Tariffs, Technology, Slowing Economy Drive 3PLs to Adapt—Again

Gary Frantz | DC Velocity

Originally published in the December 2019 Issue of DC Velocity.

Third-party logistics service providers (3PLs) and freight brokers face another challenging year ahead. Among those challenges are the ongoing consequences of geopolitical events, the battle over tariff and trade policies, a global manufacturing and industrial sector that’s tapping the brakes on output, new technologies disrupting traditional models, and difficulties in finding the next generation of logistics professionals—including truck drivers.

Above all else, shippers are looking to their 3PLs and brokers to be flexible, responsive, and creative in helping them overcome a myriad of supply chain challenges.

“There is an emphasis on supply chain agility, creating the ability to modify supply chains [quickly] to accommodate situational ‘best cost,’” said Michael Labadie, global lead for automotive and industrial at Houston, Texas-based 3PL Crane Worldwide Logistics.

The impact of the trade war has been “increased cost pressure on transportation and increased focus on customs and importation practices,” Labadie said, adding that as the tail end of 2019 approaches, demand for transportation and logistics services in North America and moving goods from China continues to soften. “I cannot emphasize enough that there are winners and losers in every change that is made in global trade,” said Labadie. He believes 3PLs remain a key enabler that can help shippers sail through choppy trade waters and mitigate the worst impacts.

Jason Bergman is chief customer officer for Overland Park, Kansas-based YRC Worldwide and its logistics arm, HNRY Logistics. He agrees with Labadie that “supply chain flexibility is the most requested” capability sought by shippers today because of all the current market uncertainty. HNRY Logistics, Bergman said, specializes in “finding high-quality and consistent solutions” for customer supply chain needs. “The goal,” he said, “is to create consistency and continuity” in any economic cycle.

HNRY Logistics is an “asset-backed” 3PL that has access to the capacity, coverage, and resources of its sister trucking units at YRC Worldwide. Bergman said the asset-backed model is a value differentiator. “At the end of the day, it’s about consistent communication and a seamless experience for the customer. When you take our logistics arm and combine it with our assets, that provides a significant advantage,” he said.

Going into the new year, what are three core issues that keep Bergman up at night? “Attracting and retaining quality talent. Managing our business in a time of economic uncertainty,” and “managing in a more difficult regulatory environment.”

Tossing Out the Old Playbook

Flexibility and diversification are two qualities that Randy Sinker, vice president of commercial sales for Winnsboro, Texas-based 3PL Team Worldwide, said are critical to successful logistics service providers. “If you are a traditional freight forwarder and you don’t diversify and become more flexible, you will go out of business,” he said.

He cites the uncertainty of tariff and trade policies as well, which have made manufacturers reluctant to pursue investment and growth plans, and have reduced freight volumes, particularly air freight. Shippers also continue to embrace vendor consolidation strategies, winnowing down their list of suppliers to small teams of highly skilled and resourced core logistics suppliers. All of that means a 3PL’s service portfolio has to stand out and demonstrate an ability to consistently solve an ever-growing list of supply chain challenges if the company hopes to stay in the game. “It’s expensive [for shippers] to use different companies,” said Sinker. “Those that can do more and who can think outside of the box will remain competitive and successful.”

He added that shippers, while still requiring competent performance of tactical logistics tasks, increasingly want strategy help. Sinker believes it’s imperative for 3PLs to be able to “plan with customers for what’s [expected to] happen a year from now, not tomorrow’s shipment.”

Privately held Team Worldwide operates under the “agency” model, which Sinker believes is a unique strength. The company covers a broad swath of the supply chain: import/export ocean and air, customs brokerage, warehousing and distribution, and final mile. Sinker said chief among its strengths is an entrepreneurial culture, with each station having local ownership and control. “We tell customers we’re large enough to service you and small enough to know you,” he adds.

Unlike larger 3PLs, which are leaving smaller cities and consolidating operations in regional offices, Team Worldwide is expanding into secondary and tertiary markets, complementing its presence in key metro areas. The company has opened eight new offices in the last 22 months, currently has more than 45 local branch offices within North America, and has additional expansion plans on the drawing board for 2020. “The biggest thing we push is service,” said Sinker, citing the value of a flat organization with minimal bureaucracy and red tape. Decisions on operations and customer service are made “where the rubber meets the road at the branch level, with the branch owner.”

