Whether you have young children or were recently in grade school yourself, you no doubt remember a certain long-running TV show whose episodes are "sponsored" by different letters of the alphabet. Suppose the supply chain had a similar arrangement. What letter would best represent the state of your sector and why?
For third-party logistics (3PL) professionals like me, that answer is likely to be C. As evidence, consider this short list of the most compelling trends impacting the supply chain right now—and the pronounced effect they're having on everything from the way we operate to the places you'll find us.
Although this term clearly means different things to different people (with some defining it as any two organizations working together, and others preferring to limit the definition to proactive partnerships between shippers), most industry players universally agree that this growing practice could be one of the most effective cures for major supply challenges like the growth of the omni-channel, the escalating driver shortage and ongoing pressures to reduce costs.
How It's Impacting Third-Party Logistics: In addition to openly stating that they're now more willing to engage in more collaborative relationships with their providers, many shippers are calling for 3PLs to identify, create and facilitate shared shipping, warehousing and other collaborative opportunities on their behalf—an expectation that's not unreasonable considering the visibility and proximity we often have to the particulars of various shippers' supply chains.
Several 3PLs have responded by introducing collaborative services, collaborative technologies or both, and nearly one-third of 3PLs report that they've already increased load sharing among their customer bases.
Few challenges loom larger than the growing supply chain talent shortage. From the vast supplies of U.S. truck drivers who are retiring without suitable replacements to the dearth of qualified middle managers at logistics operations throughout the world, many signs suggest that a limited logistics workforce could become one of the prime causes of supply chain volatility in the years ahead.
How It's Impacting 3PLs: Don't be surprised to see more companies either turning to 3PLs or increasing their use of them in an attempt to help shore up their own staffing and driver capacity initiatives; in fact more than half of all shippers surveyed in Armstrong & Associates' 2015 Third-Party Logistics Study: The State Of Logistics Outsourcing believe their 3PLs will be able to help them in this respect.
At the same time, don't expect the solutions that 3PLs provide to be solely about supplying people, either, because at the end of the day, 3PLs face the same labor crunch that shippers face. Instead, expect 3PLs to help shippers find ways to maximize the efficiency of the workers and carrier options they already have—and increase the agility of their transportation—by deploying advanced tools and techniques like logistics management systems (LMS), network rationalization, lean and collaboration.
Unless you've been living in a cave, it would be difficult to miss the avalanche of coverage about the long-awaited Panama Canal expansion. Pushed back multiple times, that expansion looks like it might finally be complete sometime in 2016.
The canal's doubled capacity will increase the range of viable international shipping routes available to global shippers and could compel many Trans-Pacific shippers to diversify their long-time U.S. West Coast-heavy port strategies.
How It's Impacting 3PLs: As companies consider the impact of the Panama Canal on their own supply chain operations, look for them to use more of 3PLs' optimization, simulation and other engineering tools to help weigh the risks and benefits of shifting everything from their sourcing to their day-to-day shipping routes. There also could be an increased demand for 3PL warehousing capacity near East and Gulf Coast ports.
There are many reasons why working in the supply chain isn't for the faint of heart, especially today. For example, although companies are still aiming to improve their bottom lines by moving manufacturing to lower-cost countries, those countries are now just as likely to be places like Mexico, Brazil, or the United States as they are China or India. Meanwhile, the omni-channel is thriving, delivery expectations are increasing, and the sales opportunities posed by emerging markets are becoming more compelling.
How It's Impacting 3PLs: As companies increasingly venture into areas where they have less capability, experience or connections, many are seeking out the services of 3PLs that already have an established foothold in their markets or channels of choice. This goes a long way toward explaining why international transportation is the third-most used 3PL service cited in the latest Third-Party Logistics Study, and why more than three-quarters of the recent growth in 3PL services has come from outside the U.S., according to Armstrong & Associates. It also explains why some 3PLs have elected to focus on specific markets or industries, and why some smaller niche providers continue to gain traction.
It may not have garnered quite as much attention as it has in years past. However concerns about sustainability—and the expectations that companies won't take their environmental impact lightly—remain strong. According to a recent study conducted by Achilles Research, nearly two-thirds of businesses expect to place more emphasis on monitoring their supply chain's carbon emissions in the near future, a fact that makes huge sense when you consider that according to some estimates, transportation and logistics may account for as much as 75% of most companies' carbon emissions.
How It's Impacting 3PLs: Although few, if any, companies base their 3PL selections solely on sustainability, most now expect their providers to bring at least some degree of "green" value or innovation to the table. In some cases this means encouraging 3PLs to develop or invest in tools like warehouse carbon footprint calculators to enrich site selection or warehouse construction decisions. In others, it means requiring 3PLs to more aggressively seek out opportunities to recycle the mountains of shrink wrap and corrugated that pass through their facilities every day—or to participate in a greater number of environmentally-friendly initiatives like SmartWay.
Industry consolidation is nothing new, as once-ubiquitous names like GATX Logistics, Yellow and Airborne Express attest. However, given the many noteworthy 3PL mergers and acquisitions that have recently taken place, it's not surprising to see consolidation garnering so many headlines right now. During the past year alone, logistics companies from APL Logistics and TNT Express NV to Con-way and Toll Group have changed hands.
How It's Impacting 3PLs: The manic pace of 2015's M&A activity has made the average size of the industry's largest 3PLs considerably larger while ultimately making the total number of large, multinational providers smaller. As to whether this is a positive or negative trend, it depends upon whom you ask.
Some industry watchers lament the fact that there are fewer big players to choose from. However, others are quick to point out that there are still hundreds or even thousands of small- to medium-sized 3PLs available to serve those who prefer a more diversified approach, while the massive size of the newly expanded 3PLs allows them to offer shippers greater synergies and economies of scale.
A "C" of Opportunity
There are numerous other c-level terms that also could apply to this discussion, including contingency, cargo security and cost control, just to name a few. But perhaps the most important one is this: "commonly used."
Even as recently as a couple of decades ago, less than 40% of large companies used 3PLs. Today that number is closer to 90%. Moreover, half of companies' logistics spend now goes to 3PLs.
How It's Impacting 3PLs: Those numbers bode well for the growth and survival of the 3PL industry. Just as important, they bode well for shippers because as long as 3PLs continue to thrive, it means 3PLs will continue to be available to provide your company with support and expertise if, when and where it's merited. MH&L
Rajiv Saxena is head of global supply chain solutions for APL Logistics (www.apllogistics.com), a global supply chain specialist for companies in the retail/apparel, automotive, consumer and industrial sectors.