Time to Reconsider Your 3PL Strategy
Third-party logistics companies come in many different forms, and for a while there was not much barrier to entry into the marketplace— particularly the less-than-truckload segment. Until even recently, the following recipe could be utilized to form a 3PL:
- Freight to leverage
- Growth potential
- Industry knowledge
- Technology— in any form
- Take one former carrier representative (or industry ancillary service provider), engage one freight account with whom you have a long-term relationship and bingo— you have freight to leverage.
- Hang a shingle, perhaps obtain a broker’s license, and you are in business.
- Call your old carrier buddies (who left and went to other carriers) and start obtaining rates for your newfound freight. Ask them “Where’s my volume discount?”
- Optional: To look really smart, you take an old common rate base from the 90’s, perform some “tweaking” to it, and call it your own with a slick name.
- Find a way to perform freight payment— either on your own, or outsourced.
- Lastly, run your clients’ freight through your own books so it looks like your own— puff out your chest and exclaim that you are a multi-million dollar company. Buy low, sell high.
Voilá! You have yourself a 3PL.
While admittedly facetious, it is fact that carriers are not particularly fond of 3PLs— but they figure, “if we don’t give them rates, someone else will.” And so it went…
As a shipper who may be contemplating utilizing a 3PL, or perhaps evaluating your current 3PL relationship, you may be asking yourself, “What can a 3PL really do for me?” Let’s examine the common thoughts regarding the outsourcing of your freight today— and explore best practices:
- Volume discount. The 3PL will more than likely “have” more freight than you— hence the perception of receiving a volume discount and the likelihood that if you give your freight to the 3PL (that’s right, you are giving your freight volume away) and add it to their other clients’ freight, all will enjoy a greater discount. The problem is that carriers are currently re-evaluating all of their 3PL relationships right now and finding most of them unprofitable, and most are reducing their discounts and cutting off volume pricing.
Best Practice— Carriers can and will provide your company with excellent pricing while eliminating the middleman. Keep your freight as your freight— have the carrier tariffs in your name by enlisting a 3PL that does not take ownership of your freight as their own, but can negotiate better discounts for you based on their volume and methodology— without taking yours, without accepting commission or “kick-back” from carriers, and utilizing any carrier with whom you would like to work (not just “their” carriers).
- Reduced Paperflow. Outsourcing your freight activity should provide you with less paper to review (i.e. carrier bills). Nothing makes the blood drain from a 3PL’s face faster than when a carrier inadvertently sends a bill directly to their customer, thus lifting the veil on the amount of mark-up on a particular bill.
Best Practice— Enlist a 3PL to automate your methodology, from the initial rate shop, pre-audit, all the way to the freight payment of each freight bill— using rates that are yours, and knowing exactly how much your 3PL is receiving for the service they provide.
- Technology. 3PLs do not create technology— they have to buy it. They traditionally work off only one ratebase, because they cannot utilize multiple ratebases which are proven to reduce freight costs— and the old ratebases they utilize are not in synch with current network efficiencies of carriers. Basically, single ratebases are used because of outdated technology.
Best Practice— Ensure that your 3PL has not only technology available for you to rate shop and create bills of lading to actually execute your shipments using your rates, but can provide you with every piece of technology you need for your specific situation and supply chain. This would include inbound (vendor compliance) capabilities, small parcel, LTL and Truckload, International, Hazardous, real time KPI dashboards, etc., all while being able to integrate it inside your firewall.
Above all, never use only one common ratebase to rate your LTL. While many still use this old-school practice, it’s a very costly idea— it benefits everyone but you, the shipper. You will be met with resistance, but persevere. Current carrier ratebases are developed with their operating efficiencies in mind. Make sure your technology can handle them and use them— they are free and you WILL get better discounts. Lastly, make sure your technology can track each shipment vs. your old methodology, which will ensure you “hero status” at your company.
By applying the above, you will essentially:
- Know that you will be getting better rates, and are
- Fully-automated and have full disclosure of exactly what you are paying, you can now
- Relax, because you will have the technology to ensure that you have made the best possible decision and can execute on your freight strategy.