The terms "3PL" and "broker" are often used interchangeably, but they mean quite different things. George Abernathy, president and chief commercial officer of Transplace, explains the distinction, and offers advice on which entity to employ in various situations.
There are times when the terms “3PL” and “broker” overlap, says Abernathy. Both are intermediaries between the shipper and the carrier. Yet their roles can differ significantly. A broker typically focuses on the execution of an individual shipment, working to meet specific goals for cost and service. The third-party logistics provider should be thinking more strategically, planning earlier in the supply chain for all possible conditions, “so as to have a better opportunity to avoid that spot-market load.”
3PLs, a growing sector of the industry, have invested heavily both in human capital and technology, Abernathy adds, giving them a higher-level view of the shipper’s transportation network.
There are advantages to working with both types of entities, depending on what the shipper is looking for. Brokers play a key role when the customer wants basic service from a non-asset-based provider. But those looking to be part of a collaborative transportation or service network are better off turning to a competent 3PL. Some of Transplace’s customers might rely on one or two brokers to provide between 10 and 15 percent of their transportation needs, giving them the flexibility to adjust to seasonal changes in the market, Abernathy says.
Unlike the classic broker, a modern-day 3PL might have some assets, whether brick-and-mortar facilities or vehicles for moving freight. Each shipper’s needs are unique, dictating that the 3PL conduct individual discussions about how customers want to draw on the provider’s in-house assets.
Such meetings are essential today, as the surface-transportation market approaches “capacity Armageddon” – a situation in which there are too few carriers to meet the growth spurred by economic recovery.
“It’s very important for a shipper to be thoughtful about that capacity tightening, and what their strategy will be when they get there,” says Abernathy.