinn ft7 


1 n% 7 A 

1 U /O / *T 


0 1 0<3 


QQ 1 


OQ 1 1 Q 


1 U /O 


- Education & Training 36 


14% 41 


44 47 


49 


54 59 


8% 


- Software Development 1 66 


5% 1 75 


188 198 


209 2 


13 217 


4% 


Business Integration 225 


20% 271 


325 390 


469 5 


63 665 


20% 


- Equipment 78 


23% 96 


117 142 


173 2 


03 240 


20% 


- Software Product*? 1 4 


21% 17 


20 26 


31 


39 47 


23% 


• Professional Services 1 26 


19% 150 


178 210 


251 3 


05 360 


19% 


- Other 7 


14% 8 


10 12 


14 


16 18 


18% 


Outsourcing 237 


36% 322 


366 411 


465 5 


28 606 


13% 


- Platform Operations 1 1 6 


14% 132 


147 163 


178 1 


95 218 


11% 


- Applications Operations 76 


78% 135 


153 168 


189 2 


19 253 


13% 


- np«;ktnn Sprvipp*; ?^ 


20% 30 


35 41 


47 


51 60 

\J 1 \J\J 


15% 


- Network Management 20 


25% 25 


31 39 


51 


63 75 


25% 


Processing Services 2,268 


6% 2,403 


2,540 2,692 


2,850 2,9 


95 3,145 


6% 


- Transaction Processing 2,268 


6% 2,403 


2,540 2,692 


2,850 2,9 


95 3,145 


6% 


Network Services 427 


18% 505 


596 719 


850 1,0 


13 1,205 


19% 


- Electronic Info. Svcs 309 


17% 360 


421 508 


595 7 


06 820 


18% 


- Network Applications 1 1 8 


23°7o 1 45 


175 211 


255 3 


07 385 


22% 


Applications Software 478 


1 40/^ 544 


625 700 


800 9 


18 1,062 


14% 


- Mainframe 157 


5% 1 65 


173 181 


189 1 


97 206 


5% 


- Minicomputer 124 


10% 136 


152 163 


173 1 


83 196 


8% 


- Workstation/PC 197 


23% 243 


300 356 


438 5 


38 660 


22% 


Turnkey Systems 3 1 0 


9% 337 


371 400 


427 4 


55 494 


8% 


- Equipment 147 


7% 157 


173 183 


193 2 


03 217 


7% 


- Software Products 1 1 8 


11% 131 


145 160 


173 1 


87 205 


9% 


- Professional Services 45 


9% 49 


53 57 


61 


65 72 


8% 



A-2 



©1994 by INPUT. Reproduction Prohibited. 



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B 

Forecast Reconciliation 

Exhibit A-2 presents a reconciliation of INPUT'S 1994 forecast for 
transportation with the 1993 forecast. 



Exhibit A-2 

Transportation 
1994 MAP Database Reconciliation ($ Millions) 





1993 Mar 


ket 






1998 Marke 


!t 




93-98 


93-98 


Product/ 


1993 
Market 


1994 
Report 


Variance From 
1993 Forecast 


1993 
Market 


1994 
Report 


Variance From 
1993 Forecast 


CAGR 
per data 


CAGR 
per data 


Service 
Market 


(Forecast) 

/<}>» * V 


(Actual) 

($M) 


m) 


(%) 


(Forecast) 
($M) 


(Forecast) 
($M) 


($M) 


(%) 


•93 Rpt 

(%) 


'94 Rpt 

(%) 


Total 


4,162 


4,214 


52 


1% 


6,685 


6,848 


163 


2% 


10% 


10% 


nroTessionai 
Services 


266 


269 


3 


1% 


O/U 


O/D 


6 


2% 


/ /o 


/ /o 


Business 
Integration 


222 


225 


3 


1% 


539 


563 


24 


4% 


19% 


20% 


Outsourcing 


235 


237 


2 


1% 


477 


528 


51 


11% 


15% 


17% 


Procesing 
Services 


2,239 


2,268 


29 


1% 


2,950 


2,995 


45 


2% 


6% 


6% 


Network 
Services 


422 


427 


5 


1% 


997 


1,013 


16 


2% 


19% 


19% 


Applications 
Software 


472 


478 


6 


1% 


904 


918 


14 


2% 


14% 


14% 


Turnkey 
Systems 


306 


310 


4 


1% 


448 


455 


7 


2% 


8% 


8% 



Transportation industry growth has been quite stable over the past few 
years, since the effects of deregulation in airlines and trucking have 
modulated. This forecast assumes a slow return to a growing global 
economy, improvements in the competitive positioning of carriers and a 
return to U.S. industrial growth and personal travel. 

