The Changing Face of 3rd Party Logistics

The Three Factors Driving Change, by Benjamin Gordon

Image for post
Image for post
Photo by Suzanne D. Williams on Unsplash
Image for post
Image for post
Image for post
Image for post
Image for post
Image for post
  • Global geographic scope across all locations relevant to the client’s supply chain.
  • Complex management skills to perform “master contracting” solutions, where the LLP manages other, smaller 3PLs in subcontracting relationships.
  • Analytical know-how to provide shippers with a thoughtful, strategy-led approach that identifies opportunities for outsourcing to add value.
  • Powerful technology systems to manage massive flows of data, synthesize them into meaningful reports, and recommend courses of action.
  • The financial resources to provide solutions such as the upfront purchase of a shipper’s logistics division, combined with a willingness to enter into risk and reward-sharing contracts. The few companies that can meet these requirements are part of an elite group — less than a dozen worldwide. As large shippers continue to seek providers who possess LLP-level capabilities, third-party providers will feel the pressure to expand the scale of their operations.
Image for post
Image for post
Image for post
Image for post
  • UPS buying Fritz for $500 million.
  • Deutsche Post buying AEI for $1.2 billion.
  • Deutsche Post buying Danzas for $1.2 billion.
  • TPG buying CTI for $650 million.
  • APL buying GATX for $210 million.
  • GTCR’s investment in Cardinal, a leading transportation management company focused on dedicated delivery and logistics consulting for companies like 7-Eleven and Home Depot.
  • Code Hennessy and Simmons’ multiple investments in May Logistics, a top regional warehousing and logistics company, and Mail Contractors of America, the largest private transporter of bulk mail for the U.S. Post Office.
  • Heritage Partners’ investment in APX, which provides package delivery, package sortation, and direct delivery solutions at a postage discount of approximately 40–45 percent of typical post office rates.
  • Lead logistics provider: Will your business be better served by a lead logistics provider, a series of best-of-breed providers by geography or service offering, or the status quo? GM and Nortel concluded that a LLP would provide accountability, technology-based visibility solutions to reduce inventory, and aggressive reductions in the working capital that would free up hundreds of millions of dollars in cash. In contrast, others have found that a strategy of several regional best-of-breed players provides many of the benefits of an LLP without the risks of complete dependency on one party.
  • Technology: Can your current 3PL(s) keep up with the fast pace of technology innovation that your business will require over the next two to four years? Logistics companies are already expected to provide expertise in such technologies as TMS, WMS, SCEM, and ITLS systems. As supply chain technology continues to develop further, shippers will turn to 3PLs for advice on new categories such as radio-frequency identification (RFID) tags, which can provide continuous tracking of inventory at the SKU level. Finally, post-Sept. 11 security requirements, such as the ocean carrier 24-hour rule, are fueling demand for new tracking and monitoring systems. Top 3PLs will be expected to provide clients with expertise on all of these fronts. In effect, these logistics providers will need to evolve into supply chain consulting firms that can also provide execution capabilities.
  • Scope: Does your 3PL have the scope of services and locations that you will need in the future? As shippers look for integrated supply chain solutions, 3PLs are developing sophisticated service combinations. For example, NFI Industries is adding contract-manufacturing capabilities to augment its warehousing and transportation operations. Jacobson Companies has added not just co-packing but also temporary staffing services. These value-added services enable a 3PL to solve larger problems for their clients.
  • Capital: Will your 3PL have the resources to reinvest in continued growth? Standard Logistics, a highly-regarded regional warehousing company, evaluated its Fortune 500 customer needs and assessed the likely capital requirements for continued success. Standard concluded that it should merge with a larger company that could provide the resources to fund expansion. As shippers demand expanded geographical coverage and services, 3PLs will be pressed to make the necessary investments, or alternatively select the right merger partner, in order to develop these capabilities.
  • Viability: Ultimately, does your 3PL have what it takes to survive and succeed in the coming era of consolidation? Amidst the changing customer priorities, increasing competitive intensity, and marketplace volatility, many companies will be unable to move forward. Will your 3PL be one of them?

Written by

Ben Gordon, CEO of Cambridge Capital and BGSA. Investor in logistics and supply chain technology. Published at Fortune and CNBC. http://bengordonpalmbeach.com/

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store