Progress rarely is painless, and few know this better than transportation and logistics providers, who have seen their industry transformed by changes at virtually every step in the supply chain. But change often brings both challenge and opportunity – and there is opportunity aplenty for freight brokers and carriers that want to expand into the 3PL category.

Transactional to Transformational

According to Bob Davidek, solution principal for TMW Systems, one of the biggest changes to hit the industry in recent years has been the increasingly strategic nature of business relationships.

“A little over 20 years ago, there were carriers and there were various kinds of non-asset-based LSPs, but most of the relationships were transactional in nature,” Davidek said. “It was all about one load, one shipment, and you had to perform on that – but there was no strategic relationship between parties. The shipper was only buying one move, so it was easy to start, easy to stop, easy to prove yourself…and easy to fail.”

When outsourcing came into vogue in the 1990s, he said, businesses everywhere latched onto a common new imperative – getting rid of non-core competencies to reduce costs and improve operational efficiencies. Many transportation and logistics departments were among the first to go. In the process, shippers ceded unprecedented control over freight delivery to their logistics partners. Thus, the modern 3PL business model was born.

A ‘Sticky’ Situation

While traditional brokers and carriers still make up a large portion of the industry, the focus has shifted markedly toward more strategic relationships. After all, a transactional relationship is a numbers game – one in which the company that can offer the most reliable service for the lowest price usually wins. Margins are low and business isn’t guaranteed from minute-to-minute, let alone day-to-day. Not only are profit margins significantly more robust for a 3PL than a broker, but because their responsibilities can be all-encompassing, the business model is “stickier,” Davidek noted.

“Really, every other type of transportation intermediary starts with shipping the load – moving this item from here to there. It could be a single-stop or it could be complex, but it’s already a move,” he said. “Working with a 3PL is a much more complete outsourcing arrangement, involving complex integration. It’s easy to say, ‘I’m going to stop dealing with Carrier X or Broker Y tomorrow, but you don’t just turn off a 3PL – it takes a lot to get in and it takes a lot to get out.”

As the logistics arm of the shipper, 3PLs are more deeply ingrained in the customer’s business, often working directly with management on strategic supply chain initiatives, integrating with the shipper’s back office systems and taking on responsibilities such as negotiating rates, selecting carriers, and managing fulfillment. Ultimately, this makes 3PLs much less “dispensable” than brokers and carriers.

A Different Mindset

While the payoff of shifting to such a business model can be huge, it doesn’t come without caveats. “It’s a fundamentally different business and a fundamentally different type of relationship,” Davidek explained.

Operating as a 3PL carries unique challenges that not every logistics provider is equipped to meet, and transportation industry professionals coming from a more traditional background must alter their mindset to fit the model – not the other way around. Selling a service is no longer the end-game. Smarter routing, multi-mode expertise and end-to-end visibility are just a few examples of success criteria for a 3PL in 2017.

To earn a shipper’s allegiance, a 3PL must promote itself not merely on the services it provides, but also how it provides them. This involves the development of complex proposals, performing demanding capability demonstrations and showcasing subtle differences in strategies and procedures. Well-planned strategic investments in people, infrastructure and technology are absolutely necessary.3PLs should look to integrate employees with expertise in project management, IT and consulting. Leveraging technology such as advanced multi-mode rating and load optimization and having the ability to master sudden changes on a load-by-load basis are key to earning the customer’s trust and loyalty. After all, they are thinking beyond that single transaction to a total solution that positions the 3PL as a de facto part of their businesses. And that type of transformational thinking can be especially lucrative for the outside partner who has a commitment to mastering the complex with the best people, processes and technology.

Take a closer look at what’s available through technology for your business success. Contact TMW today.

Bob Davidek has over 25 years of experience in the transportation industry & technology space, specifically helping both 3PLs and shippers with business growth initiatives.