New Articles




Writing requests for proposals (RFP), evaluating responses, meeting with third-party logistics providers (3PL) and interviewing customer references are standard practice when it comes to selecting your organization’s 3PL. But what other questions should you ask before signing on the dotted line?

Here are five key questions that shippers and 3PLs agree should be part of any 3PL interview process.

No. 1

What are your financial and market strengths, and your strategic commitments?

“Any 3PL you are considering should be able to specifically describe the value it can bring to your company,” says Emmanuel Cambresy, Country Category manager of Strategic Sourcing for one of the largest worldwide healthcare companies. “The 3PL’s business plan must also be able to be aligned with your long-term vision and strategic development plan. As part of this, you should determine whether the 3PL has a joint strategic decision-making process with its customers that facilitates a strong business partnership.”

Frank McGuigan, Transplace executive vice president and COO, notes that the 3PL marketplace is getting crowded. “Companies need to be able to distinguish between the marketing ‘noise’ that they hear and the value that actually gets delivered,” he says. “You want a value-based relationship with your 3PL that can address your specific business model and what it is you have to accomplish. At the end of day, the relationship you build with your 3PL should be based upon the value that it can deliver.”

Derek Leathers, president and COO of Werner Enterprises, says that any 3PL should be able to fully describe its service footprint and particular market strengths. “Interview the 3PL on its global reach and define where current and future markets come into play,” he says. “Most 3PLs know local landscapes better than their customers and can provide global trade management services to enable trade compliance. … Expansion into new markets is a primary reason that shippers select 3PLs; you should have full confidence that your provider has both immediate as well as longer-term account management capacity across various geographies.”

No. 2

Can you provide examples of your implemented capabilities and expertise as well as demonstrated performance-based results?

“Any 3PL that you consider for logistics needs to be able to provide several examples of case studies and references of customers in like industries, with similar supply-chain or distribution challenges, that represent proven measurable and sustainable results,” says Sean Coakley, SVP of Kenco, a logistics provider. “It is important to fully understand the 3PL’s capabilities with similar organizations, discuss obstacles they may have encountered and how they overcame them, as well as examine their average client tenure and the reasons why contracts may have expired in the past. In addition to service capabilities, look for attributes such as the organization’s culture and reputation, talent development and retention, and industry stewardship.”

Emmanuel Cambresy stresses the importance of holding 3PLs accountable for their results when you interview them. “Always ask the 3PL how it has proactively been contributing to the delivery of sustained innovation and business transformation for its customers,” he says. “Also ask the 3PL how its current commercial structure supports fairness, flexibility and transparency in the supply chain.”

Talking to 3PL customers is also highly important. “Sometimes the 3PL only gives you a list of its ‘good’ customers for references,” says John Brooks, director of Distribution and Transportation for Philips Global Purchasing Group, which handles both Philips’ healthcare and electronics divisions. “But it’s very important during the interview process that you speak with a variety of other customers so you can gain a thorough understanding of the 3PL and what it can deliver. This means that you should ask for full customer lists that you can choose from.”

McGuigan seconds the importance of drilling deep into customer references. “Few companies interviewing 3PLs develop detailed lists of questions to ask references during their RFP processes,” says McGuigan. “You should ask the 3PL what the average length of its customer relationships is, and if it has ever lost a customer. If a 3PL has long-term relationships with its customers, this demonstrates the 3PL’s ability to keep returning value to these organizations. … As a shipper, you want to see successful business cases out there—not just summary results for a series of 30-minute phone calls.”

No. 3

What are your IT capabilities?

“Always fully understand and interview 3PLs regarding their IT capabilities,” says Werner Enterprise’s Leathers. “The information that IT systems provide is the lifeblood of supply-chain planning and execution. It is essential in a 3PL relationship to align and understand how and where information will be managed, how the system’s architecture is linked to supply-chain strategy and how future enhancements will be financed and implemented.”

ON THE RISE? Fred Schardt, president and COO of FedEx Trade Networks, says you should not only inquire about a 3PL’s IT, but also its investment in future IT that will benefit your company later.
ON THE RISE? Fred Schardt, president and COO of FedEx Trade Networks, says you should not only inquire about a 3PL’s IT, but also its investment in future IT that will benefit your company later.

Fred Schardt, president and COO of FedEx Trade Networks, says that companies should look not only at present 3PL IT capabilities but also whether the 3PL is making appropriate investments in future technology that will bring value to the supply chain.

“Systems and IT are very important,” affirms Philips’ Brooks. “We have often found that we don’t get the reports we want. Key technology areas that a 3PL should excel in are track-and-trace, reporting, contracts, operations and feedback. The systems the 3PL uses must be flexible and able to change rapidly to respond to new market conditions.”

McGuigan adds, “A shipper should ask its 3PLs what systems, people and processes they have that will improve the shipper’s processes beyond the first year the shipper is with them. You want someone that can lower expense or produce savings—and that has the technology and organizational infrastructure in place to keep delivering to these goals.”

No. 4

Who will be managing my account and supporting my organization on a daily basis?

Mike Stark, CEO of Pacer Distribution Services, says that companies should investigate what kind of relationship they can have with a prospective 3PL before they sign a contract. “Shippers should ask themselves whether they will have access to the top person if something happens.”

From here, it’s a question of ongoing communication and execution. “This is why companies should also find out what the 3PL’s account management structure is,” says FedEx’s Schardt.

“Another question they should ask is, ‘Once the business is awarded, how will I be serviced?’” Schardt says. “Shippers should make sure the 3PL’s account management structure is capable of building and sustaining a business partnership with constant access. Your 3PL should do what it says it can do. Finally, turnover of personnel is important. You want a 3PL where the skilled people stay and are happy with and understand their jobs.”

