First they wanted your parcel business. Then all they went after ground freight and international business. Now the companies best known for moving small packages have become big-time players in third-party logistics.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
It seems mighty odd in retrospect. Yet back when the term 3PL, or third-party logistics, first entered the lexicon, the radical notion of handing off responsibility for this crucial business function caused barely a stir. That's not to say Corporate America greeted the notion of logistics outsourcing with a collective shrug: The topic was endlessly debated at conferences and in the trade press. But the arguments centered less on the wisdom of outsourcing logistics than on the best kind of provider. Was it wiser to use an asset-based provider that could call upon its own trucks, warehouses, or whatever in a pinch? Or was it more prudent to seek out partners with no assets to speak of but that boasted strong logistics management skills?
Barely mentioned in the debate were some very big logistics players: United Parcel Service, Federal Express, Airborne Express and a company with only a small share of U.S. business at the time, DHL. Their early entry into the third-party business escaped most people's notice. Yet they were there right from the start, opening parts depot operations in which they stored clients' inventory close to their air hubs so they could rush the parts right out when needed.
But the days when the "express" carriers' third-party services carried a low profile are long gone. Today, UPS, FedEx and DHL—which swallowed up Airborne in 2003—all operate large business units designed for clients that want to outsource all or part of their logistics operations. Their 3PL businesses have developed well beyond the parts depot operations that gave them a toehold in the market.
Today, those businesses encompass everything from ocean shipping, customs brokerage, freight forwarding, warehousing and fulfillment to consulting. What's more, these carriers bring formidable networks and technological prowess to bear on the market.
Not surprisingly, shippers are signing on in droves. For example, DHL announced in February that it had been awarded all of Caboodles Cosmetics' distribution business. Caboodles, a Memphis-based supplier of cosmetics and accessories for teens, ships to retailers from DCs in Memphis and Mississauga, Ontario, and has a huge stake in ensuring that its cross-border shipments flow smoothly. And it appears that where Caboodles' deal with DHL is concerned, it's so far, so good. "By switching to DHL, we increased our on-time delivery service performance, reduced penalties for shipment delays and significantly improved the satisfaction of our retail customers," reports Patrick Duffy, the company's transportation manager.
Replacing the engine
Like Caboodles, Hub Distributing, an Ontario, Calif.-based owner of clothing stores, just completed outsourcing its entire distribution process to UPS Supply Chain Solutions. Hub Distributing (no relation to the intermodal marketing company Hub Group) is the parent of Anchor Blue, a 157-store apparel chain that markets to mid-income 16- to 19-yearolds, and Levi's Outlets by MOST, a 50-store chain selling Levi Strauss & Co. apparel.
The decision to outsource was made by Richard Space, senior vice president of logistics for Hub Distributing, who joined the company shortly after it was acquired by Sun Capital Partners. What he found was a company with an antiquated distribution system. The former owners, Space says, "thought store operations were the most important. They didn't look at what was keeping the engine running."
The sputtering engine Space inherited clearly hadn't seen much in the way of maintenance for quite some time. "The ERP was inadequate to handle the process flow," Space recalls. "We had nine miles of conveyor, no WMS, and 550,000 square feet of space." Receiving operations had gotten bogged down to the point where products weren't available until hours after their arrival (the facility receives 5,600 cartons a day from some 250 vendors, on average). Worse yet, the company, which ships about 5,000 cartons a day to the stores, had no visibility of shipments from the time they left the facility until they arrived at the stores. Even then, store managers had to open cartons to find out what they had received.
Though Space took some intermediate steps to get the goods moving through the building faster (he installed flow racking to replace picking off pallets, for example), he quickly became convinced that the situation called for more drastic measures. "We decided after doing some due diligence that by the time we retrofitted the building and brought in a new WMS, it would cost $5 million to $7 million and take two years," he says. "We wanted it much faster than that."
Though time was of the essence, Space tried not to rush the process of reviewing the outsourcing bids he gathered. "I've gone through five or six outsourcing projects," he says. "When you're outsourcing your DC—that's your lifeblood—you want to be sure of your partner in the operation." After reviewing seven proposals, the company picked UPS. "At the end of the day," Space says, "UPS brought more to the table in terms of technology and a partnership."
Hub Distributing is hardly alone among apparel companies in taking the outsourcing route. "Clothing is a particular sweet spot [for UPS]," says Scott Carter, a vice president of consulting in UPS Supply Chain Solutions' retail and consumer products consulting services unit. Part of the reason is that the business is highly seasonal. (Space, for example, reports that Anchor Blue has two peak seasons: back to school and Christmas.) "Your typical retailer [earns] 70 percent of its revenue in a short window at the end of the year," says Carter, noting that UPS is well geared to handle seasonal business.
Of course, seasonal business isn't limited to clothing companies. Carter cites the case of another customer that makes outdoor furniture (which requested anonymity)."They have a very narrow window to sell a lot of patio furniture," he says. Using sophisticated technology, UPS set up a system that allowed the furniture maker to meet 80 percent of its demand with non-expedited freight, shipping only the final 20 percent via expedited service. It was cheaper for the company to use that expedited freight than to carry the inventory in advance or to build a permanent nfrastructure that would be needed only eight weeks a year.
Quest for world domination
For all their success, it appears that UPS, FedEx and DHL are not content to gobble up domestic business. As more U.S. companies start sourcing and selling overseas, all three are aggressively marketing their international experience and expertise. For example, FedEx Trade Networks now offers an array of international business services, including customs brokerage, air and ocean forwarding, and trade consultancy services. Along with sister companies like FedEx Ground and FedEx Freight, FedEx Trade Networks can manage the flow of goods from point of origin to final destination, often bypassing customers' distribution centers.
"Our target audience—it may be a seasonal issue—does not want to go through the normal supply chain," says Gerald Leary, FedEx Trade Networks' executive vice president and chief operating officer. "We're finding more and more companies are part of an international supply chain. We can shave two to three weeks off the transit time over putting goods into a regular DC."
Not only is it quicker, it's easier. Take the case of a FedEx customer that purchased Halloween goods in China for distribution across the United States. (Again, the customer requested anonymity.) "We did a consolidation in China that made up several container loads," Leary says. "We moved the shipment to Los Angeles, where we cleared it through Customs." Some containers went to a nearby FedEx facility for stripping and deconsolidation into individual store shipments; others moved by rail to different regions of the United States. The result, says Leary: "The customer gets distribution to 400 outlets from one consolidation, then gets a single bill."
Leary touts FedEx's technology as a key differentiator from traditional forwarding service. "We know where the product is at all times," he says.
For its part, UPS offers international services through its Trade Direct business. "Trade Direct was born out of retail customers' needs," says Carter. "They want the perfect order from a supply base thousands of miles, three languages, and eight time zones away."
The idea, he insists, is not to create express shipments, but to build what he calls "warehouses in motion.""We want to create the ability to bypass DC operations in North America and go direct to the store shelf or as near as we can. We do that by managing order flow from the purchase order to handling containers in Asia. We're creating outbound containers that are store orders, so they can be distributed directly to the store. So we reduce the material handling requirements and number of touches."
A big plus, Carter adds, is the visibility provided by UPS's service. "The customer has a consistent, high-visibility flow of goods," he says. "We create a steady flow that allows customers to make real-time decisions based on real-time information without incurring unnecessary cost. For a clothing retailer, obsolescence or lost sales are a huge cost. If he knows he's getting too many large blues, he can stop the flow and instead arrange to get the pink smalls that are flying off the store shelves."
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.