During these difficult times, smart shippers are looking for ways to reduce costs and improve efficiencies. While freight rates continue to fall, there are limits to how much savings a shipper can achieve by continuing to “beat up” on their carrier base. Many are turning to third party logistics companies for the solution. As I speak with my colleagues in the 3PL industry, they are being bombarded with new business opportunities (while many trucking companies are experiencing a sharp pull back in demand). There are a number of reasons why this is happening.

Cost Reduction

Certainly one of the driving forces is cost reduction. Third party logistics companies (as compared to pure freight brokers) develop customized solutions for their clients. Rather than just focusing on freight rates and service, they take a more holistic approach by seeking to improve the efficiency of a company’s supply chain. They look for smarter ways of moving a company’s goods to market by challenging their customers’ supply chain paradigms. A good 3PL will look for opportunities to consolidate shipments, to switch modes (e.g. LTL to truckload, over the road truckload to intermodal), to rationalize and consolidate carriers, to improve loading efficiencies, to optimize warehouse operations and streamline information processing. They bring an expertise and insight to projects that are missing from some more one dimensional asset based transportation providers. This enables them to more easily identify creative cost savings solutions.

Risk Reduction

The value proposition of 3PL’s goes well beyond cost savings and supply chain efficiencies. Since many non-asset based 3PL’s and freight management companies are not tied to the assets of their parent company, they can mix and match an assortment of modes and carriers that best meet the needs of their clients. In other words, they offer a level of risk reduction. If one or more trucking companies withdraw from serving certain lanes, or worse, go out of business, the 3PL can replace them with another carrier or carriers, without “missing a beat.” They can offer the shipper an availability of capacity that doesn’t exist from many of their trucking company providers.

Supply Chain Visibility

Since many 3PL’s have invested in transportation management (TMS) and warehouse management (WMS) software systems, they can also supply a level of information management and supply chain visibility that is not always available to the shipper internally or from their carriers. Quality 3PL’s can create customized dashboards and information alerts that provide significant value to their clients.

Truckers Depend on Business from 3PL's

The growth of the 3PL movement is also being fuelled by the trucking industry. Throughout North America, small and mid size trucking companies, with limited sales horsepower, rely on the sales efforts of the large 3PL’s for business. This has created a level of mutual dependence that is critical to the success of both parties. In addition, larger trucking companies are creating their own in-house 3PL’s to retain market share that might be lost to their 3PL competitors.

Growth with Small and Medium-Sized Shippers

Another development that has helped build demand for 3PL services is the potential business that exists with small and medium sized shippers. For many years, the major 3PL’s were focused on large multinational shippers. The size and scope of their supply chains created more opportunities for cost savings. Now shippers with as little as $1 million in freight spend are finding value in employing a 3PL. Double digit savings are being achieved with small shippers, opening up a much bigger market.

With their technology and experience, 3PL’s are well equipped to create and implement cost saving solutions in a timely manner. In the dark economic sea of 2009, the 3PL value proposition is gaining traction with many shippers.