In today’s tough economy every shipper is looking to find strategic advantages over their competition. The biggest hurdle for shipping managers continues to be, how I get my product to the end user in the most cost effective, reliable way. It’s a constant battle to find the balance of the cheapest transportation provider with the one that has the best service. A lot of companies are outsourcing their entire transportation department to third-party logistics providers (3PL’s). In 2008, the 3PL industry did over $100 billion in the United States market.
1. Save Time & Money – 3PL’s have thousands of qualified carriers under contract with the ability to handle your freight. Third-party logistics companies are able to reduce the amount of infrastructure investments in equipment, software, facilities and personnel. A single phone call to a logistics coordinator enables them to select the best value carrier for every shipment. Would it make sense to put that load on the rail? Should we consolidate those LTL’s into a truckload? These 3PL’s are like a having non-paid employees on your staff and allow shippers to focus resources on areas where they are the expert (i.e. manufacturing, product sales).
2. No reason to buy an expensive TMS (transportation management system) – Most reputable 3PL’s have invested in a TMS system or developed their own. These systems can be utilized for free when dealing with a third-party logistics provider. Many companies can even run reports on your freight, analyze shipping patterns and keep scorecards on service quality. All of these factors help reduce overhead for shippers.
3. Liability- Third-party logistics providers manage carrier contracts, DOT safety ratings and insurance certificates better than most shippers. 3PL’s have a back office staff that have SOP’s in place to help the carrier vetting process.
4. Economies of scale - Third-party logistics companies can provide large shipping discounts through economies of scale. 3PL’s are able to achieve much lower operating costs per load due to their ability to leverage their entire business for substantial discounts with trucking companies. These economies of scale can also be seen in the carrier qualification process, technology systems and consistent year-round freight prices.
5. Visibility of loads – Most third-party logistics companies have on-line tracking to give shippers visibility of their loads. Many 3PL’s are able to integrate tracking into shipper IT systems, automated notices, or even real-time delivery notifications by e-mail.
6. Reduce back office duties- 3PL’s have the systems, manpower and the know-how to process thousands of bills a day at a fraction of the cost compared to shippers. They can also audit all of the bills to make sure the carriers are charging the agreed upon rates. This process can be a real headache with large amount of LTL bills. Third-party logistics providers dramatically reduce the need for freight audit and payment personnel.
7. Utilize more carriers - Third-party logistics companies have contracts with thousands of carriers and know the lanes where these partner carriers need freight. 3PL’s also have an extensive network of private fleets. Private Fleets tend to be very lane oriented with lower cost structured and higher levels of service. These carriers tend to have lower driver turnover and newer equipment.