“Look for how well you can access key personnel and what kind of internal training programs the 3PL has to ensure that its personnel are well trained in the areas where they work,” adds Philips’ Brooks.

No. 5

What obstacles do you see in my organization that prevent me from taking full advantage of your services?

Pacer’s Stark encourages shippers to ask their 3PLs what services they can provide that the shippers aren’t presently getting. “Also ask the 3PL where it expects to be with its service offerings a year from now,” he says, “and then tell them that you want to be there with them when they’re planning because it’s important that the two of you speak the same language.”

“When we look at a 3PL, we expect it to be the expert,” says Brooks. “We want our business processes to be driven by 3PLs in the sense that if they are aware of best practices and can recommend changes or improvements we can make to our operations. We want to hear about these so we can consider adopting them.”

“These are healthy conversations that should take place one or two times a year,” says McGuigan, who acknowledges that he sees many businesses that want the 3PL to unilaterally change the business without changing anything that they do. “There are natural resistance points within these organizations, because new workflows require up and down buyoffs from stakeholders and the process of consensus takes time.”

He says that in the ideal situation the 3PL and shipper should be able to originate eight new ideas.

“Maybe three or four of them that get shot down, but then you discover that there are three or four that you really haven’t looked at,” he says. “This is when a beneficial business paradigm shift can occur.”

The Life-Critical Cold Chain

Vaccines, pharmaceuticals and many foods must be kept at specific temperatures while in transit or risk harming consumers. So how are carriers assuring temperatures—and safety?

The costs of cold-chain instability can be enormous—in both dollars and human lives. “We depend on cold chain and carefully forecast our need for vaccines as much as possible,” says Paul Molinaro, senior manager of Change & Development at UNICEF Supply Division. “Losing vaccines to spoilage or any other supply-chain factor is something we just can’t afford, since vaccines are life-critical and also very long to manufacture if they are lost.”

When refrigeration is inadequate, perishables like medicine and food can spoil and their quality alter by chemical reactions that begin to take place. This makes it essential to monitor the “cold chain”— the origin-to-destination distribution network of refrigerated products in temperature-controlled containers (reefers), trucks and warehouses.

“The vaccine cold chain is needed from the time a vaccine leaves a manufacturer to the point of delivery at the health center or immunization point,” says Andrea Sioris, a manager at UNICEF. “The cold chain is monitored through various mechanisms, such as vaccine vial monitors that check exposure to heat, as well as electronic time temperature monitoring devices, which track temperatures during international transport.”

“Countries return Vaccine Arrival Reports to UNICEF, in which the status of vaccines—including any temperature exposure—is recorded,” says Sioris.

Richard Smith, director of Life Sciences and Special Services at FedEx Express, says the life sciences and healthcare industries also have stringent demands for refrigeration. Pharmaceuticals must often be kept at temperatures between 15-55 degrees Celsius. “In other cases, a broader 10-30 degree Celsius range is acceptable,” he says. Biotech products and drugs on clinical trials both frequently require refrigeration between 2 and 8 degrees Celsius—significantly below the ranges of standard product refrigeration.

“We see high demand for cold-chain services in produce, flowers, fresh fish and other perishable goods,” says Smith. “During transit, time-sensitive and highly perishable goods like fish must be maintained at refrigerated temperatures to ensure freshness and prevent spoilage.”

BREAKING BREAD Red Cross workers distribute food at a Gori, Georgia, refugee camp in 2008. Red Cross monitors its cold chain and must dispose of food not kept at safe temperatures.
BREAKING BREAD Red Cross workers distribute food at a Gori, Georgia, refugee camp in 2008. Red Cross monitors its cold chain and must dispose of food not kept at safe temperatures.

To answer the challenge, container atmospheric controls today go well beyond maintaining temperature. Fruits and vegetables respire as they mature, consuming oxygen and producing carbon dioxide and a hormone called ethylene. Kartik Kumar, director of Marketing and Strategic Planning, Global Container Refrigeration at Carrier Transicold, says his company “uses technologies that enable shippers to control levels of these gases in ways that can further slow the ripening process and help extend shipping time.”

While controlling humidity levels inside containers is important for flower bulbs, paper products, artwork, electronics and certain metals, health is concerned for pharmaceuticals and food items such as garlic, onions, ginger and other root crops. “The food we prepare comes from a variety of vendors,” says Melanie Pipkin, a Red Cross spokeswoman. “As food is checked in, we note the condition in which it arrives. Any food that doesn’t arrive in its acceptable temperature range is rejected.”

Shipments must be monitored throughout the cold chain, and it may be necessary to intervene when there is a failure. Some organizations place data loggers in the boxes of goods they are shipping to monitor for temperature control. Unfortunately, these companies usually receive monitoring results after the fact, so they lack real-time visibility.

“Without real-time visibility, shipments can spoil,” says FedEx’s Smith. “A shipping delay can be as simple as a transportation connection that is missed when you’re trying to expedite the shipping of a temperature-controlled drug or a medical device needed in a surgery.”

Years ago, Smith says, FedEx had a finite number of locations that provided refrigeration, and in many cases refrigeration was done on an ad hoc basis. “We made a strategic decision to grow our healthcare business,” he says. “This encompassed providing temperature-control services such as cold storage, dry ice replenishment and even gel pack exchange. What we wanted to do was to increase our cold-chain infrastructure in order to better manage contingency situations involving time and temperature-sensitive products.”

Today, FedEx averages around 20 scans on each shipment through its end-to-end shipping and distribution network. With some very critical packages, it is even using active sensors the size of a smart phone, which are inserted into shipping boxes and containers. These sensors report on a shipment’s temperature, humidity and integrity via a light sensor in real time and issues alerts in the event of a temperature excursion or package breach. Sensors also report a shipment’s exact location, thanks to incorporation of GPS technology. “Our customers can access this tracking and performance information through a web-based user interface called SenseAware,” says Smith. “We also have a 24/7 monitoring service.”

