For the past two decades, American shippers have been mostly content to allow nearly all their international logistics functions to be managed by freight forwarders, non-vessel-operating common carriers and customs brokers.
While these intermediaries undoubtedly continue to perform invaluable transportation and trade compliance services for shippers, there is an increasing cadre of large manufacturers and retailers that are taking more control of their logistics processes — actively planning international shipments by telling their third-party logistics providers exactly which carriers to use and when, and not necessarily based on the lowest cost, but more so by which service offers them the most efficient delivery of their goods to destination.
These large shippers, often driven by heightened in-house cost control measures, regulatory compliance pressures, and brand integrity, are increasingly investing in and taking advantage of information technologies once exclusive to 3PLs and internalizing them in their processes. They are also hiring top-notch executives away from the 3PL industry to oversee their logistics activities.
Some shippers have even gone as far as to set up U.S. licensed in-house non-vessel-operating common carriers to boost their direct carrier relationships and in some cases offer some of their freight capacity to other shippers.
As explained in this issue (Cottoning to 3PL business) by Associate Editor Chris Dupin, former cotton trader Dunavant Enterprises several years ago took the radical step of abandoning its shipper roots altogether to become a full-fledged 3PL.
The biggest inhibitor for shippers to justify bringing logistics in house is the scale of their operations. A shipper would require lots of freight, and this freight would need to be either highly specialized or so concentrated to make this work. That said internalizing logistics management will likely not become a runaway trend among most American shippers.
What this activity demonstrates, however, is a steady lowering of the barriers to entry in the traditional transportation intermediary business and overall shrinking switching costs for transactional services.
While 3PLs are expected to continue their dominance over international logistics offerings and processes, forward thinking operators will look to new technologies, markets, and services to step up their game and compete at higher levels for shippers’ logistics business. Those who don’t recognize this shift may find themselves competing against their customers’ logistics resources instead of other 3PLs. — Chris Gillis
Outsourced logistics put to the test
