In my previous blogpost, I looked at the state of transportation and how to manage the current capacity crisis: that is, the trucking industry demand for freight is very high, and supply of equipment very low, which results in high prices.
Navigating this capacity crisis is a challenge for everyone that needs trucking services. Part of this navigation comes down to which type of provider you choose. There is value in using both third-party logistics (3PL) providers, as well as asset-based companies that own their own vehicles. But the multi-million-dollar question is, what’s more important: that a transportation company own their trucks, or whether they move your freight efficiently and effectively?
In typical times, there’s not one answer; whether you choose a 3PL or an asset-based provider should come down to your own existing circumstances. But these are not typical times. These are crunch times—and in crunch times, 3PL providers offer an edge in maximizing efficiency to provide better services at a lower cost. Have a look to see how:
The Value of a 3PL over an Asset-Based Carrier:
- Established carrier relationships: Based on standing relationships in other shipping lanes (i.e. regularly used routes) or with other clients in comparable lanes, 3PL’s are able to source carriers and negotiate rates much more successfully than a stand-alone shipper may.
- Buying power: Often, through clout in the marketplace, a 3PL again will have leverage in negotiating with carriers, whether creating new contracts or building off of current relationships.
- Expertise: 3PLs work with a wide network of partners that offer an array of services, thus acting as a one stop shop regardless of required mode of transportation from truckload, less than truckload (LTL), intermodal, warehousing and ocean services. Most often, they have come across any potential setback you may be dealing with today and have the proficiency to offer a solution.
- Support: Ultimately, a 3PL is looking to make the shipper’s life easier. Their customers are the priority and providing solutions makes the supply chain operation less stressful for all involved. A trucking company can often be looking at cutting their overall cost versus supporting the customer.
- Rules and Regulations: Carriers and drivers are responsible for their own safety and compliance. When government and transportation associations update, cancel or change the standards for drivers, it can be difficult to keep up for all drivers. When demand shifts, and current events call for change in capacity or routes, a well-organized 3PL is the better option because they have a better set of systems and technologies to ensure all drivers are up to date.
- No Conflict of Interest: An asset-based company’s interest tends to be themselves—not necessarily with the customer's priorities. When talking about a rate, a 3PL is agnostic: for example, a 3PL will give you a market rate that works with the industry, benefiting all parties. An asset-based company is strictly looking to make money for their truck. Claims are also a big issue regarding conflict of interest. When a shipper gives freight to a carrier and the carrier damages the freight directly, the carrier’s responsibility is to pay as little as possible to that client. The responsibility as a 3PL is to recover as much money as possible from the carrier.
- Visibility: A 3PL can provide historical and real-time shipment data with transportation management systems. With these systems in place, 3PLs can use big data to make smarter operational decisions and optimize supply chains. Asset-based companies will have some technologies, but nowhere near the robust nature to which a 3PL can provide. Ultimately, a 3PL is providing visibility through technology and the entire supply chain: driver communication, reporting, real-time shipping data, management, forecasting, optimization, network modeling.
- Core Competency: Non-asset based 3PLs are able to focus solely on supporting the specific, ever-changing needs of their clients and do not have any operational or financial responsibilities of supporting an asset-based cost model.
- Market Expansion: Working with a 3PL gives the option to grow business in other markets. A 3PL already has national or international coverage and provides the opportunity for you to ship and track products in a new market without having to spend money on warehousing, equipment and additional labor.
- Scalability/Flexibility: A 3PL has the ability to grow with in terms of resources such as space, labor and transportation based upon any fluctuations in inventory during any time of the year.
During the current capacity crisis, maintaining your logistics business is all about maximizing your efficiency. At the end of the day, it comes down to the fundamentals of buying and selling. The real value is being comfortable about your relationship with your logistics provider, vendor flexibility and delivering positive results. While there may be value in dealing directly with trucking companies—the more robust, personalized service comes when committing to a 3PL.
You might also want to check out this post: How to 'Unbundle' Print and Logistics to Uncover Big Cost Savings.