Even with diligent monitoring, however, failures still occur. “A lost or thawed sample means the patient has to give more blood. This can often mean another three-plus hour drive to get back to the nearest clinic or hospital,” says Mitch Nelles, vice president of Research and Development and Technical Operations for XDx, a molecular diagnostics company.

REEFER MADNESS Refrigerated containers, or reefers, are a key cog in the cold chain. The trick is maintaining visibility and temperature controls from origin to destination.
REEFER MADNESS Refrigerated containers, or reefers, are a key cog in the cold chain. The trick is maintaining visibility and temperature controls from origin to destination.

To improve outcomes, more companies are using electronic data recorders to monitor shipments. “The control systems are compatible with shipboard telemetry systems shippers use to monitor all refrigeration systems onboard,” Kumar says. “Some shipping lines are further engaging telemetry to relay seaborne refrigerated container status via satellite to land-based central monitoring points. But when a failure occurs, shipping lines carry ‘ship kits,’ which include key components for repairing a refrigeration unit at sea.” Carrier Transicold, he says, offers a comprehensive repair and service network with nearly 430 service centers worldwide in all major and developing ports.

FedEx also has a network of local hubs and gateways that protect temperatures of goods. “We look at the entire cold-chain backbone when we address refrigeration,” says Smith. “This means that there are numerous transit points en route to the 220 countries and territories around the globe that we serve which need refrigeration and backup controls and solutions. All of these hubs and stations are catalogued for their temperature-control capabilities and any one of them might be called into service if there is a system failover need generated by a shipment delay due to weather, regulatory hold or other factors.”

Rich Horan, vice president of Support Operations for medFusion, says cold-chain improvement efforts are paying off for his company, which provides clinical trials of new medications and uses sensors in its cold-chain management. “We have never lost a specimen,” he says, “and will continue to improve the process to minimize the potential for future failures from occurring.”

Cold Shipping vs. Global Warming

Shippers want sustainability and economy. Kartik Kumar, director of Marketing and Strategic Planning, Global Container Refrigeration at Carrier Transicold, says that costs of refrigeration vary depending on the number of refrigeration units carried on a ship and the amount and type of commodities within each unit. “The cost of fuel to generate electricity to run refrigeration units, as well as the emissions related to energy production can be significant, especially as fuel prices rise and energy becomes a greater contributor to the total cost of ownership (TCO) of a container refrigeration unit,” Kumar says. “Only 10 years ago, energy’s share of TCO was 28 percent and acquisition cost was the largest part, at around 57 percent (the balance being maintenance and repair costs). Today’s fuel prices put energy costs at about two-thirds of the TCO. Therefore, an upfront investment in fuel-efficient refrigeration units can save significantly over the life of a unit.”

Kumar notes that Carrier Transicold is currently in sea trials on an energy-efficient refrigeration system. The unit enhances its environmental profile by using carbon dioxide—a natural refrigerant with a global warming potential (GWP) of 1—rather than a synthetic refrigerant with a much higher GWP. “We have ushered in a new level of energy efficiency in containers,” says Kumar. “In one case, a shipping line with 6,000 of these energy-efficient containers is projected to eliminate more than 208,000 tons of carbon emissions.”

Best Practices for the Cold Chain

Technology advances will continue to change the cold chain. Shippers can capitalize on these advances by:

• Gaining end-to-end visibility of the cold chain

This starts with verifying the capabilities of your cold-chain service providers. You should strive for no “custodial breaks” in your cold chain—from the time you ship goods until they arrive at their final destinations. To achieve this, you need systems that monitor environmental controls every step of the way.

• Minimizing “handoffs”

The more you can work end-to-end with fewer service providers, the less coordination you will have to do between parties—and the less complexity.

• Improving internal cost management

Shippers tend to focus on containment of external costs, but there are also internal opportunities. “Traditionally, shippers endure heavy schedules on Monday, Tuesday and Wednesday, because they want to ship their temperature-sensitive goods so these goods aren’t stored in a warehouse over a weekend,” says Kinei Lin, manager, Customer Engineering at FedEx Express. “But with refrigerated trucks and distributed warehouse hubs with cold storage, we can pick up shipments on a Thursday or Friday. This flexibility helps to normalize the work week for shippers, because they can now spread their workload over the full five days and have their packages delivered earlier.”

Charted Territory

Thinking of opening a new market but don’t know its business landscape? Rely on an experienced 3PL that does.

Global trade has inspired businesses to expand their footprints into new markets—but they are discovering that opening new markets brings unforeseen challenges.

Sufficient infrastructure must be in place to support sales, timely, high-quality order fulfillment and, when necessary, the processing of returns. There are also issues with new market taxes, shipping and regulatory compliance.

Enter third-party logistics providers or 3PLs. Experienced in many different world markets, 3PLs can assist companies in not only entering markets but making strong impressions with new customers so they can thrive in them.

How 3PLs Open New Markets for Businesses

Companies begin their new market entries with “paper assessments” before they enter. If the opportunity looks good, the next step is to start with the sales effort and early contact with customers. Warm customer welcomes are what sales wants to see—but for those farther down the supply chain, an early “warm welcome” can also spell risk.

What if the customers want the new product now and there is only a limited time to maintain their enthusiasm? In situations like this, companies need agility so they can capitalize on opportunities while they exist. This is also why companies can find themselves ahead of the game in a prospective new market if they engage those that already have experience there.

“There are many new market entry risks,” says Sheila Hewitt, vice president of International at Transplace, a global 3PL. “These risks can range from supplier and quality problems to regulatory compliance violations, transportation infrastructure or inherent logistics constraints. Part of what our job is, is to help our customers as they enter new markets to determine the risks of entry—and whether these markets are likely to be smart business moves in the long run.”

