Tariffs, technology, slowing economy drive 3PLs to adapt — again
2020 is shaping up as a uniquely challenging time for freight brokers and third-party logistics service providers. Those who can adapt may find opportunities aplenty.
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
Third-party logistics service providers (3PLs) and freight brokers face another challenging year ahead. Among those challenges are the ongoing consequences of geopolitical events, the battle over tariff and trade policies, a global manufacturing and industrial sector that's tapping the brakes on output, new technologies disrupting traditional models, and difficulties in finding the next generation of logistics professionals—including truck drivers.
Above all else, shippers are looking to their 3PLs and brokers to be flexible, responsive, and creative in helping them overcome a myriad of supply chain challenges.
"There is an emphasis on supply chain agility, creating the ability to modify supply chains [quickly] to accommodate situational 'best cost,'" says Michael Labadie, global lead for automotive and industrial at Houston, Texas-based 3PL Crane Worldwide Logistics.
The impact of the trade war has been "increased cost pressure on transportation and increased focus on customs and importation practices," Labadie says, adding that as the tail end of 2019 approaches, demand for transportation and logistics services in North America and moving goods from China continues to soften. "I cannot emphasize enough that there are winners and losers in every change that is made in global trade," says Labadie. He believes 3PLs remain a key enabler that can help shippers sail through choppy trade waters and mitigate the worst impacts.
Jason Bergman is chief customer officer for Overland Park, Kansas-based YRC Worldwide and its logistics arm, HNRY Logistics. He agrees with Crane's Labadie that "supply chain flexibility is the most requested" capability sought by shippers today because of all the current market uncertainty. HNRY Logistics, Bergman says, specializes in "finding high-quality and consistent solutions" for customer supply chain needs. "The goal," he says, "is to create consistency and continuity" in any economic cycle.
HNRY Logistics is an "asset-backed" 3PL that has access to the capacity, coverage, and resources of its sister trucking units at YRC Worldwide. Bergman says the asset-backed model is a value differentiator. "At the end of the day, it's about consistent communication and a seamless experience for the customer. When you take our logistics arm and combine it with our assets, that provides a significant advantage," he says.
Going into the new year, what are three core issues that keep Bergman up at night? "Attracting and retaining quality talent. Managing our business in a time of economic uncertainty," and "managing in a more difficult regulatory environment," he says.
TOSSING OUT THE OLD PLAYBOOK
Flexibility and diversification are two qualities that Randy Sinker, vice president of commercial sales for Winnsboro, Texas-based 3PL Team Worldwide, says are critical to successful logistics service providers. "If you are a traditional freight forwarder and you don't diversify and become more flexible, you will go out of business," he says.
He cites the uncertainty of tariff and trade policies as well, which have made manufacturers reluctant to pursue investment and growth plans, and have reduced freight volumes, particularly air freight. Shippers also continue to embrace vendor consolidation strategies, winnowing down their list of suppliers to small teams of highly skilled and resourced core logistics suppliers. All of that means a 3PL's service portfolio has to stand out and demonstrate an ability to consistently solve an ever-growing list of supply chain challenges if the company hopes to stay in the game. "It's expensive [for shippers] to use different companies," says Sinker. "Those that can do more [for the shipper's supply chain] and who can think outside of the box will remain competitive and successful."
He adds that shippers, while still requiring competent performance of tactical logistics tasks, increasingly want strategy help. Sinker believes it's imperative for 3PLs to be able to "plan with customers for what's [expected to] happen a year from now, not [just] tomorrow's shipment."
Privately held Team Worldwide operates under the "agency" model, which Sinker believes is a unique strength. The company covers a broad swath of the supply chain: import/export ocean and air, customs brokerage, warehousing and distribution, and final mile. Sinker says chief among its strengths is an entrepreneurial culture, with each station having local ownership and control. "We tell customers we're large enough to service you and small enough to know you," he adds.
Unlike larger 3PLs, which are leaving smaller cities and consolidating operations in regional offices, Team Worldwide is expanding into secondary and tertiary markets, complementing its presence in key metro areas. The company has opened eight new offices in the last 22 months, currently has over 45 local branch offices within North America, and has additional expansion plans on the drawing board for 2020. "The biggest thing we push is service," says Sinker, citing the value of a flat organization with minimal bureaucracy and red tape. Decisions on operations and customer service are made "where the rubber meets the road at the branch level, with the branch owner."
