Executive Briefings

Driving Innovation, 3PLs Are Here for the Long Haul

Analyst Insight: Third-party logistics providers have traditionally been on the front line when it comes to developing pioneering technologies and services in the industry. Although some shippers are looking to manage their own transportation operations, partnering with a 3PL still offers many competitive advantages. - John Simonsen, vice president of corporate development, Yusen Logistics (Americas) Inc.

Most third-party logistics (3PL) providers offer transportation management (TM) as a core service to their customers. Recent surveys indicate that it is critical for 3PLs to deliver TM solutions in order to remain competitive. The value proposition of managed transportation is simple: Let 3PLs focus on logistics so that shippers can focus on their own core competencies. Partnering with a 3PL enables shippers to outsource their non-core logistics functions and manage supply-chain challenges, such as capacity shortages, rising freight rates, and stricter government regulations. 

Instead of taking advantage of 3PL services, however, some shippers are electing to bring their TM operations in-house. Although the availability of talent with supply-chain expertise is an industry concern, the intricacies of domestic and international shipping are becoming more commonly understood and shippers are feeling more confident that they can manage these operations internally. Why? Some hypotheses include:

• The shipper's transportation management system (TMS) investments are coinciding with larger enterprise resource planning (ERP) initiatives. With money already being spent on the technology, 3PL solutions may be viewed simply as paying a premium for activities that can now be handled in-house.

• With in-house TM, there is the potential for closer collaboration with internal teams such as customer service and sales.

• As a matter of preference, some shippers elect to outsource niche services or trouble spots in the supply chain rather than hand over full control to a 3PL.

• Carriers and integrators already offering robust visibility solutions at little or no cost to the users, which further enhances the end-user experience and commoditizes 3PLs.

Although TM is becoming more commonplace in the industry, 3PLs continue to offer huge advantages to those shippers that utilize their services. Third-party logistics providers have traditionally been on the front line of developing pioneering technologies and services for their customers and will continue to drive innovation in the industry. Today’s 3PLs are making a strong push to be seen as a strategic connection and not just a service provider. Working with a variety of customers adds a knowledge base of best practices built on multiple industries, and 3PLs willingly apply this expertise across their customer portfolios.

Third-party logistics providers are able to offer shipping discounts through economies of scale — they can negotiate better prices with carriers because of volume discounts. Connected to a large number of networks, 3PLs have access to carriers, equipment, labor and other resources that are not available to shippers. This gives them the ability to leverage resources and capacity to accommodate a shipper's changing needs, such as managing seasonal variations, entry into new markets and new business acquisitions. And with the continued growth of international trade, many 3PLs have added comprehensive worldwide supply-chain services to their menu.

The Outlook

So what’s next for TM? Look for the market leaders to drive innovation in technology and services — including broad steps with disruptive technologies, such as the Internet of Things. By 2020, more than half of major new business processes and systems will incorporate elements of IoT, according to recent research by Gartner Inc. IoT-enabled sensors, controllers and other connected devices will accurately locate, track and measure the movement of inventory through the supply chain, driving major improvements in productivity, efficiency and other key performance indicators. What this all means is that 3PLs will continue their push towards being a strategic link in the supply chain by transitioning from highly reactive operators to highly proactive partners.

Most third-party logistics (3PL) providers offer transportation management (TM) as a core service to their customers. Recent surveys indicate that it is critical for 3PLs to deliver TM solutions in order to remain competitive. The value proposition of managed transportation is simple: Let 3PLs focus on logistics so that shippers can focus on their own core competencies. Partnering with a 3PL enables shippers to outsource their non-core logistics functions and manage supply-chain challenges, such as capacity shortages, rising freight rates, and stricter government regulations. 

Instead of taking advantage of 3PL services, however, some shippers are electing to bring their TM operations in-house. Although the availability of talent with supply-chain expertise is an industry concern, the intricacies of domestic and international shipping are becoming more commonly understood and shippers are feeling more confident that they can manage these operations internally. Why? Some hypotheses include:

• The shipper's transportation management system (TMS) investments are coinciding with larger enterprise resource planning (ERP) initiatives. With money already being spent on the technology, 3PL solutions may be viewed simply as paying a premium for activities that can now be handled in-house.

• With in-house TM, there is the potential for closer collaboration with internal teams such as customer service and sales.

• As a matter of preference, some shippers elect to outsource niche services or trouble spots in the supply chain rather than hand over full control to a 3PL.

• Carriers and integrators already offering robust visibility solutions at little or no cost to the users, which further enhances the end-user experience and commoditizes 3PLs.

Although TM is becoming more commonplace in the industry, 3PLs continue to offer huge advantages to those shippers that utilize their services. Third-party logistics providers have traditionally been on the front line of developing pioneering technologies and services for their customers and will continue to drive innovation in the industry. Today’s 3PLs are making a strong push to be seen as a strategic connection and not just a service provider. Working with a variety of customers adds a knowledge base of best practices built on multiple industries, and 3PLs willingly apply this expertise across their customer portfolios.

Third-party logistics providers are able to offer shipping discounts through economies of scale — they can negotiate better prices with carriers because of volume discounts. Connected to a large number of networks, 3PLs have access to carriers, equipment, labor and other resources that are not available to shippers. This gives them the ability to leverage resources and capacity to accommodate a shipper's changing needs, such as managing seasonal variations, entry into new markets and new business acquisitions. And with the continued growth of international trade, many 3PLs have added comprehensive worldwide supply-chain services to their menu.

The Outlook

So what’s next for TM? Look for the market leaders to drive innovation in technology and services — including broad steps with disruptive technologies, such as the Internet of Things. By 2020, more than half of major new business processes and systems will incorporate elements of IoT, according to recent research by Gartner Inc. IoT-enabled sensors, controllers and other connected devices will accurately locate, track and measure the movement of inventory through the supply chain, driving major improvements in productivity, efficiency and other key performance indicators. What this all means is that 3PLs will continue their push towards being a strategic link in the supply chain by transitioning from highly reactive operators to highly proactive partners.