Hewitt says that when her organization works with customers, it already knows the regions and the markets in which they want to participate. “As a 3PL, we see ourselves as a logical extension of service for our customers,” says Hewitt. “We analyze regulatory requirements and trade laws for these markets.”

Many 3PLs have also extended their lines of service and in-market representation. They give customers a “long arm” into new markets by directly representing their customers’ best interests in the checkouts of supplier manufacturing facilities or in the quality of goods being produced in and for the new market.

“As a packager, we have to be ready to enter all the new markets that our customers enter as they expand,” says Scott Stuckenschneider, vice president at Huhtamaki, a packaging company that counts Chinet among its brands. “We are not of a size where we can bring in the expertise required for regulatory compliance, trade law and customs. This is where a 3PL really helps.”

New Market Mistakes that Companies Make

Sometimes companies rush to market because they don’t want to risk losing momentum—and they decide that they will fix the things that go wrong “on the fly.” “When this happens, companies find that they quickly end up at the point of assuring deliverables and service—and they might not have the amount of preparation that is required,” says Mark Robinson, vice president at UPS Capital, the financial services arm of UPS that serves businesses whose supply chains span international borders.

WarehouseRobinson says there is a significant upfront investment required to support the logistics of bringing products to new markets. “Beyond sales, you have to determine what your service infrastructure and facilities are going to be in the market,” he says. “Do you handle order processing and fulfillment in-country? If so, do you hire employees? Do you buy or rent a local warehouse? A 3PL experienced in the new market can help companies answer these questions. It also is in a position to negotiate the best transportation rates with local carriers, because it already knows the market.”

Many companies will opt to use a 3PL initially, even if their ultimate preference is to establish direct corporate bases in its new markets. In other cases, companies might determine to permanently outsource their in-field operations to a 3PL if they feel it can provide premium services at a price that makes sense.

“What happens initially is that we get a call from a customer,” says Hewitt. “The request could be something like, ‘I’d like to ship goods from Madagascar to Charleston, South Carolina.’”

Hewitt says that the 3PL responds by asking such questions as what the product timeline is from build to market and what shipment volumes are projected to be. “It is at that juncture that we begin to open the door,” says Hewitt. “We enter into a research effort that encompasses customs, regulatory requirements, financial risk, etc., for the new market. We cover all of these bases because, in our world, we believe we are obligated to assist and to aid our customers in taking a holistic approach to any new market they are considering.”

High risk characterizes inaugural shipments to new markets, because companies are likely to uncover regulatory requirements overlooked in their initial due diligence. Egypt, for example, has numerous market entry requirements. China can be problematic because there is a preponderance of regulations for U.S. exports. In Europe there are tax implications, depending on where you export goods from. Some Eurozone locations are also better than others for holding inventory. Finally, duty impacts can be significant—to where it becomes advisable for companies to use an alternate freight-on-board (FOB) approach to shipments.

“One mistake that companies entering new markets make is not fully understanding all of the needs and requirements for entering a new market,” says Robinson. “You might say that they ‘can’t know what they don’t know’ for lack of experience. Even if you outsource some of your new-market work initially at a higher cost, you can minimize your upfront investment in infrastructure and operational costs while you are learning the market, and then make those investments after you really understand what you are going to need.”

There are also inherent risks in using new-market suppliers with which a company has little or no prior experience.

Many of these suppliers don’t always forward information. In some cases, it might even appear that a supplier has a significant profit margin. A 3PL with local presence in the new market can uncover this and relay it to its customer-company, which can in turn act to eliminate the excess margin. “In the end, the last thing our customers want in a new market launch is late deliveries, slow shipments or customer or regulatory issues,” says Hewitt. “We can help our customers determine upfront the terms of sale they are going to use for new markets they are entering.”

How Companies Can Capitalize on their New Market-3PL Relationships

Finding an experienced 3PL in the market you wish to enter can help mitigate risk, so it goes without saying that companies should consider 3PLs. However, there is still a “danger point” when it comes to procuring 3PLs—because the tendency is also very strong to retain services from the least-cost 3PL.

This isn’t to say that you can’t find both the best performing and the “least cost” 3PL, only that companies should carefully assess how well a 3PL can deliver in the new market before signing up.

“Choosing a 3PL partner is a really big decision,” says Robinson. “In a very real sense, companies are consigning their service levels and their ‘face to the customer’ in a new market when they engage a 3PL to represent them in that market. This is why choosing a strong 3PL with the resources and the know-how to deliver a value-added presence in a new market is vital. If you don’t do this right—it takes great time and energy to get out of a relationship with a 3PL when you see that it isn’t working.”


In a competitive global marketplace, companies continue to seek out new materials for use in manufacturing and to cope with how to turn a profit in an ongoing worldwide economic slowdown. Many companies seek expansion to growing markets in India, South America and Africa—at the same time they are considering doing more near-sourcing of goods and materials, and are even beginning to look at the U.S. as a sound and stable alternative for their supplier base.

This is a lot to put on the table for a single corporate regulatory department—or even the supply chain and sales functions tasked with opening up new markets and delivering timely, quality product to them. “In this environment, there is no need to recreate the wheel,” says Huhtamaki’s Stuckenschneider. “3PLs can get the new market work done quickly and without mistakes. This speed to market is essential.”

What Shipper CEOs and Execs Should Know About 3PLs

A lot goes into a successful relationship between a shipper and a 3PL—but it’s not always what you hear in seminars or learn on the job. If you’re a CEO or senior manager for a shipper, here are 11 things you should know when you think about 3PLs:

No. 1

“Bigger” May Not be Better and Longevity isn’t Always the Whole Story

Many shippers think that the bigger the 3PL and the longer the 3PL has been in business, the better the performance and service. Not necessarily. “Many Tier II [3PL] providers excel in specific industry niches. They provide customers with direct, hands-on expertise, with the benefit of a larger platform,” as Robert A. Voltmann, president and CEO of the Transportation Intermediaries Association, told Inbound Logistics in July 2011.

