Transportation and logistics have seen a vast change of its landscape since the early days of moving cargo. With the advancement of technology in the 2000’s, it became clear that logistical companies could innovate and create modernized systems to become more efficient. The revenues for third-party logistic (3PL) companies have steadily increased over the last 10 years as it went from 127.5 billion dollars in gross revenue in 2010 to 213.5 billion in 2018. The global industry generated 931.9 billion dollars in 2018.
In 1980, the trucking industry was deregulated through the Motor Carrier Act of 1980, signed July 1 by then-President Carter. The act allowed companies to expand from just warehousing product to moving product. In 1980, approximately 20,000 trucking carriers existed compared to 1.2 million carriers available today. By countries opening their economies to the global world, this created more demand for the trucking industry which allowed the additional trucking carriers to flourish.
The current market conditions coupled with the rapid growth spurt has seen the trucking industry create hundreds of thousands of carriers nationwide since the early 1980’s. That influx comes at a risk as a 3PL’s industry knowledge and professional quality service can vary based on the company. The risk increases as customers cargo needs to meet certain regulations and procedures which can result in fines and penalties.
It was then, in the early 1980’s that Sterling Oil, a private, contract carrier with regional distribution for bulk liquid products,vertically expanded. In 1985, the Eddleston’s purchased a terminal with tanks and rail spurs from Gulf Oil and began storing and delivering their own products to customers. That became Sterling Services, which is now the sister company to Sterling Oil. With the addition of Sterling Services, it allowed Sterling Oil to fill a vertically integrated petroleum and chemical niche, offering clients high-end service from storing, blending, transloading, and trucking.
By the 2000’s, 3PLs were innovative logistical companies that could handle large-scale inventory for the global demand that began in the early 1990’s. In today’s world, 3PL’s help customers save money by giving them or selling them access to technological tools like Navisphere from C.H. Robinson. 3PLs can sometimes charge more than 25% percent margins in the trucking industry, forcing customers to weigh the option of bringing in a logistics manager to manage the software and department or continue allowing 3PLs to take a larger margin of each load.
Customer’s are seeing how the increase savings they could have with in-house logistics department paired with real-time software for dispatching. However, the savings could fluctuate based on the company size. Larger companies may not need this service for all loads they ship. The software could help shippers in saving on their overall transportation costs while smaller shippers would need to do a cost analysis to see whether or not this technology could help them lower costs. To accomplish this, logistics companies started licensing technology from companies like C.H. Robinson to dispatch their runs internally.
An example of this is Navisphere software from Ch. Robinson. This software allows a company to handle their own logistics in-house. For a carrier to have access landing the load, they need to be added to the Navisphere system via the company. The company would start by identifying carriers to bid on their lanes, add their rates to the system, then the company would dispatch leads to said carriers based on lowest cost and service quality through Navisphere. The plus to have this technology is that the control is in the company’s hands, not the 3PLs.
According to the experts, 3PLs will be led by growing, tech-enabled operations with connected freight networks that increasingly automate the flow of transactions in the coming decade. The belief is that small freight brokers will operate in niches as we move forward as they leverage their specialized knowledge and expertise to continue moving loads. The outlook trends to sustainable cost structure and more companies adopting new technology and limiting the use of 3PLs by bringing logistics back in-house.
Another option that is set to launch soon for shippers and/or carriers is to partner with Bulky, an online service matching chemical shippers and carriers for bulk liquid runs. They partner quality carriers, ready to move loads and their load capacity with shippers who need quality service at a quality rate. The subscription-based services give shippers and carriers a cost-effective logistics solution. Bulky uses their algorithm to properly match shippers and load-ready carriers, saving shippers money while matching them with quality carriers ready to move loads.
