Being asset-poor has long been the path to riches. But as truck users face what may be a lengthy period of supply contraction, will a new type of intermediary come to rule the roost?
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
For more than 30 years, nonasset-based third-party logistics service providers (3PLs) have been on the right side of virtually every meaningful trend. A multidecade buyer's market for truck capacity has given 3PLs enormous pricing power and the flexibility to match carrier supply with shipper demand. Producers, recognizing they weren't logisticians, began offloading many logistics-related functions to 3PLs. An increase in offshore production required a deeper understanding of long-distance supply chains and regulatory compliance, responsibilities that companies were all too happy to relinquish to their 3PL partners. As technology requirements expanded, shippers turned to 3PLs to manage IT networks and build value through automation.
All this converged to usher in what has become a golden era for 3PL services. Since 1996, domestic 3PL revenue has grown at a 10-percent compounded annual rate, according to Armstrong & Associates, a consultancy. Armstrong estimates U.S. 3PL revenue will exceed $150 billion this year, which is five times higher than in 1996. Over the past 17 years, only once—in recession-wracked 2009—did the domestic sector report year-over-year declines in revenue, according to the firm. Tompkins International, another consultancy, expects 3PL growth in 2013 to range between 7 and 10 percent, three to four times that of growth in gross domestic product. Since January 2000, equity values of publicly traded 3PLs have outperformed the Russell 2000, a diversified basket of smaller-capitalization stocks, by 400 percent, says Robert W. Baird & Co., an investment firm.
3PL use today appears as strong as ever. Of the top 100 firms in the **ital{Fortune} 500 index, 96 use a 3PL, according to Armstrong data. Of the remaining 400 companies, 80 percent engaged a 3PL in 2012, up from 65 percent in 2008, according to Armstrong.
The factors that goosed 3PL demand initially show little signs of abating. The question is who will reap the spoils of future growth. Until now, the nonasset-based players have been the prime beneficiaries. But there are some who argue the pendulum could be swinging toward providers with physical assets that can also bring a nonasset-based component to the table.
According to those who share that view, the catalyst will likely be a capacity crunch brought on by the chronic shortage of drivers and the reluctance of fleet operators to invest in equipment that will boost capacity rather than just replace aging iron. Baird estimates that trucking supply, which grew 3 percent a year from 1992 to 2006, has shrunk by 10 percent since then as a freight recession and the subsequent economic downturn caused shipper demand to contract. Carriers struggling with the subpar economic recovery and a host of escalating costs from fuel to tires to engine replacements, driver availability, and government regulations have spent the past five years playing it safe. Benjamin Hartford, lead transport analyst at Baird, said in an October research note that carriers are "managing from the trough," analyst lingo for adopting a minimalist approach to their operations.
As their traditional haulage business stumbles along, carriers looking to generate new revenue streams have been expanding into nonasset-based services, Hartford says. The resultant convergence of asset- and nonasset-based coverage is causing problems for the nonasset-based players, especially those without sufficient buying power or a unique product niche, Hartford says. Shippers worried about reliable access to truck capacity are now more willing to utilize asset- and nonasset-based providers, the analyst added. This reflects a change in mentality from previous cycles, when shippers tilted toward nonasset-based firms that were more "carrier neutral," Hartford says.
IS "RANDOM-ROUTE" PASS�??
Jonathan Starks, director of transportation analysis for consultancy FTR Associates, says shippers seeking capacity stability are reducing the amount of "random-route" freight they tender in favor of a dedicated contract carriage strategy, where a carrier dedicates capacity for a multiyear period in return for a volume commitment. Because the random-route traffic is a broker's bread and butter, this migration is bound to slow broker growth, Starks reckons. The continued tightening in supply will accelerate the shift, which has been under way, albeit gradually, for about a decade, he adds.
Ryder System Inc., the Miami-based trucking and logistics giant, is one of those straddling both sides of the fence. Ryder has fused its brokerage services with its "dedicated" trucking unit. The program operates under one contract with a uniform set of terms and conditions, and a single point of contact at Ryder, according to Steve Martin, the company's vice president of dedicated.
Martin says Ryder's model gives customers both flexibility and capacity assurance, depending on their situation. It will also have the effect of siphoning off supply that would normally be available to nonasset-based providers through the non-contractual, or "spot," market. As a result, "running a business on the basis of spot market activity will become more challenging," Martin says.
Not surprisingly, those on the other side of the debate—notably the nonasset-based providers—haven't gotten the memo about the sun setting on their business. They note that the widespread capacity shortages that many have been warning about for five years or so have yet to materialize. "We're not seeing the needle move very much" on supply constraints, says Chris Pickett, chief strategy officer at Coyote Logistics, a nonasset-based 3PL in Chicago.
Pickett says nonasset-based providers with the carrier contacts and network scale have the agility to quickly procure capacity during seasonal spikes such as in produce season, or in markets like retail and so-called fast-moving consumer goods (think toothpaste and toilet paper) that are staple items but where velocity of end demand can shift on a dime. "These are unpredictable and volatile markets, and it's tough for a shipper to leverage asset-based carriers that operate on static schedules," he says.
John G. Larkin, lead transport analyst at Stifel, an investment firm, says asset-light 3PLs will continue to play a vital role in optimizing fragmented networks on both sides of the transaction. Larkin added that shippers aren't as concerned about the prospect of supply constraints as the conventional wisdom might hold.
"When capacity really does tighten to the point where shipments are left on the dock, then the asset-based carriers with brokerages might be more comforting to shippers," says Larkin. "But we have been anticipating the 'mother of all capacity shortages' for a half-decade already, and the 3PLs still are shooting the lights out with growth way above the rate of freight growth overall."