Shippers can also find great success with smaller 3PLs whose cultures, work ethics and operations closely align with their own. These 3PLs might not have been in business long—but, if they can provide trustworthy customer references, it might be worth it to take the chance.

No. 2

You Don’t Always Get the Best Price—Even if You Think You Did!

Shippers feel they get the best price for services when they begin negotiations with a 3PL and come away feeling that they saved 30 to 40 percent on costs because of deep discounting. It’s difficult to really know what it costs your 3PL to deliver services, but as in any other business enterprise, it is human nature for folks to put prices up so they can make them appear to come down drastically in discounts for their customers. Those shippers that do best in securing least-cost pricing from their 3PLs are also not necessarily the ones with the largest shipping volume—a common misconception. Instead, they are companies with the savvy to understand the costs and environmental factors that affect 3PLs and how they charge. If you lack deep-down expertise on what can be negotiated with your 3PL (like fuel surcharges!), you should consider hiring an outside consultant who can bring you that expertise.

No. 3

Knowledge of Product, Industry and Geographic Sector Counts

A shipper and its 3PLs should have knowledge of the industry sectors, products and areas of the world in which they work. If they don’t, products can get damaged during shipment because of inexperience handling them—or logistics can get delayed because of countries’ policies and politics.

No. 4

Talent is in Short Supply

Finding and retaining talent is significantly impacting shippers and 3PLs right now. Newer workers easily move from place to place, go after the top dollar if they are well-skilled and don’t demonstrate much company loyalty. When considering a 3PL partner, ask 3PLs about their employee turnover rate and query them about the certifications and internal education they provide their staff. Since everyone is fighting for talent, it makes sense to team with someone that you feel is in a strong position to both command and retain it.

No. 5

Reliable Technology is Critical

Most 3PLs depend upon technology to flow instructions to their in-field logistics. The same technology provides tracking and update statuses on shipments. In some cases, 3PLs offer cloud-based technology that gives their shipper clients visibility of the end-to-end logistics process. Unfortunately, many shippers still focus on only the physical transportation capabilities of the 3PL, when they should also be verifying that their providers have sound technologies and the ability to operate them 24/7. “We can failover our systems in a matter of minutes with minimal loss of data,” says Tamas Nemeth, IT manager for Transfreight, a 3PL for the automotive and recreational vehicle industry. “This is important for our operations and our customers.”

No. 6

3PLs Can Help You with Sustainability

When shippers evaluate 3PLs for transportation capability, they should also inquire into the sustainability numbers and initiatives of these companies. In some cases (e.g., intermodal shipping that uses railroad), shippers have gained leverage for their own sustainability targets by being able to incorporate their 3PLs’ results.

No. 7

Always Develop an RFP and Move it into Your Service Contract

Many shippers seek out 3PLs without ever taking the time to develop a full request for proposal (RFP) that details the service and service levels that the shipper expects. “This is a major educational process that we enter into with many of our shipper clients,” says Gary Harrell, founder and CEO at Axiom Strategy Advisors. “It is very important to get your management team together to thoroughly define your requirements for your 3PL.” Once you select a 3PL, the next step is to take the points contained in your RFP and move them forward into the contract that you negotiate. The points in the RFP (e.g., on-time shipments, no damaged goods, etc.), can be used as service level agreements (SLA) in your contract with your 3PL.

No. 8

Maintain Single Points of Contact with Your 3PL

Shipper-3PL communications and operations flow best when there is a single point of contact for managing activities (and the relationship) on each side. If communications pour in from all points of the shipper and the 3PL, operations and execution quickly become confused.

No. 9

Outsourcing Isn’t the Only Way to Ship

It shouldn’t be an automatic decision to outsource your logistics. There can be strong arguments for a mixed strategy in which you maintain some shipping capabilities within your own organization because it provides both insurance and flexibility. In any event, the decision to outsource or insource should be carefully considered. “Many companies enter into the logistics process thinking they have to outsource to achieve the margins they want on their products,” says Harrell, “but the first thing we do is to walk through their processes with them to determine whether it really is best to outsource. It is only after this that we move forward.”

No. 10

Don’t Count Out Air Freight

Shippers have done a good job managing speed of delivery against costs as they have assembled trucking and rail transportation strategies. But there is also a place for air freight in this mix. “No doubt, air cargo can be expensive when compared to other options,” says Boeing’s Russell Tom, “but if you’ve got high value or highly perishable goods that have to get to market, it might be your most expedient and cost-effective choice.”


global trade international business transportation cargo logistics shipping trucking ocean carrier air

The Age of Value-Added Services in Global Logistics

Negotiating to Grow Global Capabilities

Serving a global clientele and keeping customers happy shook one e-retailer down to the ground—where logistics made the difference. Part of the dilemma was learning how to consolidate shipments into containers, sometimes even with competitor companies, so that no container left port in one country partially filled. Then there were traditional logistics problems to grapple with. Once in port at the receiving country, should goods be shipped by truck or via inter-modal transportation? These were decisions the retailer relied on their global logistics provider to make—but that wasn’t all.

There were issues with localization in the destination countries, like ensuring that instructions on the boxes of packaged goods were printed in local languages. Providing local services and order-taking were also challenges. The company considered whether it was more efficient to have their own employees “on the ground” in these distant locales, or enlist a 3PL (third party logistics provider) that could offer value-added services like localizing package instructions, warehousing and distribution, and even order taking and customer service.

