Jeff Jackson, recently promoted to president at Penske Logistics, has spent some 30 years in the trucking and logistics business. He looks back on the past couple of years as having been among the most challenging for the industry as shippers and their third-party logistics service providers (3PLs) navigated the pandemic and all manner of once-in-a-generation issues. Demand cratered, then surged. Ports buckled under record volumes. Freight sat on docks, then inventories bulged as businesses, wary of running out of goods, over-ordered and packed warehouses to the rafters. Truckers fell into a freight recession, some closing their doors. Supply chains broke down, then struggled to keep goods flowing.
Nearly a year after the end of the pandemic, the market continues to evolve due to shifting trade patterns, geopolitical conflicts, and other fundamental challenges. Global sourcing strategies are undergoing dramatic adjustments. Shippers increasingly have focused on minimizing risk in an effort to return their supply chains to some sense of normalcy. At the same time, the costs for virtually every aspect of supply chain operations—from truck rates to warehouse leases to equipment, technology, energy, labor, and even capital for expansion—remain on the rise.
AN EVOLVING MARKET
It’s an evolving market, with new challenges and demands, yet one where today’s 3PLs have to adapt but still provide the basic blocking and tackling of storing goods, then getting them to factories and markets with as much velocity, efficiency, and accuracy as possible. And do it flawlessly.
What are shippers asking for? In many cases, they’re asking how 3PLs can help them “de-risk” their supply chains to ensure business continuity. At the same time, they’re pressing their partners to adjust their networks to better serve shifting sourcing strategies; provide deeper and ever more detailed, precise, and proactive visibility and intelligence into supply chain performance and problems; and squeeze every last dime out of logistics costs.
Some industries still are experiencing supplier disruptions, but those are diminishing, observes Jackson. Managing and mitigating risk and ensuring supply chains are effectively protected from cyberattacks are among the most pressing “asks” from shippers.
“We are asked more and more about what our business continuity plans are, and within that, how we can help shippers de-risk their supply chains,” Jackson notes. There is more bid activity, particularly in transportation, where rates remain depressed. “There is a huge spread between low [price] and value; spot rates are well below carrier costs,” he adds. In some cases, “shippers are sacrificing value for cost.”
The most intense focus, Jackson says, is on cost. “Covid came with extreme cost increases for everyone,” he notes. “Shippers are [now] in a cost-scrutinizing mode with 3PLs, trying to sift through what was really inflationary that needs to be sustained, and what was more of a margin grab opportunity that they now want to claw back.”
ACCELERATING NEARSHORING—AND RESHORING
There is no question that the pandemic and its aftermath shined an intense light on capacity, cycle times, and dependability issues from long, over-water global supply chains. That’s driving more businesses to not just think about shifting production and distribution closer to end-users, but also to actively move in that direction. By one report, more than 300 Chinese-based companies have set up manufacturing and/or distribution operations in Mexico as well as other south-of-the-border locations in the past several years. And the trend is accelerating. Another report cites some 425 companies actively pursuing setting up nearshored operations.
“We are excited about this trend,” says Daryl Knight, chief commercial officer of ProTrans International, an Indianapolis-based 3PL. “We have a significant history and presence in Mexico, and with our experience, we can help our customers enter or expand” as they look to implement nearshoring strategies.
As a 3PL, ProTrans’ goal is essentially “erasing the border” for its customers, providing a service that reduces the complexity of cross-border transportation and does it in a reliable and predictable-cost manner, Knight says.
He also stresses the importance of resiliency, noting that if this post-Covid environment taught us anything, it’s that “customers want a flexible and variable supply chain model” that can adapt quickly. “The ability to adjust and be agile with our supply chain partners enables us to react faster to issues with less disruption in the form of service and cost impacts,” he notes.
