The Growing Role of 3PLs

Consolidation of warehouses, fleets plays to 3PL strengths

The third-party logistics provider has a vital role in Supply Chain. According to the Council of Supply Chain Management Professionals (CSCMP), a 3PL “provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding."

In our current unsettled economy, 3PLs seem to be doing well.

“From some of the stats we see,” says James Morton, Managing Consultant at New York-based Capgemini Consulting, “there’s a rebound in the economy.” Citing an Armstrong & Associates study, he points out that 3PL revenue is up 2010 vs. 2009. According to the U.S. and Global Third-Party Logistics Market Analysis released by Armstrong in May, revenue and profitability increased in all four 3PL segments (Domestic Transportation Management, International Transportation Management, Domestic Transportation Management and Value-added Warehousing and Distribution) from 2009 to 2010. Gross revenues were up 19.4 percent and net revenues were up 13.2 percent in 2010.

“We still see churn in the marketplace,” Morton says. “Sixty-four percent of participants in the study outsource with 3PLs; 24 percent in-source.”

Doug Waggoner, CEO of Chicago-based Echo Global Logistics, also cites the Armstrong report. “We are seeing a tendency for more and more shippers to outsource some portion of their transportation and logistics to third parties,” he says. “If fact, if you look at some of the statistics tracked by Armstrong, over the last 20 years, outsourcing to 3PLs has grown about three times faster than GDP.”

One reason, Morton says, is consolidation. “Consumer companies compete on the retailer’s shelf, but they look at sharing warehousing and fleet management. It just takes someone to coordinate it. That’s a really good space for 3PLs because that’s their strength.”

Another strong area for 3PLs is in emerging markets, especially rapidly developing consumer markets. “It takes a while to develop expertise,” says Morton. “The shippers we speak with appreciate guidance from 3PLs. [They have to deal with] local regulations, even such things as the height of dock doors. They can work with a local 3PL or a global 3PL in collaborating in partnership with the local. There’s a huge trend there.

“There’s definitely a trend around control towers [synonymous with LLPs (Limited Liability Partnerships) and 4PLs],” Morton adds. “It’s one manager over the other providers. It provides better usage of assets to drive down inventory and will emerge as a real service offering. 3PLs will be in on that from the start.”

With the volatility in our economy, one of the major challenges 3PLs face is transportation costs, including, of course, fuel. (For a closer look at the fuel issue, visit

“Given the volatility in the economy, we see large fluctuations on raw transportation costs, as well as fuel,” says Echo Global’s Wagggoner. “Customers want to be shielded from the volatility, which puts pressure on the third party to take risk. Most 3PLs don’t want the risk either, because the reward for taking it does not compensate. That leaves the third party in the middle doing their best to try to smooth the volatility.”