It was decided to outsource warehousing, distribution, order taking and customer service functions to the 3PL. With the help of its 3PL, the e-retailer also rerouted much of its air freight to ocean freight, because the 3PL could expeditiously manage inventory demands locally with a make-to-order approach. This resulted in a seven-figure annual savings.

“Our customers are asking us to do more and more things for them that are not even thought of in traditional supply-chain logistics,” says Mark Sell, CEO of MD Logistics, a 3PL specializing in supply-chain solutions. “The services they are asking for and that we are offering include taking orders for goods, managing order systems, invoicing customers and even managing receivables. The largest growth areas for value-added services have been in packaging, kitting and labeling. Customers want us to deliver these elements as a turnkey service to them, so what we are seeing is considerable business process outsourcing.”

3PL value-added services become attractive as companies continue to seek ways to reduce their spending on transportation and back-office functions like warehousing, order taking and packing. A second supply-chain impetus is the push for visibility of everything that happens to an order or a shipment throughout the end-to-end process. It can be daunting for many retailers and manufacturers to acquire the technology that creates this kind of visibility—and have the people on staff who know how to run it. If they go with a sophisticated 3PL, chances are good that the 3PL already has the system and people in place. “We’ve seen great change over the past four or five years,” says Jason Pitt, vice president of Warehousing and Distribution for M&W Logistics Group, a 3PL with customized supply-chain solutions. “Companies are coming to us, and they are asking for a broad spectrum of value-added services. Just-in-time business processes are coming into play, and we find that customers are using multiple 3PLs throughout their distribution networks to address the work that has to be done.” This makes logistics an extremely competitive environment in which 3PLs must be able to offer solutions that streamline the supply chain, along with suites of services not even heard of in the past.

(Driven by Savings and Sustainability, Air Carriers Like American Airlines are Cleaning Up the Cargo Business)

Value-Added Services that 3PLs Provide Today

Over the past decade, 3PLs have added services that touch nearly every aspect of logistics. Most of these value-added services have evolved as customers have asked for them. Nearly all these services have one thing in common: the elimination of traditional headaches for customers.

“We do line sequencing and assembly work that we didn’t do 10 years ago,” says M&W’s Pitt. “This includes quality inspections for parts that are incoming or outgoing to overseas markets—at both the front and back ends of the logistics process. We also provide pick and pack services where orders are assembled from raw inventory. The items are packed to ship. We do the kitting of final assemblies and also special labeling. We even perform merchandising at the end customer sites by placing displays in aisles for the items to be sold.”

Pitt tells the story of a European customer maintaining an eight-person office in the U.S. for a localized presence. “They were taking orders on an 8 a.m.-8 p.m. basis,” he says. “We were able to handle the order process through our call center, and to leverage people we already had who were servicing other clients. It allowed the company to streamline its U.S. operations and to save money. In another case, we were able to take on a build-to-order process for a client. Because we were able to serve the local market in the U.S. and to build on demand, the company was able to reduce its inventory carrying costs and there was less waste.”

Companies are also turning to 3PLs for new shipping strategies. “One value-added service that is still under the radar for many companies is collaborative distribution,” says Alex Stark, director of marketing for Kane is Able, a consumer packaged goods (CPG) logistics provider. “It’s not exactly a new concept, but we are finding today that more companies are willing to consider it. In collaborative distribution, the goal is to fill each trailer to the max, even if it means combining your goods with the goods of a competitor. Companies used to hesitate doing this, because they didn’t want to collaborate with competitors. However, working together in a shared infrastructure, consumer goods companies efficiently deliver their goods to retailers in less time in full truckload quality, which is a win for the retailer as well. Shippers don’t compete on a pallet; they compete at the shelf.” Stark says that many companies see as much as a 35 percent savings in their shipping costs by collaborating in this way.

global trade international business transportation cargo logistics shipping trucking ocean carrier airCompanies will also look for savings by relying on 3PL systems that give greater supply-chain visibility. “We’ve had many customers do this,” says Tim Nolan, senior vice president and general manager, international division, Yusen Logistics, a 3PL with supply-chain and freight-forwarding services. “They leverage us for supply-chain data and information.” Services like this help companies bridge gaps in supply-chain systems, as the logistics providers can offer visibility in areas that a company’s system can’t. “The other thing we try to do with information is to provide intelligent, real-time exception reporting,” says Nolan. “In other words, instead of giving the customer’s supply chain manager a report that details out everything happening in the supply-chain, we deliver an ‘exception report’ that allows him to focus on the ‘hot spots.’”

Successful partnerships between a company and their 3PL go beyond operations into strategy-setting and execution. Nolan’s example of intelligent exception reporting demonstrates this—because the 3PL can’t be in position to “exception report” if it isn’t aware of the key performance indicators (KPIs) in the customer’s business.

“Understanding the customer’s business is very important in a good partnership,” says MD Logistics’ Mark Sell. “This is why we spend a great deal of time consulting with our customers on how to grow their businesses. We also build a relationship matrix with each customer so they know exactly who to go to with any question that they might have. We have KPI meetings and we meet quarterly to review SLAs (service level agreements) and rate. We are always addressing business objectives like our clients’ new promotions, initiatives and sales goals. We talk about new products that are being released, and how we are going to address these from the logistics side.”

Effective Negotiation

Since logistics today is multi-faceted, it gives companies great opportunities to optimize their strategies with of all the value-added services that are available. At the same time, it is equally important for companies to effectively negotiate for these services, since it is the negotiation that ultimately results in a contract—and the contract sets the stage for how the partnership will operate. The following is a set of negotiation “best practices” that companies with logistics needs will want to put in their “bag of tricks.”