Although the variances in 1993 forecast and actual figures could be very 
significant to the recipient vendors, they represent modest change 



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A-3 



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INPUT 



overall. All variations are small, 1% or less with rounding, and are 
underestimates of IS spending growth. 

Only two 1998 modes, systems integration and outsourcing, are 
significantly changed from the prior report — the rest are modest changes 
of 2% or less. Systems integration shows a slightly faster growth (1%) 
over the five-year period than previously expected, while outsourcing has 
been adjusted (2%) to account for the Southern Pacific Rail outsourcing 
contract with ISSC. 

Finally, the result of the noted upward variances is that, percentage-wise, 
the industry continues to perform as INPUT has anticipated for the past 
two calendar years. For now, this relative stabihty is expected to 
continue through the forecast period. 



©1994 by INPUT. Reproduction Prohibited. 



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Appendix: Industry Structure, 
Methodology and Related 
Reports 



Appendix B describes the structure of the transportation industry and 
explains INPUT'S research methodology and the techniques used in the 
preparation of the forecast data. Section 3 lists the allied INPUT reports 
that should be used to complete the picture portrayed in this vertical 
industry report. 

1. Industry Structure 

The transportation industry encompasses all service businesses that are 
primarily involved in the movement of goods and people. To those who 
work in these businesses it is not a single industry, but rather a group of 
competing industries based on their mode of transport, i.e., railroad, 
trucking, etc. Assigned SIC codes for the transportation sector firms 
serve to reinforce these mode distinctions, as the primary two digits 
generally designate mode. The modes are quite different in vision- 
economic forecast and their use of technology. Therefore, this report will 
consider each of these "transport mode" entities as segments within the 
overall sector. 

Sector Definition — ^The transportation service industry sectors, as defined 
by INPUT, include: 

Railroads, SIC code 40, including passenger, general freight and the 
rapidly growing intermodal traffic 

Local and Interurban Passenger Transit, SIC code 41, commuter 
transport, generally publicly subsidized, but frequently operated by 
other sector firms 

• Trucking, SIC code 42, for-hire motor freight 



©1994 by INPUT. Repfoduction Prohibited. 



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U.S. Postal Service, the only entity in SIC code 43 

Water, SIC code 44, freight-domestic and international 

Air, SIC code 45, covering passenger and freight-domestic and 
international 

Pipelines, Sic code 46, covers petroleum lines, and excludes natural 
gas carriers that are part of the energy industry 

Services, SIC code 47, covering the specialized businesses that include 
travel agents, freight forwarders, etc. 

Package delivery firms are classed in SIC codes 44 and 45, dependent 
upon their parentage. For instance. Roadway Express is with 
trucking, Federal Express is listed as air cargo, etc. 



2. Methodology 

Much of the data on which this report is based has been gathered during 
1993 and the first half of 1994 as part of INPUT'S ongoing market 
analysis program. Trends, market sizes and growth rates are based upon 
INPUT research and in-depth interviews with users in the transportation 
services industries and the IS vendors serving the industry. INPUT 
maintains ongoing relationships with, and a database of, all users and 
vendors it interviews. Interviewees for the research portion of this 
report were selected from this database of contacts. 

In addition, extensive use was made of INPUT'S corporate library located 
in Mountain View, California. The resources in this library include on- 
line periodical databases, subscriptions to a broad range of computer and 
general business periodicals, continually updated files on more than 3,000 
information services vendors, and the most up-to-date U.S. Department 
of Commerce publications on industry statistics. 

It must be noted that vendors may be unwilling to provide detailed 
revenue breakouts by product/service market or industry. Also, vendors 
often use different categories of industries and industry segments, or 
view their services as falling into different modes from those used by 
INPUT. Thus, INPUT must estimate revenues for these categories on a 
best-effort basis. For this reason, the product/service market and 
individual segment forecasts should be viewed as indicators of general 
patterns and trends rather than specific, detailed estimates for individual 
years. 



©1994 by INPUT. Reproduction Prohibited. 



Mvn. 



