BY MARK B. SOLOMON, EXECUTIVE EDITOR – NEWS
3PL PARTNERSHIPS
LIKE EVERYONE ELSE, TRUCK SHIPPERS ARE
sweltering through the dog days of summer. Yet as
they formulate their 2016 transportation budgets,
their strategies may be influenced by what occurred
20 months ago and in the dead of winter.
During a four-month stretch between December
2013 and early March 2014, heavy snow and ice
storms paralyzed highways and kept large volumes
of truck capacity off the roads. Desperate shippers
turned in droves to freight brokers and third-party
logistics service providers (3PLs) to find space pretty
much at any cost. That meant a disproportionate
reliance on the non-contract or “spot” market, where rates
are substantially higher than contracted pricing. Several
estimates suggested that 40 percent of all truck activity in
the quarter went through the spot market; normally, about
15 to 20 percent of truck movements are handled there.
Intermediaries able to fully flex their carrier networks
helped shippers get their goods to market. But it came
at a high price: Spot rates for dry van trailer services, the
most common type of trailer used, hit an all-time high of
$2.08 a mile in March 2014, according to DAT Solutions, a
research consultancy. Spot van rates stayed in that elevated
range into the summer.
For many logistics and procurement executives, 2014
turned into a year of budget busting, with some shippers
spending about twice as much on brokerage services as
they would normally do. In most cases, top brass tolerated
the cost overruns due to the extraordinary wintertime circumstances. Yet CEOs would not be happy with any repeat
performances, and they have put their logistics staffs on
notice that steps need to be taken to secure appropriate
shipping capacity at reasonable rates.
One step has been for shippers to negotiate for capacity
directly with the asset owners, thus bypassing the 3PLs and
by definition, reducing their sphere of influence. Thomas
S. Albrecht, managing director, transportation equity
research at investment firm BB&T Capital Markets, said in
a recent interview that of about 100 large shippers he spoke
with in the past several months, between one-half and
three-fourths have scaled back their broker networks or are
looking to do so, and are directly engaging motor carriers
to handle more of their freight. Shippers are taking that
route because they want to reduce their exposure to vol-
atile spot markets and increase service consistency, which
they believe comes with having direct access to asset-based
truckers who can provide assured capacity, Albrecht said.
Whether it is due to changes in shippers’ strategy or
better weather in the first quarter of 2015 that allowed
contract capacity to keep rolling, spot market demand
transportationreport
REDUCTION IN FORCE:
Shippers rationalize their
universe of 3PL providers
In an effort to avoid high spot market prices, some shippers
are bypassing their 3PLs and negotiating directly with truck
owners for capacity. Will that come back to haunt them?
