newswor thy
3PLs set their sights on
small, mid-sized players
AFTER EXPANDING THEIR PENETRATION OF THE NATION’S TOP 500 COMpanies in 2008, third-party logistics service providers are now setting their sights on
the more fragmented small to mid-sized enterprise market, according to a recently
released study by Stoughton, Wis.-based consulting firm Armstrong & Associates Inc.
The study, which canvassed Armstrong’s database of 3PLs, found that 77 percent
of the Fortune 500 outsourced some or all of their logistics and supply chain functions to outside providers in 2008, up from 64 percent in 2005. The global Fortune
500—which includes U.S.-based multinationals—spent nearly $200 billion on 3PL
services in 2008, up about $10 billion from 2007 totals, the survey said. (Of the vertical industries that Armstrong studied, technology had the largest 3PL spend in
2008 at $45 billion.)
Third-party providers captured 16 percent of total U.S. logistics spending in 2008, up from 10 percent in 2002, according to
the study. Given their strong position among larger concerns, the
3PLs’ relatively small share of the total logistics market means
there is a broad swath of business—notably, in the small to mid-market range—up for grabs, according to Evan Armstrong, the
consulting firm’s president.
Armstrong says many smaller companies that previously kept
their logistics functions in house will increasingly look to outsource the business to reduce costs. He says these companies are more
apt to farm out most, if not all, of their logistics services to one provider
because their operations don’t require the input of multiple 3PLs. This
bodes well for outside providers, Armstrong says. Not only will they
have opportunities to win more business, but they’ll also stand to gain
economies of scale—and achieve better margins—by managing integrated components of a customer’s supply chain, instead of just one or two functions.
Still in control
Most businesses predominantly use outside providers for executing specific services rather than for fully managing their supply chains, according to the survey,
Trends in 3PL/Customer Relationships -2009. Of the 4,000 shipper-3PL relationships
analyzed by Armstrong, nearly 82 percent are “tactical” in nature, meaning 3PLs are
used for specific tasks such as inbound transportation or warehousing. Only 18
percent of the relationships are classified as “strategic,” where a 3PL essentially takes
over a customer’s entire logistics and supply chain operation, says Armstrong.
Many shippers are just too large for one company to manage on its own. In fact, the
survey found that Wal-Mart Stores, Procter & Gamble, General Motors Corp., and
Ford Motor Co. each use 30 or more logistics partners.
Armstrong says that “ 80-20” ratio has remained constant for several years, and
reflects shippers’ reluctance to give up full control of their logistics operations,
especially in the area of customer service. However, the weak economy and the economic benefits of logistics outsourcing may convince businesses to cast aside those
concerns, he adds.
—Mark Solomon
Averitt stands pat
on rates
In another sign that weak
trucking demand is keeping a
tight lid on rates, less-than-truckload carrier Averitt Express
says it will forego a general
rate increase during 2009.
Averitt says it is the only carrier
that, at least through the end
of January, has publicly
announced it will not impose a
general rate increase.
Brad Brown, Averitt’s marketing director, said six rivals—
UPS Freight, FedEx Freight, YRC
National, Con-way Transportation, Estes Express Lines, and
Saia Inc.—have announced
general increases of more than
5 percent. “We also heard from
other LTL competitors who had
not announced their increase
as yet but said they would definitely have one this year,” he
says. “We can’t say no one else
is going to do it, but we haven’t
found anyone else who has
announced it yet.”
Satish Jindel, president of
Pittsburgh-based SJ Consulting,
says the LTL sector takes rate
actions between March and
May, so the door remains open.
Jindel adds that virtually every
LTL shipper negotiates rates
with its carriers, and no one
pays the general or “tariff” rate.
One trucker not planning a
general rate increase in 2009 is
Pitt Ohio Express, a Pittsburgh-based regional trucker serving
the Midwest and Mid-Atlantic.
That’s nothing new; Pitt Ohio
has not taken a general rate
increase since 2004.
