The growth of third-party logistics (3PL) outsourcing has been a consistent trend in supply chain operating strategies, of shippers large and small, across virtually every industry. Indeed, a Gartner Inc. survey of supply chain leaders released last month, titled Shippers Take Note: 3PLs Are Innovative and Here Is the Proof, reported that “nearly two-thirds of organizations mostly outsource logistics activities, and this number is set to increase as organizations look to manage the challenges and disruptions faced by the industry.”
The March 2021 report also shared this finding from an earlier, pre–Covid-19 logistics outsourcing strategy survey: “More than three-fourths of supply chain leaders believe that the number of disruptive events has increased, compared to three years ago.”
If they only knew then that what those survey findings foreshadowed would come a year later.
By March 2020, supply chain executives were starting to realize that the arrival of Covid-19 was not just any disruptive event. It was more like a 100-year storm—on steroids. March and April last year saw an unprecedented decline in economic activity and a corresponding free-fall in shipping volumes. Then by summer, it all came roaring back, and stayed hot through the end of the year and into 2021.
The pandemic represented an uncharted roller coaster of challenges that presented shippers with a conundrum: Do I go deeper with my 3PL, or do I pull back, hunker down, and try to ride out the storm alone?
Most went deeper, and in fact, pressed their 3PLs to be more innovative, agile, and responsive than ever before. The pandemic illustrated just how embedded 3PLs have become in shipper supply chain strategies. It also revealed, often in painful, stark detail, just how fragile today’s supply chains are.
“We saw two things,” recalls Will O’Shea, senior vice president at the Concord, North Carolina-based 3PL Cardinal Logistics Management. “If you were an incumbent, you picked up a bigger share of wallet from those you were already doing business with, those who really trusted you. You became more focused on how to help them with their business [and] leverage that institutional knowledge.” The flip side, O’Shea notes, was that shippers became more risk averse and lost their appetite for “introducing new providers to the mix.”
“Shippers became more vocal and active partners with us,” says Tom Curee, senior vice president, strategy and innovation for the West Chester, Ohio-based 3PL Kingsgate Logistics. “If you think about the environment, when we face a common enemy, it can be a great incentive to come together and really solidify a relationship,” he says. “We got a lot of questions around ‘What else do you offer that we’re not tapping into?’ It was more a year of customers ‘leaning in’ than ‘backing out.’”
Andy Smith, senior vice president and chief operating officer for Memphis, Tennessee-based FedEx Supply Chain, cited stay-at-home consumer-driven e-commerce traffic and reverse logistics as high-demand areas from customers. “The largest increase FedEx Logistics saw was in … our fulfillment operations,” he says. “Throw in the impacts of testing and vaccine distribution … and it’s clear why this year has looked very different from years past.”
The growth in e-commerce volumes will continue, Smith says. FedEx originally projected the U.S. domestic package market to reach 100 million packages per day by 2026. Now, it expects that threshold to be surpassed three years earlier—in 2023—with more than 90% of that growth due to e-commerce.
One particular area that saw tremendous growth during Covid-19 was last-mile service. Spurred by homebound consumers who turned in droves to e-commerce, home deliveries of all types of goods exploded.
Among the beneficiaries of that surging demand for last-mile service was Roadie, which operates a nationwide network of crowdsourced “on the way” drivers who use their personal vehicles to make same-day deliveries. Roadie experienced a dramatic uptick in driver “gigs,” delivering everything from groceries and cleaning supplies to home-improvement products and home goods—even arts and crafts, recalls Marc Gorlin, founder and chief executive officer of the Atlanta-based firm.
“It’s clear the pandemic shifts in consumer buying behavior put huge pressure [on businesses] to find additional [last mile] capacity” and illustrated the need to diversify last-mile options, he says. Roadie was able to “flex up” and meet rising demand, he reports. “Our community of active drivers grew by 30% in 2020,” Gorlin noted, adding that the pandemic was a perfect test bed to illustrate how the crowdsourced model can quickly flex and tap into the latent capacity of everyday drivers to provide a scalable same-day delivery force.
