Logistics is as much a science as a business process. But for the supply chain to hum along efficiently, artfulness comes into play where the rubber meets the road. No matter how much technology is deployed, ultimately the goods get distributed by truck.
Whether shipments are taken on via a brokered transaction or a contractual agreement with a third-party logistics provider, the more dependable, flexible, and transparent the services your fleet can deliver, the more valuable they will be in today’s expanding and ever more sophisticated freight marketplace.
Changes in the U.S. and global economies and in how commerce is conducted are rapidly growing the need for logistically managed freight movements. Developments in such arenas as advanced mobile computing and enhanced data analytics, and in the rise of the Internet of Things, are driving the growth of e-commerce – and the expectations of consumers. This means more and more freight is being handled more efficiently by managing its movement logistically, rather than point-to-point.
The online engine
Nothing is moving logistics forward more than the expansion of e-commerce, especially its lucrative but complicated last-mile component, which is tailor-made for asset-based trucking operations.
A recent survey conducted by XPO Logistics found that 37% of U.S. consumers plan to make an online purchase of furniture, appliances, or other big and bulky products (defined as more than 150 pounds) in the next 12 months. And that freight will get to their door in a truck, not a parcel van.
To be sure, e-commerce is severely impacting the supply chain, piling on cost and complexity that’s driving the need for outsourcing and expertise. That’s according to Evan Armstrong, president of 3PL consultancy Armstrong & Associates, who discussed the market for a recent update issued by Stifel Transportation & Logistics. Valued currently at $12.8 billion, e-commerce is still a small percentage of overall 3PL revenues, but it’s growing quickly: Armstrong sees its compound annual growth rate reaching 18% through 2020.
H.O. Wolding, an Amherst, Wisconsin-based, family-owned carrier in business since 1935, has a firm handle on what getting into the logistics space can mean for a motor carrier. The company runs trucks regionally and over the road and on dedicated routes while also offering brokerage and logistics services.
According to a Wolding blog post by Paige Selbo, operations staffer, “trucking logistics” requires incorporating analysis and research to determine the requirements of businesses and how to address those needs more efficiently. In a logistics environment, shippers can tap state-of-the-art technology to improve performance to meet the demands of retail and industrial sectors. “Properly implemented, trucking logistics can help trucking companies eliminate unnecessary costs and upgrade other areas of service and their systems for improved accuracy and productivity across the board.”
Although it’s a word imbued with an expansive definition, logistics alone doesn’t cover what’s going on these days in the freight marketplace. You must roll into the picture freight brokers, a quainter term than 3PL, but one that’s just as much of the moment.
Logistics providers and brokers, or if you prefer another descriptor, transportation intermediaries, are cut from the same cloth. They just wear it differently. Both are essential to getting freight hauled that motor carriers don’t directly get their arms around.
Keeping the supply chain rolling
Brokers and 3PLs alike keep the supply chain lubricated with truck capacity. Generally speaking, one tackles the job tactically while the other does so strategically. Carriers can work with either or both and not get caught up in semantics. A carrier can get yet deeper into the game by setting up its own brokerage or 3PL offerings, like H.O. Wolding has along with many others, including household-name fleets such as J.B. Hunt.
According to the Transportation Intermediaries Association, brokers and 3PLs traditionally have been primarily non-asset-based companies with the expertise to provide “mode- and carrier-neutral transportation arrangements for shippers with the underlying asset-owning and operating carriers. They get to know the details of a shipper’s business, then tailor a package of transportation services, sometimes by various modes of transportation to meet those needs. Transportation intermediaries bring a targeted expertise to meet the shipper’s transportation needs.”
While transportation intermediaries are called by more than one name, those involved in the trucking industry are licensed by the Federal Motor Carrier Safety Administration as either brokers or freight forwarders.
Generally, brokers focus on individual shipments that they parcel out to carriers as transactions. They get freight moved without needing to consider how it fits within the overall market, so they are not acting in a logistical fashion. It’s sometimes referred to as “transactional” business.
