Transportation industry analysts started using the phrase “perfect storm” in 2017 to refer to an unprecedented convergence of economic, regulatory, and weather events and their effect on the transportation market: sharply constrained truckload capacity, rising rates and increased challenges for shippers to secure the capacity they need to move their goods to market. As we enter the latter half of 2018, capacity woes continue, and many supply chain professionals have accepted that we may in fact be witnessing a “new normal” rather than a cyclical return to previous levels of available truckload capacity.
The Current Environment
Carriers, retailers, and shippers are adjusting their business practices to protect their bottom lines. As capacity remains tight, carriers can afford to be increasingly selective about which shippers they choose to work with and the type of freight they take on, slapping rate increases on shippers they deem “difficult,” or avoiding their freight altogether.
Meanwhile, retailers are responding to shipping delays that disrupt their dock operations and cost them money—either through inefficient staffing or by not having product available on shelves for consumers to purchase. Many retailers have responded by implementing increasingly punitive non-compliance fines for missed delivery times (both early and late) as well as for incomplete orders. Walmart’s On-Time, In-Full (OTIF) policy, for example, combines on-time delivery measurement with order fulfillment metrics to determine overall compliance. Noncompliant shipments are assessed a fine amounting to approximately three percent of the value of the load.
Shippers, in turn, have been compelled to make changes to their transportation approach in order to adjust to this new reality, and protect their margins.
3PLs: Shelter from the Storm
Partnering with a 3PL can be essential to success when market conditions are fast-changing. Here are benefits that shippers see when they collaborate with a 3PL to mitigate risk in a dynamic marketplace:
Access to capacity. Unlike asset-based providers, 3PLs have virtually unlimited access to truckload capacity. This breadth of capacity options provides flexibility and allows shippers to find the optimal balance of price and service to fit their strategic needs.
Drop trailer programs. A nearly sure-fire way to avoid missed delivery appointments is by utilizing a drop trailer program, in which full trailers are “dropped” at the receiver’s dock, with the driver picking up an empty trailer and departing to pick up another load. 3PLs, through their unique relationships with a wide variety of carriers, are uniquely positioned to set up and administer drop trailer programs on behalf of shippers. Also, by avoiding potentially excessive load and unload times, the freight will be more attractive to carriers.
Flexibility. With constant footprint changes and an ever-evolving customer base, it’s helpful to work with a 3PL that can react quickly to a change in network. Shifting volume, setting up new lanes, and finding capacity in markets you traditionally haven’t been active in can be challenging, but 3PLs provide the speed and flexibility required to make the adjustments relatively seamless and pain-free.
Technology. 3PLs bring a variety of transportation technology to the table, including robust Transportation Management Systems (TMS) that provide real-time visibility to shipments in transit, collect shipment data to drive business intelligence, and create efficiencies.
Perspective. Through their broad carrier and shipper relationships, 3PLs have a wider, bird’s eye view of the market and can share proactive insights on market conditions and trends, in turn providing shippers with timely business intelligence for proactive decision-making. For instance, a good 3PL partner can help you anticipate general rate increases (GRIs) and plan accordingly. Through their intimate understanding of your supply chain and business objectives, they can identify opportunities for mode optimization and consolidation, thereby reducing total landed costs, and mitigating risk.
Expertise. Because 3PLs work with a variety of shippers, they can offer a breadth of expertise, offering solutions developed through hard-won experience on behalf of other clients. For shippers with a retail customer base, working with a 3PL that has nuanced knowledge of major retailer’s compliance programs and access to their online scheduling tools is an invaluable resource that can put cash back on the bottom line through the avoidance of costly noncompliance fines.
Expanded Service Offerings. Some 3PLs combine the offerings above into a comprehensive outsourced transportation solution, known as Managed Transportation Services, in which shippers outsource the planning and execution of all shipments to a single provider in order to take more strategic control of their transportation operation.
Rachal Snider is Vice President of Customer Supply Chain at AFN.