Among Roadie’s most active users: bakeries. National chain Nothing Bundt Cakes grew into a “top 10”-volume customer. Local businesses engaged as well. Piece of Cake is an independent bakery company in Atlanta. Gorlin cited several days where the bakery did “as much business as several of our airline partners combined”—referring to the air carriers for which Roadie provides baggage delivery service. “Apparently, we love ourselves some cake during a pandemic,” Gorlin quipped.
As for what shippers want from their 3PL partners, Steve Sensing, president of supply chain and dedicated transportation solutions for Miami-based Ryder System Inc., noted that creativity, reliability, and being able to turn on a dime and adapt to changes were the top shipper demands—and will continue to be. Ryder, one of the nation’s largest 3PLs, manages some $6 billion worth of freight on behalf of its customers, over all modes, and has 20,000 carriers in its network. Its supply chain portfolio includes brokerage, dedicated transportation, warehousing, e-commerce fulfillment, and last-mile services—supported by a robust technology suite.
“Customers want flexibility and resiliency,” especially in disruptive times, Sensing observes. “That’s part of why the business continues to grow.” Ryder didn’t see clients pulling back during the pandemic. If anything, the crisis created opportunity. While early on, some sectors, like automotive, shut down for a period of time, other industries, like CPG (consumer packaged goods), retail, technology, and health care, surged. In response, Ryder was able to redirect resources and assets to those sectors. “That’s the luxury of working across many industries,” Sensing noted, adding that processes and best practices developed for one sector often can be applied to others.
“A lot of our customers’ supply chains are changing so rapidly you have to [be able to] move assets and resources in and out of those networks,” and be able to deploy enabling technology that ties it all together and gives the customer a real-time view into what’s happening and where things are, he notes.
Those pandemic-driven logistics challenges have given shippers a new appreciation of their 3PL partners, experts say. The toughest mindset to change, notes Dave Giblin, executive vice president, transportation, at Columbus, Ohio-based ODW Logistics, is a strictly transactional, siloed, price-driven approach. The pandemic did two things: focused shippers on risk management, and emphasized the importance of open communication, transparency, and truly collaborative 3PL relationships with carriers.
“It’s not really about the lowest rate all the time,” he notes. “It’s about knowing what your options are and how not to blow your budget.” He sees a key value of 3PLs as helping shippers identify and employ alternative cost-saving measures across a spectrum of supply chain activities that can achieve objectives without “beating down the carrier on rates.”
Third-party service providers navigated many new and pressing challenges in 2020, some of which have continued into 2021. One unique challenge, if you can call it that, has been the absence of any “slack” season for freight.
In past years, January and February, coinciding with the arrival of the Chinese New Year, typically foreshadowed a slowdown in shipping activity.
Not anymore. The peak shipping volumes that surged through 2020 barreled into the new year, showing few signs of subsiding. In fact, many industry executives project a sustained strong freight environment through the remainder of the year.
With inventory-to-sales ratios still low, restocking continues apace. At the same time, Covid-19’s impact on port workers also has slowed port operations—as of early March, the ports of Los Angeles and Long Beach had over 30 containerships at anchor waiting to unload.
And as if the pandemic were not enough of a disruption, February’s brutal winter storms provided yet another shock to the system. That “really painted the picture of how fragile supply chains still are,” notes Geoff Turner, chief executive officer of Preston, Maryland-based 3PL Choptank Transport. “It just caused incredible havoc with supply and demand of trucks.”
Trucking capacity already was stressed, as the pandemic has driven many independents and small fleets—the backbone of the truckload market—out of business. Between regulatory mandates, a driver shortage, skyrocketing insurance rates, and rising equipment, maintenance, and fuel costs, trucking operators are under extreme pressure, Turner says.
“Drivers cost more, and there are fewer of them [entering the business]. Every possible cost scenario is increasing [for carriers],” he notes. “No way can they operate profitably without passing along these costs to shippers.”
Turner’s team does its best to explain these realities to shippers, “but they have to realize at the end of the day that without profitable carriers—and drivers who are adequately compensated for their work and their time—freight will sit on the docks.”