Understand Third Party Logistics

FUTURE GROWTH. The third-party logistics market will explode--big time. Users and providers will not be able to keep up with it. There is precedence for this view. Look at what happened with manufacturing. Not long ago firms did most of their own manufacturing. Then they outsourced some components, tooling and other odd items and work. Then it exploded. Now look at it. Look at the amount of finished goods and other items we import from throughout the world. The same thing may happen with logistics. And logistics departments will not be able to stop it from happening and may not even be able to control it.

SCHISM IN PROVIDERS. The present emphasis seems to be on asset-based providers. Another type of provider may emerge--the logistics service provider. Many asset-based third-parties are part of an organization which also has transportation, warehousing, freight forwarding or other capabilities. This organizational situation may put the third-party at odds with truly meeting the needs of the client. Can he truly develop a tailored logistics solution which does not involve using the capabilities of the parent company? Can he serve two masters--the parent and the customer?

Against this situation, a new type of third-party will emerge. The new providers will design, develop and manage customer-specific, tailored solutions. These logistics service providers will not be part of a transport, warehouse, freight forwarding or other company. Logistics Service Providers will work specifically on customized logistics services.

Now which approach will take the larger piece of the action? Given the present status, the asset-based firm has the big jump in the market. But will they lose ground in the future to Logistics Service Providers? Another issue which may impact this schism is the growing emphasis and needs of international logistics. Many present third-parties have a strength, based on their parent, which is domestic or international in thrust. They are a good transport or warehouse firm, but domestically. Yes, they can develop alliances with international providers. But that still leaves a weakness in their experience, expertise and ability to design tailored solutions. Can they really develop and manage the solution if they do not understand the various global pieces and how they fit together?

It is the same situation for the international freight forwarder. He knows international air freight or whatever. He may understand various export and import regulations and requirements. But he does not really understand LTL in the U.S. Or warehousing. So how will the pieces fit together? The answer is--with great difficulty.

Hence the emergence of the Logistics Service Provider who is not asset-based and is more experience in the total logistics pipeline. Very possibly the drivers of Logistics Service Providers may come from the shipper side, which has broader domestic and international experience. They may drive the outsource decision for their own company and operate the service as an outside company. Or shippers may become the key executives in third-parties, because they have the required knowledge and experience of the international and domestic logistics.

GROWTH WITH INTERNATIONAL. There is a huge market opportunity for global contract logistics providers. I believe this future is much larger and important than what is happening now, which is mostly in domestic areas. Look at international trade. Imports from Asia. Exports to Europe. And everything else. This is what is happening to businesses. Therefore, it must happen with third-party logistics. In addition, the implications of such providers to the present steamship line and air freight carriers may be significant. Third-parties are not held in high regard by some steamship lines. Global contract logistics providers may force some major changes in the sales approach for ocean carriers. Steamship lines may end up like the railroads with intermodal. They may have to decide whether carriers wholesale or retail their services. How this focus is resolved may dramatically change steamship lines.

GROWTH WITH MEDIUM AND SMALL SHIPPERS. Most of the implementation now is with major corporations. Big firms working with big providers. This is a natural attraction. But there is a significant market opportunity to develop third-party services for medium and small firms. However I do not believe that the present major third-parties will be the ones to exploit this opportunity.

Look at how many carriers now handle the smaller firms. They do not have sales persons call on such accounts. Instead they telemarket them. And some third-parties will not bid on business which does not meet certain revenue thresholds--which smaller firms are not likely to have. This leaves a significant, untapped market opportunity.

In the Philadelphia area, the Greater Philadelphia Chamber of Commerce has 6000 members, 85% of which are firms of 100 employees or less. This is a significant statistic. And it is not atypical. Corporate downsizing and other events have created new opportunities which small firms are taking advantage of. These same small firms have logistics needs. They read articles about outsourcing logistics. There is the potential--for a new provider.

CONCLUSION. So what does all this mean? There will be be very significant growth, opportunities and changes for third-party logistics. Three new types of providers will develop. There will be Logistics Service Providers (in addition to asset-based providers). There will be Global Contract Logistics Providers. And there will be Providers for Medium-Small businesses (these will not the same as the present major providers).