As 2021 churns along its choppy waters many shippers are searching for a logistics solution that positions them at the helm of a well-prepared vessel, steering in the right direction. In a world of increasing uncertainty, what worked prior to COVID-19 is not necessarily optimal now. Many of today’s shippers choose to outsource their logistics needs and nurture a mutually beneficial relationship with a logistics partner who provides flexible logistics solutions to meet their customers’ ever-changing pandemic and economic-driven needs.
Whether it’s a solution for B2B or B2C, shippers must satisfy their customers’ demands in a cost-effective, strategically forward-looking, and efficient manner. Shippers have proven they can renew their focus internally when they outsource their delivery needs to a third-party logistics provider (or 3PL) and/or freight carrier partner who adapts and evolves by developing the latest labor deployment tactics, maintaining a nimble fleet and driver base, and supplying logistics technology and data-driven solutions.
Historically, there are consistent attributes that drive the relationship between shippers, 3PLs, and carriers. According to The Logistics Outsourcing Handbook by Jo Godsmark and Gwynne Richards, here are seven key factors driving the long-term trend for shippers to outsource their logistics needs:
- Cost Containment
- Core Competencies
- Internal Logistics Capabilities
- Access to Innovative Technology
- Risk Management
- Asset Capital
- Scalability and Flexibility
In this post, we explore what each of these factors means for shippers in today’s economic landscape.
Cost Containment
Controlling transportation costs has always been part of the shipper’s to-do list. This year’s planning is no exception. The disruptions of COVID-19 on the supply chain have caused many shippers to rethink their freight transportation strategies. As the pandemic-induced disruptions in capacity and labor shortages persist, managing transportation costs is not going to be easy on shippers, 3PLs, and carriers. However, when shippers outsource their logistics needs as a cost-containment measure in an unsure labor market, they often see results.
Core Competencies
Concentrating on core competencies rather than logistics is a valid decision for shippers as the economy deals uncertainties. Engaging 3PLs and freight transportation providers to bring in their expertise, while focusing internal resources on core business competencies rather than logistics, allows shippers to allocate resources to the areas where they can make the greatest impact. This tactic boosts productivity and reduces wasted resources, helping to further contain costs.
Internal Logistics Capabilities
Many shippers have concluded that they just do not have good internal logistics capabilities and investing in their development would not make sense. Outsourcing logistics to expert carriers and 3PLs provides a simple solution to this problem.
Access to Innovative Technology
Innovation is often overstated and underdelivered. However, to successfully compete in today’s business environment, shippers must seek out innovative solutions. The International Organization for Standardization (in ISO TC/ 279) defines innovation as “a new or changed entity realizing or redistributing value.” It makes sense that a healthy relationship between the shipper and logistics partner increases the probability of uncovering innovative solutions. This is best achieved when the logistics partner understands the shipper’s business model as well as the industry in which the shipper competes. Industry segments each present distinctive opportunities and challenges. Logistics partners offer a competitive advantage for shippers when they develop knowledge of the shipper’s industry characteristics as well as the shipper’s positioning and business goals within the industry.
Penn State University’s Professor of Supply Chain Management John Langley says that “shipper expectations have increased as technology has improved or because shippers are seeking enhanced analytical capabilities to help drive more effective supply chain decisions,” as reported by Supply Chain Digest. Today’s shippers are looking for a logistics partner who can provide innovative (and industry-targeted) technology solutions that improve customer service, increase efficiency, and help meet business goals.
Risk Management
Risk management has been an on-going and ever-increasing focal point for businesses. In a 2014 study conducted by Accenture, 76% of respondents revealed that supply chain risk management was “very important” or “important.” With over 1,000 companies representing ten industries, 25% said they were planning on increased investments of at least 20% in supply chain risk management. Over the last several years, this trend has certainly grown,
and shippers need 3PLs and freight carriers who will align with and participate in their risk management initiatives.
Asset Capital
As today’s tight labor market and the well-documented driver shortage continue, some shippers are looking to their transportation providers and 3PLs to help them avoid the time and expense of staffing issues. An additional benefit of this trend is the reduction in deployed asset capital. This further frees up resources to invest in and focus on core competencies.
Scalability and Flexibility
Healthy relationships with freight carriers and 3PLs provide flexibility and scalability for shippers as their needs change. Cultivating and maintaining these relationships ensures shippers the ability to act quickly when opportunities arise, and a rapid scaling up (or scaling down) of distribution capabilities is the order of the day.
The Benefit of Long-term Logistics Partnerships
COVID-19 has put increased emphasis on the benefits of a long-term and collaborative logistics partnership between shippers, 3PLs, and freight carriers – as opposed to a short-term solution. The labor market, volatile local market conditions, inventory shortages, and freight delivery capacity are just a few of the concerns that shippers face as they look forward to 2022 and beyond. Logistics partners who combine delivery expertise, technology solutions, data-driven processes, and customized logistics services can help shippers address these concerns and optimize freight management needs. Innovative solutions that shippers and logistics providers develop together have the potential to be winning formulas in a period of disruptive change, resulting in mutual growth for both parties.
At ECA, A Delivery Industry Alliance, Board of Directors member and Vice-President of Crossroads Courier, Inc of St. Louis Liz Klein recently commented on the benefits of long-term shipper-carrier partnerships. “We are facilitators of the meaningful relationships shippers must have with carriers. Even if the business isn’t yet flowing from a shipper–carrier meeting at the ECA Marketplace, our carrier members are motivated to help them faster than if they are a shipper whom they’ve never met. The ECA MarketPlace helps shippers plant seeds for harvest when the need arises, and the needs are coming faster every day.”
Mike Pollack, Vice-President of Sales at A-1 International, a Need It Now company, and an ECA Board member said “Based on increased demands on our capacity, ECA carrier members have been – now more than ever – forced to carefully consider the opportunities presented to us. We must carefully choose the type of work we can entertain with the limited space and resources we have. In this environment, shippers are encouraged to develop as many carrier relationships as they can. The ECA MarketPlace is an ideal venue to begin and continue those relationships.”
