Collaboration Is Key to Successful 3PL Relationships

Oct. 13, 2015
Tightened capacity and increased industry consolidation has resulted in fewer partners for 3PLs and increased prices, leading shippers to seek closer relationships with their providers.

Cutting transportation cost is always going to be the biggest challenge faced by shippers, and not surprisingly, the number one assignment for third-party logistics providers (3PLs) is to manage domestic transportation for shippers who need help in that area. In fact, according to John Langley, director of development at Penn State’s Center for Supply Chain Research, 70% of shippers say that using a 3PL has helped them reduce their logistics. But that still begs the question: What about the other 30%?

Part of the reason why not all shipper-3PL partnerships pan out is a lack of collaboration. As Langley pointed out at the recent Council of Supply Chain Management Professionals (CSCMP 2015) conference in San Diego, 3PLs and shippers must be well aligned to achieve great efficiencies and effectiveness in their relationships. Langley was part of a panel revealing findings from the 20th Annual 3PL Study, produced by Penn State, Capgemini Consulting, Penske Logistics and Korn Ferry, with participation from MH&L and sister publication IndustryWeek.

The report, based on responses from more than 260 shippers and 3PLs worldwide, found that 87% of shippers and 96% of 3PLs have agreed-upon performance expectations, and 80% of shippers and 81% of 3PLs have formal performance reviews, including the measurement of and feedback on results.

The ways in which shippers and 3PLs work together is changing as competition within the logistics industry ramps up. Tightened capacity along with increased consolidation within logistics service providers has resulted in fewer partners for 3PLs and increased prices. As a result, 44% of survey respondents report that they have enhanced relationships to guarantee shipping lanes and on-time shipments and 40% have increased rates. Among shippers, 29% say assets have not been available to move shipments when needed. Similarly, 29% have engaged with a larger number of 3PLs to get access to capacity.

“The spirit of collaboration with 3PLs and shippers has led to increased efficiencies in the supply chain,” says Bob Daymon, vice president of transportation management for Penske Logistics. “Enhanced relationships with shippers results in operational costs savings and ensures reliable coverage and better rates.”

To differentiate themselves, 3PLs are working to provide sustained value, innovative solutions and information to facilitate data-driven decisions. 3PLs are also using technology and data to aid shippers in selecting the right shipment modes to maximize efficiency and reduce costs.

As the logistics landscape continues to respond to more freight, capacity and regulatory issues, as well as increasingly demanding customers and consumers, the industry is more focused than ever on innovation. To meet increasing customer requirements, 58% of respondents say they are investing in new capabilities for themselves, 40% say they are leveraging new capabilities from other companies in different industries, and 15% say they are leveraging new capabilities from competitors.

Meanwhile, the logistics industry is facing an unprecedented labor shortage. According to Meredith Moot, senior associate, transportation & logistics at Korn Ferry, the demand for logistics talent exceeds supply by a factor of 6 to 1, and the majority of 3PLs (79%) say they are unprepared for the labor shortage’s impact on their supply chain. In fact, the emphasis seems to be on shifting from the quality of employees to quantity—simply having enough people on staff to get the work done.

More than half of shippers (53%) feel they can rely on their 3PLs to address the labor shortage’s effect on their business. To meet demand, 3PLs will need to leverage their employees in new ways and re-think their strategy for attracting and retaining employees.