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INPUT 




Appendix: 

Industry-Specific Definitions 



Automatic Equipment Identification (AEI) is the term usually used for 
the millions of radio transponder tags being placed on freight equipment 
and shipping containers. In reality, there are three basic components of 
these systems: vehicle-mounted transponders, stationary interrogator 
units (reader/transmitters), and the computer systems to collect and 
utilize the data. 

Transponders are small, normally passive electronic devices, about 2 
inches by 9 inches, called tags. Two tags, one on each side, are placed on 
each unit. Tags are being placed on shipping containers, trailers, 
locomotives, freight cars, etc. The tag contains a specific number, unit 
type, ownership identification and an indication of the vehicle side. Costs 
per tag in 1993 were about $30. 

Interrogator units are radio transmitter/receivers located at fixed 
locations along railroad tracks, highways and in transfer yards. The 
interrogator units send out a low power signal, less than 20 watts. 
Transponders modulate this power to respond to the interrogator unit 
with their contained identification data. Interrogator units send this 
information along with their location identification to collection 
computers for processing. Although the location is only known as of the 
last interrogator passage, this is still a substantial advance in tracking. 

Railroads are the most significant current users, having determined to 
remain with a terrestrial -based communications system. Rails are under 
an AAR edict to tag all equipment that moves across other company rails 
(about 1.4 million equipment pieces) by the end of 1994. Intermodal 
truckers are a part of this, but they do not have the same forced 
timetable. Current use is primarily with the carrier who has placed the 
interrogator units. However, the sharing of shipment location data with 
other transport and shipper/receiver companies is expected to occur 
rapidly — probably through EDI transmissions. 



©1994 by INPUT. Repfoduction Prohibited. 



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INPUT 



Code sharing-These agreements, which must be approved by the U.S. 
Department of Transportation and other national regulating bodies, allow 
the combining of flight numbers within CRS systems for different air 
carriers. The purpose is to facilitate customer servicing by providing a 
view of a single carrier regardless of the airline or corporate boundaries. 
For instance, the USAir ticket package for a U.S. -originated flight that 
terminates on a British Air subsidiary in Europe would contain a full set 
of boarding passes and provide through luggage forwarding. For 
unfamiliar passengers, the downside is a lack of prior knowledge that 
they are on a multileg journey, with potentially significant time lags. 

Double stack— These are special low flatbed rail cars that permit 
containers to be loaded two high. The advantage is in doubling the 
capacity of a train without increasing its length. The disadvantage is that 
these higher and heavier loads cannot travel in all areas, particularly in 
many parts of Mexico. Prior to the Sarnia Tunnel from the U.S. to 
Canada, double stack between the two countries was impossible. 

The Global Positioning System (GPS) is a satellite communications 
system developed by the U.S. Department of Defense to provide precision 
global location determination. Though built for military purposes, the 
basic theory is being used in nearly all transportation segments. It 
requires a special frequency receiver, that can determine its position on 
the globe within three meters. Its ability to provide continuous location 
sensing is superior to other methods. Airlines and the FAA see this as 
the eventual replacement for radar -based systems for Air Traffic Control. 
Its implementation by land and sea transport firms is to gather data on 
locations of "vehicles" and eventually specific cargo containers. The 
location data can also be captured by onboard computers and 
communicated to a transportation company's computers for processing. 

Intermodal-A railroad term for any shipment transported by a railroad in 
a trailer or container that begins and/or ends with another transportation 
mode. 

The Intelligent Vehicle Highway System (IVHS) generally uses land- 
mounted radio equipment to identify passing vehicles equipped with 
special transponders and, potentially, to communicate to them. The 
initial application appears to be for automated, nonstop toll collection by 
deducting from a prepaid account for each passage. Advocates see 
cutting congestion, possible nonstop truck weights and, futuristically, 
automated highways where closely spaced vehicles drive themselves 
under computer control as advantages. Detractors see invasion of 



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privacy as a problem, because vehicle locations could be known by those 
with computer access. This is a variant of AEI. 

Multimodal-A transportation term used to describe a shipment that is 
moved by various modes during its journey from shipping point to 
ultimate customer. It is used to designate modes that do not directly fit 
the railroad "intermodal" definition. However, many use the two terms 
interchangeably. 

Transponder-The dictionary defines a transponder as: "a radio or radar 
receiver-transmitter activated for transmission by reception of a 
predetermined signal." The use of these devices is in conjunction with 
AEI and IVHS technologies, which use radio signals to activate vehicle- 
mounted transponders to identify and communicate with specific 
vehicles. 



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