Third-Party Logistics: Expert elaborates on choosing best provider

As she prepares her 22nd annual “State of Logistics” report, supply chain expert, Rosalyn Wilson, provided SCMR with an exclusive forecast for the third-party logistics. Wilson, senior business analyst at Delcan Corportation, is also a frequent SCRM contributing blogger. This is the second of a two-part series, appearing on the eve of her much anticipated SOL presentation at the National Press Club in Washington.

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Rosalyn Wilson: The barriers for entry to new starts in this industry have risen significantly in the last five years. However, many of the surveys about selecting a 3PL have cited many reasons for selecting smaller or mid-sized 3PLs. Chief among them are personalized service. A smaller 3PL will tend to have more personal communication with fewer players and be able to react quickly to changes in the customer’s situation. It is absolutely necessary for a new start to have a strong IT offering that ties into the customer’s systems, and this is often the stumbling block. A good strategy is to specialize in a particular type of service – whether it be a certain group of commodities, a more specialized transportation service (special handling or equipment, for instance), a regionalized service, etc.

SCMR: What should shippers be looking for when contracting over the long term?

Wilson: At this point in time shippers should be looking for terms that involve guaranteed capacity. Over the next couple of years capacity issues are going to plague the industry again. The shortages will be in trucks, drivers, containers, and possibly chassis as we switch to a new ownership and distribution model for chassis. The reduction in truck fleet capacity that is directly related to the recession reached close to 15 percent. Much of the lost capacity was sold to other countries at the beginning of the recession and older vehicles were retired in fleet right-sizing moves during the recession. Second-hand truck sales have been brisk, but the available trucks at this point are older models that are not as desirable.

SCMR: Any other impressions?

Wilson: Even sales of new trucks, with the more expensive new engines, have picked up during the first part of the year, but the sales levels are barely covering replacement numbers – so little growth in the size of the fleet. Driver hiring problems are returning; turn-over rates have risen dramatically as drivers switch companies to increase their pay; good drivers are commanding higher pay because of the impact a bad driver has on a company’s CSA score; and costs to recruit and train are rising. While not on a straight line shipment volumes are rising, while capacity is remaining flat, this is going to cause pain as we approach the peak shipping season and last well into 2012, possibly longer.

SCMR: What is your advice:

Wilson: So the best advice is to be certain that you have contracted for enough capacity that is guaranteed to move your goods. Shippers may have to guarantee a minimum shipment volume in return for the capacity. This will also place shippers in a stronger position if they need unexpected capacity.

SCMR: Rates, on the other hand, have nowhere to go but up.

Wilson: I do not expect carriers to give much on rates this time around because most need the revenue to take care of maintenance that was put off, replace their aging fleet, cover higher fuel costs, fund driver pay increases and higher costs associated with drivers, and to enhance their CSA scores. With over 3000 motor carrier bankruptcies in the last two years, shippers have to realize that many carriers are in precarious positions and must raise their rates to stay in business. More bankruptcies will only narrow the choices. So the best advice here, is to try to negotiate rates that are escalated by some common index so that increases are held only to those that match the changes in the general economy. While the rail industry is not in as dire condition, expect higher rates there as well. For motor carriers, shippers should make sure that their contracts have minimum CSA scores to reduce their potential liability. These should be checked often.

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