THE VISIBILITY CHALLENGE
In addition to the strategic challenges, 3PLs and brokers face constant pressure on the technology front. The emergence of new tech providers such as Uber Freight, Convoy, and others hawking new digital brokerage platforms and visibility solutions has forever changed the logistics market—and forced traditional players to evolve and adapt.
That means a 3PL's or broker's tech platform has to be able to tap into—or otherwise effectively interact with—multiple transportation sources, management systems, order platforms, and online marketplaces. Industry executives say they're consequently faced with tough decisions about how to upgrade and modernize their technology platforms to support these new systems, which are becoming ingrained in normal supply chain operations. "If you don't, you'll be left behind," says one executive.
Geoff Turner, founder and chief executive officer of Preston, Maryland-based 3PL and freight broker Choptank Transport, is familiar with this dilemma. Turner says Choptank's top request from customers is for visibility into their loads—including where they are en route and if they'll meet the projected ETA. That's been a challenge, especially in a fragmented truckload market where some 80 percent of capacity is provided by thousands of "micro" carrier fleets of 10 or fewer trucks and independent owner-operators.
Like many progressive brokers and 3PLs, Choptank has been methodically investing in and improving the technology tools and capabilities his customers and carrier-partners want. In a given year, Choptank will engage with some 30,000 trucking service providers. To help customers navigate this complexity, Choptank deployed a visibility solution from Reston, Virginia-based Trucker Tools, which has increased carrier visibility compliance from less than 30% to consistently between 90% and 95% of loads, according to Turner.
"Those I speak with say not many [brokers and 3PLs] are seeing tracking success at this level. It's a benefit that goes directly to our customers and solves one of their most pressing needs," he says.
Logistics has always been an evolving and competitive space, with technology continually pushing the boundaries. But as Turner sees it, technology is not the whole story. One area where he says traditional brokers still have a value advantage is the tribal knowledge and expertise of skilled, experienced people, and the relationships they maintain with the carrier community.
"When there is an issue, they [carriers] really want to talk with someone," especially when exceptions come up or an issue arises at the shipper's dock. "It's that ability to [get on the phone with someone and] quickly resolve an issue" that might otherwise delay the driver or potentially cause harm to the shipper's supply chain. "Carriers are our customers too, and they want to work with people they know, trust, and like," so the personal connection, especially for managing exceptions and solving urgent issues, still makes a difference, Turner says.
EMERGENCE OF "MARKETPLACE SYSTEMS"
Greg Aimi, research vice president with Gartner Inc., has trod the logistics business's winding path for nearly 30 years, running software companies, managing logistics operations, and studying the market as a research analyst. He sees this most recent revolution of digital transportation platforms diverging into two models.
In one model, companies are essentially "coming up and saying your people-based [approach] is unnecessary. The whole process can be automated." These tech platforms, Aimi believes, are disintermediating the traditional broker. They are licensed brokers who are "allowing demand to source supply through their network. I can connect the parties automatically ... and let the constituent parties work together directly." In this case, the "platform" is doing the transaction.
In the other model, companies are essentially taking the current traditional brokerage model and automating the process of freight matching, booking capacity, and tracking loads. Aimi describes these as "marketplace systems," which engage multiple carriers and brokers, "enabling platforms where the constituents are doing the transactions themselves" and carriers are working on the platform with brokerage houses "to quickly provide [and secure] quoted capacity."
He notes that one of the biggest benefits to a carrier of this third-party multiparty platform model is a one-to-many relationship. "As someone [a carrier] who has capacity, I can put myself on many networks, but I prefer this [multiparty, multibroker] one because it is low cost, it's more lively, and I get [automated] matching of supply and demand" that can be refined and targeted to a specific geography, city, lane, or type of load, he explains. In this case, the parties themselves still participate in the transaction but with the support of automated, intelligent systems. It's also easier and less time-consuming for the carrier to manage versus being on multiple single-use platforms.
He says it is an enabling marketplace of supply and demand in which small to mid-market brokerage players can jump on the platform and have the same technology power as the big digital guys, but still with the benefit—and advantage—of what Aimi calls "customer touch."
The network is the "big deal," Aimi says. But when it's all said and done, for traditional brokers and 3PLs, "customer touch will [continue to] make them different."
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.