EVEN GREATER VALUE
A nonasset-based provider's load-matching skills could stand it in even greater stead during a prolonged period of tight supply, according to Valerie Bonebrake, who has worked for asset-based and nonasset-based providers, and now heads the 3PL unit at Tompkins. Perhaps for that reason, many shippers would rather work through 3PLs than go direct with the carriers even if they had the resources to avoid an intermediary, according to Bonebrake. "The nonasset-based 3PLs' value proposition will not change as capacity tightens up," she says.
Bradley S. Jacobs, founder and CEO of XPO Logistics Inc., a Greenwich, Conn.-based broker and 3PL, says the nonasset-based category has become bifurcated, with stronger players gaining share at the expense of weaker rivals. "There's a massive market share movement from the smaller brokers to the larger ones. This isn't surprising since the bigger ones have greater capabilities to offer," Jacobs says. "When I ask customers what they value most, it's always some version of lots of capacity, on-time pickup and delivery, and cutting-edge technology."
Evan Armstrong, Armstrong's president, says the leading 3PLs of the next 20 years will possess the broadest and most integrated logistics capabilities, expand their penetration into once-alien markets like less-than-truckload and intermodal, demonstrate network scale (he estimates that $300 million a year in purchased transportation is today's price of entry to play with the big boys), and have the widest geographic scope.
Most important in what may become a long-lasting period of capacity shortages, successful middlemen will "contract with tactical asset-based providers as [capacity] is needed," Armstrong says. The nonasset-based providers "may have assets where they are necessary to support customers, but it will be a more 'asset-right' versus an asset-based model," he adds.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.
According to Arvato, it made the move in order to better serve the U.S. e-commerce sector, which has experienced high growth rates in recent years and is expected to grow year-on-year by 5% within the next five years.
The two acquisitions follow Arvato’s purchase three months ago of ATC Computer Transport & Logistics, an Irish firm that specializes in high-security transport and technical services in the data center industry. Following the latest deals, Arvato will have a total U.S. network of 16 warehouses with about seven million square feet of space.
Terms of the deal were not disclosed.
Carbel is a Florida-based 3PL with a strong focus on fashion and retail. It offers custom warehousing, distribution, storage, and transportation services, operating out of six facilities in the U.S., with a footprint of 1.6 million square feet of warehouse space in Florida (2), Pennsylvania (2), California, and New York.
Florida-based United Customs Services offers import and export solutions, specializing in remote location filing across the U.S., customs clearance, and trade compliance. CTPAT-certified since 2007, United Customs Services says it is known for simplifying global trade processes that help streamline operations for clients in international markets.
“With deep expertise in retail and apparel logistics services, Carbel and United Customs Services are the perfect partners to strengthen our ability to provide even more tailored solutions to our clients. Our combined knowledge and our joint commitment to excellence will drive our growth within the US and open new opportunities,” Arvato CEO Frank Schirrmeister said in a release.
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.
Volvo Autonomous Solutions will form a strategic partnership with autonomous driving technology and generative AI provider Waabi to jointly develop and deploy autonomous trucks, with testing scheduled to begin later this year.
The announcement came two weeks after autonomous truck developer Kodiak Robotics said it had become the first company in the industry to launch commercial driverless trucking operations. That milestone came as oil company Atlas Energy Solutions Inc. used two RoboTrucks—which are semi-trucks equipped with the Kodiak Driver self-driving system—to deliver 100 loads of fracking material on routes in the Permian Basin in West Texas and Eastern New Mexico.
Atlas now intends to scale up its RoboTruck deployment “considerably” over the course of 2025, with multiple RoboTruck deployments expected throughout the year. In support of that, Kodiak has established a 12-person office in Odessa, Texas, that is projected to grow to approximately 20 people by the end of Q1 2025.
Women are significantly underrepresented in the global transport sector workforce, comprising only 12% of transportation and storage workers worldwide as they face hurdles such as unfavorable workplace policies and significant gender gaps in operational, technical and leadership roles, a study from the World Bank Group shows.
This underrepresentation limits diverse perspectives in service design and decision-making, negatively affects businesses and undermines economic growth, according to the report, “Addressing Barriers to Women’s Participation in Transport.” The paper—which covers global trends and provides in-depth analysis of the women’s role in the transport sector in Europe and Central Asia (ECA) and Middle East and North Africa (MENA)—was prepared jointly by the World Bank Group, the Asian Development Bank (ADB), the German Agency for International Cooperation (GIZ), the European Investment Bank (EIB), and the International Transport Forum (ITF).
The slim proportion of women in the sector comes at a cost, since increasing female participation and leadership can drive innovation, enhance team performance, and improve service delivery for diverse users, while boosting GDP and addressing critical labor shortages, researchers said.
To drive solutions, the researchers today unveiled the Women in Transport (WiT) Network, which is designed to bring together transport stakeholders dedicated to empowering women across all facets and levels of the transport sector, and to serve as a forum for networking, recruitment, information exchange, training, and mentorship opportunities for women.
Initially, the WiT network will cover only the Europe and Central Asia and the Middle East and North Africa regions, but it is expected to gradually expand into a global initiative.
“When transport services are inclusive, economies thrive. Yet, as this joint report and our work at the EIB reveal, few transport companies fully leverage policies to better attract, retain and promote women,” Laura Piovesan, the European Investment Bank (EIB)’s Director General of the Projects Directorate, said in a release. “The Women in Transport Network enables us to unite efforts and scale impactful solutions - benefiting women, employers, communities and the climate.”