Like many 3PLs, ProTrans continues to invest in its TMS (transportation management system) “to ensure we have real-time visibility into not just trucks and trailers moving cross-border, but also the paperwork flow,” Knight says. Documents, electronic or paper, that are properly prepared and correctly address government regulations in a timely manner “are just as important as a reliable truck and driver” to smooth cross-border movement, he explains.
Yet at the end of the day, doing the basics right, day in and day out, is table stakes, says Knight. “Pick up and deliver on time. Tell me where [the shipment] is at any given time. Is there an issue, and if so, what is your plan to solve it?” Supporting effective execution of the basics is increasing demand for quality data, predictive analytics, and solid integration with multiple data sources and platforms.
The third piece, Knight says, is to “be transparent. Tell the shipper what you see about the business, good or bad, and offer insights and knowledge to help customers get better and overcome issues. There are always challenges, but it’s how you work through them, collaborate with partners, and bring solutions to the customer that defines success.”
THE DRIVE TO “ANTI-FRAGILE” SUPPLY CHAINS
“Most 3PLs will tell you that the impact of nearshoring and reshoring has shifted trade flows somewhat, and therefore 3PLs have to access new skills, networks, and services”—the traditional example being the U.S.-Mexico trade lane, says Matthew Beckett, senior director, research and advisory, at consulting firm Gartner Inc. As if to illustrate that, Mexico recently became the U.S.’s largest trading partner, surpassing China for the first time.
Manufacturing certain products closer to the customer “has made good sense for companies to ‘anti-fragile’ their supply chains,” says Beckett. “It’s certainly a trend we suspect will continue into the near future.”
He notes as well that companies are increasingly seeking to de-risk their supply chains, with the intent of putting in processes and partners who can identify and mitigate risk, and when a risk issue arises, have the resources, skills, and plans in place to resolve it quickly before it becomes disruptive.
Another trend Beckett sees gaining traction is companies consolidating services and partners across fewer 3PLs—and stressing more true partnerships. It’s an effort to “sort out the wheat from the chaff,” he notes.
“Does your [3PL] network have the ability to shift modes? Do you have the right contract structure in place, and is your 3PL incented in the right way? Do you have the right mix of services and access to networks? And are those relationships able to seize on opportunities quickly and be agile enough to take advantage of them?” Beckett asks.
Being integrated at multiple levels and across multiple technologies with your 3PL is much more important now than it was in the past, Beckett has observed. “You want your 3PLs to be risk managers and provide you with visibility and transparency into risks across all the modes and nodes of a global supply chain.” It’s something that successful 3PLs “are at the forefront of and need to be really good at. That’s changing the dynamic,” he says.”
“When you are integrating data and processes [from multiple partners and platforms], there is a lot of operational risk. It has to be done exceptionally well. You want your 3PL to be your periscope” into your supply chain.
NO MORE EXTRA STORAGE
The pandemic and the period following it created all kinds of odd issues and behaviors for 3PLs and their customers. As supply chains strive to return to some sense of normalcy, some of those issues still exist but are slowly resolving themselves.
“We have certainly seen a shift,” notes Jeff Beckham, chief executive officer of 3PL Kingsgate Logistics, which has some $500 million of freight under management and is heavily into inbound vendor management for its food and beverage and retail CPG (consumer packaged goods) clients. “Going back during the pandemic, we had clients who had upwards of 50 trailers loaded and sitting in the warehouse yard because the warehouse was full,” he recalls. “We even started looking into buying trailers because there was a shortage and so many were being used for storage.”
Late in 2022 and through 2023, Beckham saw a rightsizing begin to take hold. “Last January, we had a couple of clients in the retail space shut down receiving for a week so they could right-size their inventory,” he recalls. “Now we are seeing a bit more balance.”
One trend that Beckham says seems to have gained traction is companies putting in smaller, yet more frequent, orders for goods. “In the past, a shipment might be 20,000 pounds; now it is down to 8,000 pounds. It’s ordering less but doing so more frequently, which is a different challenge when you’re managing the transportation.”