The Visibility Challenge

In addition to the strategic challenges, 3PLs and brokers face constant pressure on the technology front. The emergence of new tech providers such as Uber Freight, Convoy, and others hawking new digital brokerage platforms and visibility solutions has forever changed the logistics market—and forced traditional players to evolve and adapt.

That means a 3PL’s or broker’s tech platform has to be able to tap into—or otherwise effectively interact with—multiple transportation sources, management systems, order platforms, and online marketplaces. Industry executives say they’re consequently faced with tough decisions about how to upgrade and modernize their technology platforms to support these new systems, which are becoming ingrained in normal supply chain operations. “If you don’t, you’ll be left behind,” said one executive.

Geoff Turner, founder and chief executive officer of Preston, Maryland-based 3PL and freight broker Choptank Transport, is familiar with this dilemma. Turner said Choptank’s top request from customers is for visibility into their loads—including where they are enroute and if they’ll meet the projected ETA. That’s been a challenge, especially in a fragmented truckload market where some 80% of capacity is provided by thousands of “micro” carrier fleets of 10 or fewer trucks and independent owner-operators.

Like many progressive brokers and 3PLs, Choptank has been methodically investing in and improving the technology tools and capabilities his customers and carrier-partners want. In a given year, Choptank will engage with some 30,000 trucking service providers. To help customers navigate this complexity, Choptank deployed a visibility solution from Reston, Virginia-based Trucker Tools, which has increased carrier visibility compliance from less than 30% to consistently between 90% and 95% of loads, according to Turner.

“Those I speak with say not many [brokers and 3PLs] are seeing tracking success at this level. It’s a benefit that goes directly to our customers and solves one of their most pressing needs,” he said.

Logistics has always been an evolving and competitive space, with technology continually pushing the boundaries. But as Turner sees it, technology is not the whole story. One area where he said traditional brokers still have a value advantage is the tribal knowledge and expertise of skilled, experienced people, and the relationships they maintain with the carrier community.

“When there is an issue, they [carriers] really want to talk with someone,” especially when exceptions come up or an issue arises at the shipper’s dock. “It’s that ability to [get on the phone with someone and] quickly resolve an issue” that might otherwise delay the driver or potentially cause harm to the shipper’s supply chain. “Carriers are our customers too, and they want to work with people they know, trust, and like,” so the personal connection, especially for managing exceptions and solving urgent issues, still makes a difference, Turner said.

Emergence of Marketplace Systems

Greg Aimi, research vice president with Gartner Inc., has trod the logistics business’s winding path for nearly 30 years, running software companies, managing logistics operations, and studying the market as a research analyst. He sees this most recent revolution of digital transportation platforms diverging into two models.

In one model, companies are essentially “coming up and saying your people-based [approach] is unnecessary. The whole process can be automated.” These tech platforms, Aimi believes, are disintermediating the traditional broker. They are licensed brokers who are “allowing demand to source supply through their network. I can connect the parties automatically … and let the constituent parties work together directly.” In this case, the “platform” is doing the transaction.

In the other model, companies are essentially taking the current traditional brokerage model and automating the process of freight matching, booking capacity, and tracking loads. Aimi describes these as “marketplace systems,” which engage multiple carriers and brokers, “enabling platforms where the constituents are doing the transactions themselves” and carriers are working on the platform with brokerage houses “to quickly provide [and secure] quoted capacity.”

He notes that one of the biggest benefits to a carrier of this third-party multiparty platform model is a one-to-many relationship. “As someone [a carrier] who has capacity, I can put myself on many networks, but I prefer this [multiparty, multibroker] one because it is low cost, it’s more lively, and I get [automated] matching of supply and demand” that can be refined and targeted to a specific geography, city, lane, or type of load, he explained. In this case, the parties themselves still participate in the transaction but with the support of automated, intelligent systems. It’s also easier and less time-consuming for the carrier to manage versus being on multiple single-use platforms.

He said it is an enabling marketplace of supply and demand in which small to mid-market brokerage players can jump on the platform and have the same technology power as the big digital guys, but still with the benefit—and advantage—of what Aimi calls “customer touch.”

The network is the “big deal,” Aimi said. But when it’s all said and done, for traditional brokers and 3PLs, “customer touch will [continue to] make them different.”  

Gary Frantz is a contributing editor at DC Velocity and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He’s served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He’s a proud graduate of the Journalism program at California State University–Chico.

Image credits: Inozemtsev Konstantin/Shutterstock.com, Leszek Glasner/Shutterstock.com