Conversely, a 3PL acts in a more logistical fashion. It invests in technology to analyze the market and customers so it can approach the movement of freight strategically, using all the tools of logistics management. They may invest in sophisticated software that helps maximize logistics efficiency. TIA points out that “many also invest in physical assets such as trucks, aircraft, warehouses, and consolidation centers so that they can offer a fuller, vertically integrated range of service options.”
For a shipper, one of the biggest benefits of working with a 3PL is it can help gain access to different parts of the “very fragmented trucking industry,” points out Mark Ford, COO of Tampa-based BlueGrace Logistics, in a blog post. “It’s hard to handle relationships with tens of thousands of carriers, so if you let the broker handle that portion, and you have a relationship with your top 10 to 15 asset-based carriers, everyone can have a piece of the pie and work more collaboratively.”
“It is increasingly obvious that 3PLs are doing much more than just moving products from one place to another,” observe the authors of the 23rd Annual Third-Party Logistics Study: The State of Logistics Outsourcing. Instead, “they are creating dynamic and responsive supply chains that can create a competitive advantage for shippers, allowing them to speed their products to market and flex their capabilities up or down based on demand. To accomplish their goals, both parties [shippers and 3PLs] need to be willing to share data and engage in conversations earlier in the process.”
3PLs and brokers alike need carriers to move the freight they are charged with handling. And it all starts with shippers seeking to gain better service and to optimize their supply chains.
Delivering some real-world perspective on how carriers can be matched up with more freight, whether by the truckload or by a contract, are some thoughts offered by experts at three name-brand 3PL firms.
All about engagement: Penske Logistics
“We look at what we offer [in logistics services] as a continuum of engagement with shippers,” says LeAnne Coulter, vice president, freight management for Penske Logistics. She advises that the 3PL, whose services include freight brokering, logistics management, and dedicated contract carriage, has $4.4 billion in freight under its management
“Brokering freight is transactional and done at the lane level, while a 3PL may manage all a shipper’s freight,” she explains. Coulter says the 3PL works with some 10,000 carriers. “We’ll work with them on a transactional or strategical basis. The carrier reps on our brokerage team work with our carrier base to see if they’re in the lanes they want to be in, or if they want to put trucks into specific markets.”
Penske is always seeking new carriers for its North American network, she says. “We have an online portal for registering with us. It’s an easy and straightforward process.” Carriers must have their own operating authority and DOT number, hold a “satisfactory” safety rating or not be rated yet, and meet certain insurance minimums.
“Once a carrier is onboard, our carrier reps work to find out what kind of freight they will haul,” Coulter continues. “Carriers can make large bids for hundreds of lanes at one time using special software, which also helps us fine-tune the freight requests of our carriers.”
She says Penske Logistics “likes to work with new carriers so they understand our requirements, such as communicating when pickups and deliveries are completed and providing in-transit visibility of shipments. We want to make sure all that works, and as the relationship grows, we can introduce the carrier to our large network customers. If a carrier can meet a specific request for a particular customer, such as equipment age or ability to hit a 30-minute window, that will stand out.”
“In addition, some shippers have different request about cargo insurance, so the carrier may have to make that investment,” Coulter says. “And sustainability is often discussed by shippers, with fuel surcharges tied to reaching an expected mpg level. A carrier may also bring adjacent services that appeal to shippers, like operating a cross-dock facility. We are always looking for creative solutions.”
Delivering value: C.H. Robinson
This spring, C.H. Robinson recognized 12 of its top truckload carriers for service excellence, ranging from owner-operators to fleets running 1,000 trucks. The dozen honorees are among the 76,000 contract carriers that are part of the non-asset-based 3PL’s Carrier Advantage program. The program rewards carriers that regularly haul for the 3PL and “do it well,” with such benefits as earlier access to freight, a dedicated carrier representative, and contractual freight opportunities via C.H. Robinson’s proprietary technology platform.