In 2018, Amazon launched Shipping with Amazon (SWA) and took aim at 3PLs in the process. Amazon spent 20 million dollars a year on shipping and now that they have integrated that into their business, 3PLs will lose money. UPS carries, or carried, nearly 30 percent of Amazon’s deliveries. Those 182 million packages are now being delivered by Amazon, causing 3PLs to reevaluate their costs and become more efficient as they continue to maintain their margins. Amazon’s SWA ascension into the shipping world could see them buying some of the more innovative, smaller sized 3PL companies as they grow their shipping business. An alternative outlook could see smaller 3PLs maintain revenues as they could ship for smaller, online businesses.
Another trend to pay attention to is the shortage of drivers in the bulk liquid storage industry around the country as many current drivers are nearing retirement age. Many of the truck drivers are males, in their 50’s or 60’s. To attract younger drivers, companies are going to need to reach out to that demographic and offer incentives as well as break the gender divide and make it more comfortable for females to be a part of a trucking team. The COVID-19 pandemic could accelerate those retirements, leaving a void in the trucking industry with estimates saying the industry could need close to a million new drivers once the pandemic subsides.
American Trucking Associations continue to forecast a driver shortage as they estimate 60,000 drivers have exited the industry to retirements this last year, but the pandemic offers a difficult road to increasing drivers.But the pandemic offers a temporary reduction in drivers needed, but belief is that when we leave COVID Stringent rules will curtail the trucking industries driver’s education as limits will be placed on how many students can be in a truck at a time. Jeremy Reymer, CEO of DriverReach, told Transport Topic News that experience drivers with good safety records should see no issue getting jobs coming out of COVID-19.
Before the outbreak of COVID-19, the third-party logistic industry was expected to surpass 300 billion dollars in revenue in the United States. Forecasters have said that 3PLs could boom between 2021-2029, but that forecast is now in turmoil as on-going tariff battles and COVID-19 outbreak has strained the global supply chains.
Tamim Bayoumi, Deputy Director in the Strategy, Policy, and Review Department of the International Monetary Fund, told DUKE Today that regionalization was a risk. Reshoring – when a company transfers operation from overseas back to the country it relocated from – can have significant effects on cost and productivity, which in turn gets transferred to the customer.
The data shows that the trucking industry has suffered due to the COVID-19 outbreak and shed 88,000 jobs in April as the unemployment in the U.S. spiked when businesses were closed due to nationwide stay-at-home orders. According to ccjdigital.com, the industries total jobs numbers are down just under 100,000 jobs from March to April and is the lowest number since 2014.
The numbers are staggering as 28 percent of carriers contacted by CCJ Digital had decreased their driver workforce due to the downturn in freight and 23 percent decreased their non-trucking workforce. According to John Palmer from Global Trade Magazine, concerns coming out of the shutdown include the possibility of a monopoly in the logistics industry as small companies shutter or are purchased by larger companies. This move could lead to the transfer of power back to larger 3PLs which could lead to a global logistics advantage for them.
Small logistic companies will need to alter their mindset and create partnerships with companies in similar situations to strengthen their hold on the market. Other trends that have emerged from the pandemic are cost. Companies are going to need to invest in higher inventory and workforce management as well as shortening the supply chain. COVID-19 has made many companies readjust their strategies as more consumers are going to continue to take deliveries of goods and services instead of going out into a confined brick and mortar retail store. The trend is most likely going to keep up even after we come out of the COVID-19 shutdown.
As you are currently seeing at Amazon, distribution centers are going to beplaced closer to the communities as more people continue to stay-at-home and order their goods online. If your distribution centers are 200 plus miles from the local communities,deliveries create a time issue. If companies were able find local distribution centers, it would streamline their supply chain, giving customers faster turnaround time from when they purchase their product to when it arrives on their doorstep.
As technology continues to advance, the hope is that 3PLs will continue to take on more accountability as they gear operations towards data-driven decision making and solution-based logistics to help customers’ supply chain functions. If they continue to increase their margin per load and/or score low on credibility and knowledge within the industry, shippers will start to look at the alternatives we mentioned above, and that is a good thing for shippers and carriers.