Despite the negative connotations of the terms ‘broker’ and ‘outsourced’, third-party logistics companies have gained popularity and are employed by nearly every industry in the U.S. How did this happen?
The Motor Carrier Act of 1980 deregulated the trucking industry. It allowed different types of businesses to fight for market share in transportation. Trucking companies bought warehouses, freight brokerage firms popped up. Also, smaller carriers entered the industry more regularly. So, the structure of a traditional transportation company was shaken up and the industry was changed forever.
The 3PL as we know it today didn’t truly exist until after the 2000s tech explosion and the widespread availability of the internet. This opened up entirely new ways of managing transportation.
Now, 80% of Fortune 500 companies and 96% of Fortune 100 companies use 3PL services in some form or fashion. The widespread use of 3PLs makes it clear that companies are getting serious about transportation and logistics.
But why use a 3PL? Why not manage distribution in-house? And, why are 3PLs so popular?
There are two main reasons 3PLs have become so commonplace:
Logistics Companies Have Size and Scale
When shippers partner with a third-party logistics company, they gain the benefit of the 3PL’s leverage in freight rates. Since 3PLs have such vast freight networks, they can bundle a large number of shippers’ freight together to gain buying power. In addition to this, they can create more competitive bidding from carriers. 3PLs also scale up and down with shippers, meaning long-term partnerships are more viable and shippers still don’t have to worry about freight costs during times of uncertainty. Using a 3PL is like hitting the easy button.
3PLs Deploy Superior Technology
Transportation management systems (TMS) revolutionized the way freight is hauled. These systems made it much easier for third-party logistics companies to consolidate freight, find backhauls, schedule complicated multi-modal shipments, build huge carrier networks, provide visibility into transportation, and much more. It is challenging and time-consuming for shippers to try any of this in-house. The visibility that TMS software provides is the foundation of optimization – there’s a limit to the amount of cost savings a shipper can achieve without proper visibility. TMS solutions, especially cloud-based software, not only provide fast ROI but ensure continuous improvement for as long as a shipper has access to it.
While still relatively new in the transportation industry, 3PLs, due to the value they provide, have carved out an important and permanent space in the movement of freight.