“These contract carriers provide incredible value through their dedication to efficient business practices and the strong relationships they have built with our team,” says Bruce Johnson, C.H. Robinson’s vice president of capacity. “They are critical to our business.”
He says the idea behind brokering freight by transaction or by contract is simply that “carriers provide the capacity and shippers the volume.”
The 3PL works with carriers of all sizes on contract. “The biggest ones have their own brokerage component. In those cases, we ask that we keep that relationship clear in that we expect only their assets will move [customer freight] unless otherwise agreed.”
C.H. Robinson grew from a produce brokerage launched in 1905 to being the largest U.S. 3PL by gross revenue. “Buying and selling fruits and vegetables led to getting into transportation, which took off after trucking deregulation in 1980,” he notes. “We still broker produce, but it is a small part of the business.”
Today, the 3PL has more than 1,000 carrier reps charged with reaching out to carriers “to find out their needs and wants,” says Johnson. “Some carriers only want to work with us on a load-by-load basis and so may call us. Others seek to contract with us for a piece of business or a program. These agreements may run a year or several years.”
Johnson says the starting point for a carrier to work with C.H. Robinson is the basics: operating authority, insurance coverage, and safety rating. “After that, the contract can evolve into a relationship with us.” This process is formalized within the Carrier Advantage program, which he notes is being revamped. “We look at their service level and ability to automate and then we ‘tier’ them. As they go up a level by improving what they offer, they gain more benefits. It’s a motivational approach.”
Johnson says a carrier’s service level can be greatly enhanced by on-time pickups and deliveries and by its ability to provide visibility of shipments in transit, which “ties to the automated piece. We don’t want them to have to call us. There’s a variety of ways to connect with us. They can use our mobile app to provide position. Or we can integrate directly with their electronic logging device or telematics provider or by way of EDI [electronic data interchange].
“Everyone talks about technology today,” he continues. “We want to figure out how to have quality relationships [with carriers] and use technology to enhance it.”
He observes that “the brokerage business has changed from what it was not very long ago. Technology has enabled even small motor carriers to do more on their own. As brokers, we have a commitment to the health of motor carriers along with serving shippers.”
Beyond the rate: Ryder System
Ryder System fields a network of more than 10,000 carriers to help haul $6.7 billion in freight that customers have put under its management. The 3PL recently honored 14 companies with its Carrier Quality Award, based on meeting criteria including on-time performance, claims handling, customer service, and technology applications.
To start off as a Ryder contract carrier, “a handful of items are qualified for vetting,” says Kevin Clonch, Ryder’s senior director, global transportation procurement. “Having assets — trucks — is critical, as we’re building a strong asset-based carrier network with limited brokerage activity. We also consider whether they are SmartWay-verified or have obtained CTPAT certification. Then we’ll run a report that will pre-qualify the carrier for a given customer.
“In addition, the carrier will have a discussion with our team on the fleet’s capacity and what value the carrier brings beyond a rate. This lets us build a story for customers. And the rate,” he stresses, “is not the 100% decision-making criteria. We’re not trying to get the lowest rate on lanes, but the best total cost for customers in the supply chain.” He adds, however that “rate consistency is also important” to Ryder. “We want it to be fair.”
Once onboard, carriers can go in various directions based on how they perform to Ryder’s KPI metrics, which include accepting freight when tendered, on-time percentages, up-to-date compliance, and providing live-tracking of the asset in motion, “to allow a ‘cookie crumb trail’ from pickup to delivery with analysis of their performance.
“Delivering the freight we manage requires us to use all different types of carriers,” Clonch says, “from owner-operators to large fleets in the U.S. and Canada. Also, we want niche providers as well as capacity providers. I don’t think any quality carrier would be off the table for us to work with; we’ll take a look at where they might fit.
“Our value to carriers rests in our freight spend,” he adds. “We can create higher utilization for them with continuous freight moves. We scorecard them on a regular basis so they benefit from regular feedback. And we’re set up to be an advocate for carriers to our customers.”