Beckham echoes the observations of other 3PLs with respect to nearshoring, noting that Kingsgate has relationships with Mexican partners that go back to the company’s founding 37 years ago. “Those [relationships] have been instrumental in helping us proactively address customers’ needs” as they set up or expand cross-border operations.
He too has found shippers clamoring for more and deeper real-time visibility into supply chains. “We have taken it to the next level,” he says. Kingsgate continues to invest in its tech stack and now is able to provide clients with visibility not only around the status of the vehicle and purchase order (PO), but also down to the SKU (stock-keeping unit) level.
“So instead of just knowing what truck it’s on and the PO arrival time, they know sizes, colors, and quantities for each product coming in on that PO. On the retail side, that really helps with warehouse planning and optimized fulfillment into stores.”
He notes as well that particularly in the food and beverage space, where shelf life is a huge consideration, “this level of detail informs planning and scheduling with precise data about what is coming in to a manufacturing site and when. There are so many moving parts, accurate data at very detailed levels is critical to optimizing production planning.”
Lastly, Beckham shares how customers are demanding 3PLs provide not only a much deeper dive into their supply chains, but also sophisticated analytics and data security to complement it. “There is not a meeting I take where the topic does not come up,” he notes. “Eighty percent of the conversations are around data—data integration, quality, security, and analytics. In the past, data security might have been [the subject of] three or four questions in an RFP [request for proposal]. Now there are literally pages of questions.”
TO BUNDLE OR NOT TO BUNDLE?
As shippers look to rationalize their 3PL services, some are looking to break up what were once “bundled” services and instead procure them as discrete, separate services, looking for providers who specialize in a particular service as their core competency. One reason is shippers want to better understand the actual cost of each service and ensure that there hasn’t been what some call “margin creep” in those services.
The trend cuts both ways, notes Steve Sensing, president of supply chain and dedicated transportation solutions at logistics and transportation giant Ryder System Inc.
He believes the bundled approach provides the best value and most efficient method for delivering an integrated solution.
“Our strategy is to be an integrated port-to-door 3PL,” he says. “Seventy percent of our revenues come from customers who use more than one service on the supply chain side.” He notes Ryder’s teams “often know more about our customer’s business than our customers do because we have been in the industry, we have experience with others in the same business, and we know the best practices and processes [unique to that industry].”
He has watched other competitors break apart their integrated offerings and go to market differently, offering a menu of individual services. “And I think that’s good for us,” he adds.
Kingsgate’s Beckham has experienced the other side of the bundle/unbundle equation. “We had two clients where we lost the business two years ago when they decided to bundle everything,” he recalls. “Fast forward to today, those same clients are now unbundling the work, and we are getting back our part of the business, which was managed transportation.”
IS THE SUN SETTING ON THE BROKER?
Trucking is one business where brokers have been able to carve out a niche. Their business model: find a driver and a truck, match it to a load, and take a commission on the transaction or pocket the spread between what the broker is paying for the truck and what it is charging the shipper.
“You can separate logistics providers, in which I include brokers, into three camps: the good, the bad, and the ugly,” comments Satish Jindel, principal at transportation data analytics firm ShipMatrix.
He says it is important for shippers to understand the difference between a broker versus a true 3PL—and know what you’re getting.
“3PLs or brokers who are pure play and just taking a markup on the driver and truck will be of lower value and find it harder and harder to stay in business,” Jindel believes. “Where they have opportunity to be recognized and rewarded for their role in the supply chain is in helping shippers and carriers leverage capacity or empty space on the truck by matching it with different shippers.”
Most trucks running down the highway are not full, Jindel notes. Yet utilizing that capacity will require a sea change in how shippers and carriers work together, particularly when it comes to providing real-time visibility into capacity so that all parties know what is available in each other’s network. For this to happen, “you have to be willing to share that [information] with a competitor,” he says. “That will require an element of trust we don’t have today and technology that gives us visibility down to the lane and trailer level across carriers and locations in real time.”