1. Know your business and know your 3PL

3PLs differ in their core competencies and in their value-added services. The better you understand the nature and the pressures of your business, and the most beneficial types of value-added services, the likelier you are to find a “best-match” 3PL partner. If in your strategy you are also looking to outsource business processes because you feel a 3PL can do them better, have these processes identified prior to negotiation—and know what your expectations are (in the form of KPIs).

2. Present both SLAs and KPIs to the vendor

Logistics providers know their business and most have their own internal sets of KPIs, but a business is better positioned for negotiation for 3PL value-added services if it comes to the negotiation table with its own set of KPIs. This is an important point, as many companies present 3PLs with a set of SLAs to ensure service effectiveness—but SLAs may not be as impactive to the business as KPIs, because KPIs actually measure end results for the business like time to market, revenue capture and cost reductions.

3. Thoroughly check references before you negotiate a contract

“Existing customers, especially those with similar businesses, are the best source of information about a vendor,” says Tim Nolan. “When you speak to the vendor, get six to eight different references, not just the first two the vendor provides you with.”

4. Use more than one vendor

It always helps a negotiating position if you aren’t locked in to just one vendor

5. Approach the vendor as a partner with a negotiation that can grow the vendor’s business as well as your own

When the two of you sit down together, explain how you are going to grow your business. Often, you can secure tiered pricing based upon the increases in sales volumes you anticipate. This helps your business as well as your vendor’s, and you are able to grow together.



One decade ago, Toyota determined to develop efficient “green” solutions for the then 160,000 vehicles it shipped annually into West Coast ports for distribution to its U.S. sales outlets. The company built a 20-acre facility in Portland, Oregon, that optimized process flow logistics, fuel consumption, energy-efficient buildings—and the truck and rail shipments which moved 85 percent of all inventory from the port ( The move was one of a series of “wakeup” calls to carriers, who responded by capitalizing improvements to their transportation infrastructures. Since that time, the drive to green shipping has been propelled by new and tougher environmental regulations, a recognition that operational expenses can be reduced by going green, and a sense of stewardship and social responsibility that companies feel toward the communities in which they operate.

Carriers also continue to feel the pressure from their shipper customers.

As part of its comprehensive set of sustainability guidelines, Walmart is testing carbon emissions in real time with a new analytics dashboard that can be used on trucks—and potentially extended to outside transportation suppliers as a best practice The goal is reducing carbon emissions.

Ford has recognized that achieving its own internal green initiatives depends on its suppliers’ green success.

Procter and Gamble and IBM work actively with their supplier bases—including transportation—by providing analytics tools and periodically assessing supplier progress.

“Our customers come from the industrial, agricultural, coal and retail/consumer sectors,” says John Lovenburg, Vice President, Environmental at Burlington Northern Santa Fe (BNSF) ( “Many of these companies are publicly traded, and have shareholder resolutions about sustainability. We furnish customers with annual customer carbon letters that some customers place in their corporate reports. Several of our publicly-traded customers are listed in the Dow Jones Sustainability Index, a resource for socially-responsible investers. Another example of the growing visibility of sustainability that retail/consumer customers are experiencing is the Sustainability Consortium, in which customer environmental and sustainability metrics will be placed on product labels of goods marketed through major retailers including Walmart and Target. Many of our customers are hard at work reducing their environmental footprints, and rail plays a big part in reducing transportation footprints, and we have to provide value in this area in order for them to succeed.”

Inter-modal Transportation: The “Low Hanging” Fruit

One way carriers achieve green progress is by blending truck and rail transport into cost- and fuel-efficient delivery systems. “The concept isn’t new,” says Tom Lange, Director of Communications at Union Pacific “In fact, it’s been going on since the sixties.”

Inter-modal shipping combines the best features of highly fuel-efficient rail transportation with the convenience and door-to-door pickup and delivery service of trucking. “The trucking industry is our largest customer,” says BNSF’s Lovenburg. “By converting to inter-modal, where trucks transport their loads to the train and the train does the long haul, with trucks again picking up the loads to travel the ‘last mile’—trucking companies are finding that this operation is more efficient and economical than trucking entire loads across country. Traffic congestion and emissions are also reduced on our nation’s long-haul highways. Rail also provides a tremendous opportunity beyond fuel efficiency and sustainability. It reduces supply chain costs, allowing businesses to be more competitive in the global market. A BNSF train can move one tom of freight 500 miles on a single gallon of diesel.”

Customers like this because they are under pressure to produce their own sustainability reports that demonstrate progress. Many of these objectives address carbon efficiency. Since railroads are able to provide four times the fuel efficiency and 75 percent less greenhouse emissions of trucking, consumer product and auto customers look for rail to handle long haul routes that exceed 500 or 600 miles—with trucking handling the “last mile” deliveries to the dealers. The fuel and carbon emissions reductions from this inter-modal shipping process can be plugged directly into the sustainability reports that customers voluntarily file, with impressive results. “Annually, BNSF rail transportation reduces U.S. fuel consumption by over three billion gallons of fuel and 30 million metric tons of carbon emissions. This is the equivalent of taking six million passenger cars off the road,” says Lovenburg.

Changing How You do Business with New Technology

At the same time, transportation providers recognize that inter-modal transportation by itself is not going to solve the green challenge. “BNSF Railway has a robust fuel efficiency program. One of the technologies we are employing is new locomotives that are distributed throughout our trains, and not just at the front, which was how it was done formerly,” says Lange. “The new distributed approach is to place two locomotives in the front of the train, one in the middle and one at the end so that the power is distributed. So, instead of pulling 100 cars behind you, you have a distribution of the power. This conserves energy, but is also safer….We additionally monitor the locomotive idle time with technology. If a locomotive idles for longer than 15 minutes in the yard, technology automation shuts it off. This takes the human element out of the monitoring.”

