Top Challenges Facing Third-Party Logistics Firms

by CXOtoday News Desk    Sep 29, 2015


Third-party logistics providers will face a tough time unless they transform themselves into agile and innovative entities – working in collaboration with their customers and stakeholders. A new Capgemini report:  2016 20th Annual Third-Party Logistics (3PL) Study , based on responses from more than 260 shippers and logistics service providers in North America, Europe, Asia-Pacific and Latin America, found that to achieve great efficiencies and effectiveness in their relationships, Third-party logistics (3PL) firms and shippers must be well-aligned. The study also noted the importance of workforce innovation and agility in the 3PL industry, which also faces an acute shortage of talent in recent times.

The report found that 87 percent of shippers and 96 percent of 3PLs have agreed-upon performance expectations, and 80 percent of shippers and 81 percent of 3PLs have formal performance reviews, including the measurement of and feedback on results. Tightening capacity, mergers and acquisitions and industry innovations are further altering competition, 3PL service offerings and shipper-3PL relationships.

Collaboration is the key

The ways in which shippers and 3PLs work together is changing as competition within the logistics industry ramps up. Tightened capacity along with increased consolidation within logistics service providers has resulted in fewer partners for 3PLs and increased prices. As a result, 44 percent of survey respondents reported that they have enhanced relationships to guarantee shipping lanes and on-time shipments and 40 percent have increased rates. Among shippers, 29 percent said assets have not been available to move shipments when needed. Similarly, 29 percent have engaged with a larger number of 3PLs to get access to capacity.

“The spirit of collaboration with 3PLs and shippers has led to increased efficiencies in the supply chain,” said Bob Daymon, Vice President of Transportation Management for Penske Logistics. “Enhanced relationships with shippers results in operational costs savings and ensures reliable coverage and better rates.”

Staying afloat

To differentiate themselves, 3PLs are working to provide sustained value, innovative solutions and information to facilitate data-driven decisions. 3PLs are also using technology and data to aid shippers in selecting the right shipment modes to maximize efficiency and reduce costs. Among respondents, 60 percent are using technology to increase visibility within orders, shipments and inventory; 40 percent are using technology for planning within transportation management; and 48 percent are using it for scheduling within transportation management.

As the logistics landscape continues to respond to more freight, capacity and regulatory issues, as well as increasingly demanding customers and consumers, the industry is more focused than ever on innovation. To meet increasing customer requirements, 58 percent of respondents said they are investing in new capabilities for themselves, 40 percent said they are leveraging new capabilities from other companies in different industries, and 15 percent said they are leveraging new capabilities from competitors.

“These factors should create an interesting competitive environment, spurring significant changes to the 3PL business model,” said Shanton Wilcox, Vice President and North America Logistics and Fulfillment Lead at Capgemini Consulting. “Social, crowd-sourcing and flexible fulfillment will converge to create opportunities for alternative logistics service providers. The challenge will be how traditional, asset-based providers respond to these circumstances.”

Overcoming talent shortage

Workforce innovation and agility will also be particularly important for the 3PL industry as it is expected to face a shortage of talent, said the study. The report says, logistics industry is facing an unprecedented labor shortage, and the majority of 3PLs (79 percent) said they are unprepared for the labor shortage’s impact on their supply chain. However, more than half of shippers (53 percent) feel they can rely on their 3PLs to address the labor shortage’s affect on their business. To meet demand, 3PLs will need to leverage their employees in new ways and re-think their strategy for attracting and retaining employees.

“The employee skill sets and traits that logistics companies need are shifting as new technologies and distribution approaches transform the industry,“ said Neil Collins, Global Leader of Logistics, Distribution and Transportation for Korn Ferry in a statement.

“Simultaneously, wage issues and job alternatives that didn’t exist a few years ago have increased competition for talent. For many companies, this means a fundamental shift in how they recruit today’s workforce for tomorrow’s needs. A strong work culture and stand-out training will be key, while creating opportunities to work across departments or regions will help employers attract and develop an agile, adaptable workforce.”