Electric widespan cranes that can span multiple tracks and operate with zero local diesel emissions while loading and unloading trains in the yard are also starting to appear. “We have operations like this in Seattle and Memphis—and we will soon be employing them in Kansas City and Southern California,” says Lovenburg. “In our research and development, we are also exploring a type of rail lubricant that improves efficiency by reducing the friction and the resistance on the tracks. BNSF continues to test innovative approaches and locomotives such as diesel-electric hybrids, biomass, hydrogen fuel cells, ethanol injection and liquefied natural gas (LNG).”

The trucking side of the industry is also undergoing technology transformation. Large shippers like FedEx hard-wire trucks and plot the most economical and direct routes for deliveries, while also monitoring time between stops with the help of GPS (global positioning systems) and automation. This same technology is being used by industries highly reliant on trucking (e,g., tools on wheels businesses) so that they actually start moving their product inventory out of their warehouses and into their mobile fleets. Consequently, when an expensive part is needed somewhere and the truck in the immediate area isn’t carrying that part, GPS and other online technology that links the trucks in the fleet in real time to each other can locate the closest truck that has the part and obtain a delivery. As a result, the amount of inventory that the company has to carry (especially in expensive parts) can be reduced—and fuel costs and carbon emissions are reduced because of fewer trips to the warehouse.

In both trucking and rail, technology is also being used as a training facilitator for drivers and engineers. “We train our engineers on the dynamics of locomotives so they learn to operate the train in the most efficient way, but still meet their time commitments,” says Blair Wimbush, Vice President of Real Estate and Sustainability for Norfolk Southern Railroad Norfolk Southern uses technology to function as a kind of “cruise control” that monitors in real time the train’s planned route, the weight of the load it is carrying, and the grades of the terrain it is traversing. “The tool calculates and advises the engineer when slowing should occur, and when the train should be speeding up,” says Wimbush, who estimates that about 60 percent of Norfolk Southern’s road locomotives will be equipped with the technology by the end of this year. Similar tools exist in trucking. Pitt Ohio’s ( Chief Marketing Officer and Vice President Geoff Muessig believes that sustainability can be a differentiator for carriers, and said that his company has developed a proprietary customer carbon footprint calculator that enables an LTL shipper to measure the carbon footprint of its LTL shipments.“This carbon footprint is comprised of 12 percent infrastructure carbon and 88 percent rolling stock (trucking) carbon, so the focus over the past five years has been on improving the fuel efficiency of our fleet,” says Muessig.

Overcoming the Challenge of Implementing Green Initiatives

Market forces and technology are driving green adoption—but premier companies also recognize that more is needed to effect permanent green change in their organizations. “Focus is the key,” says Steve Phillips, Senior Vice President of Operations at Werner Trucking ( “We tell our drivers that no matter what we do, safety is always our utmost priority.” Phillips also said that 95 percent of what the company saves from sustainability efforts will come from fuel consumption and carbon emissions reductions. “This requires organizational change, beginning with the driving habits of drivers,” says Phillips. “We have internal training programs that teach drivers how to drive with a ‘soft foot,’ traveling at the best possible miles per gallon while driving safely. We also continue to pilot various equipment modifications that all come with SAE certification and the promise of improving our fuel and emissions efficiencies. Some of them work in practice and some don’t—but we have an aggressive testing program to qualify the tools that will help us.”

The trucking industry is also experiencing a driver shortage. This makes the strategy of long-hauling freight with trains to offset some of the driving even more important. The pickup in the economy is one reason for the shortage, as drivers have more

opportunities for employment that is close to home and that can improve the time that they can spend with their families. “We use a technique called “matching optimum lanes” that works somewhat like the old Pony Express to help this,” says Phillips, who cited an example of a 500 mile daily route where the first driver drives 250 miles from his home to a mid-point delivery location to drop off a load, and then drives back home—and a second driver whose home is 250 miles on the other end from the receiving site then picks up the load and drives it to its ultimate destination–a customer in his own home area. The net of it is that each driver is back at home at the end of the day.

Continued focus on sustainability, safety and customers is also a challenge on the rail side. “You have to stay focused on safety and reliability in all of your efforts,” says Union Pacific’s Tom Lange. “Every month, we survey our customers on satisfaction. Eight or ten years ago, we would get scores from these surveys in the 60s and 70s out of 100 points. Today, the market is more competitive and new initiatives like sustainability carry more weight. We work very hard at collaborating with and pleasing our customers—and we have seen results. Our customer satisfaction surveys are now averaging in the low 90s.”

Coming Full Circle on Sustainability

Customers and carriers know that the best way to achieve environmental sustainability gains is to reduce fuel consumption and carbon footprints. But sustainability encompasses more than energy use. “There are really three pillars to sustainability,” says Union Pacific’s Tom Lange. “They are environmental responsibility, social impact and economic impact.” Lange says that it is important for companies to contribute to the entire ecosystems of the communities they serve so that communities can be sustained. This means job creation that develops healthy local economies—and that also furthers a company’s brand and reputation. “In 2011, we added 4,500 jobs, which is approximately ten percent of our workforce,” says Lange. “Some of this was due to attrition, but at least 1,500 of these jobs were new. In 2012, we plan to add another 4,000 jobs. This is important because a recent Association of American Railroads study concluded that for every job a railroad creates, another four to five jobs are also generated in the community.”

Meanwhile, carriers actively collaborate on sustainability with the communities they serve, the customers they serve and even their competitors in an industry where sustainability is increasingly viewed as a competitive advantage. “There are three things that customers always want,” says Werner’s Steve Phillips, “Service, price and capacity….During the recession, we were in a price war and customers were making decisions based upon which carrier was the cheapest. We are now seeing demand outpace capacity. The shipping community also recognizes this and therefore is focusing on locking in capacity to cover its needs. But customers still want to get more for less—and sustainability is a very hot topic.”