If you’re engaged in the world of freight transportation, you’ve likely encountered or been part of discussions involving Third-Party Logistics companies (3PL companies. In this blog post, we aim to revisit the concept and significance of 3PLs in today’s business landscape and what we can expect from this business model in the future.
Third-Party Logistics (3PL)
As we’ve previously discussed, Third-Party Logistics companies specialize in outsourcing various logistics services, such as transportation, warehousing, packaging, and order fulfillment solutions. Their primary goal is to offer swift and effective solutions to streamline supply chain processes. By partnering with a 3PL, businesses can concentrate on their core operations, leveraging their strengths.
One of the crucial advantages of engaging a 3PL is accessing their extensive expertise. Whether you’re a Shipper or Freight Forwarder, investing in a 3PL is the right choice to ensure that logistical aspects outside your own expertise are handled competently. This approach is often better than allocating resources toward developing extensive in-house supply chain capabilities.
After the COVID-19 pandemic, the reliability of 3PLs has become even more evident, given the substantial workload they have handled. The freight transportation industry has recognized the significance of effective data management, visibility, and analytics, which are now key considerations when partnering with 3PL companies. As a result, 3PLs are increasingly investing in technology, with a specific focus on:
- Percentage of supply chain services offering real-time data
- Percentage of the supply chain that can be remotely controlled
- IoT (Internet of Things) devices
- Migrated to the cloud
Third-Party Logistics companies have become the first option for providing crucial tech-related functions in the supply chain.
And, what’s next?
Due to the increasing reliance on technology and the technological capabilities gap between Shippers, Freight Forwarders, and Third-Party Logistics companies, the question arises as to whether it is worth it to continue entrusting specific elements of the supply chain to 3PLs or if it is more valuable to adopt a model that offers a comprehensive solution to the entire supply chain. This approach is known as the 4PL model.
Fourth-Party Logistics (4PL)
4PLs extend beyond the boundaries of 3PLs by offering an extensive range of capabilities supported by technology. They possess the ability to comprehensively operate all facets of the supply chain, enabling customers to access a multitude of logistics service providers. Certain 4PL companies go even further by assisting customers in the planning and execution of their entire supply chain. A key foundation of this model relies on the establishment of trust between clients and suppliers, as trust deepens within the relationship, clients grant 4PLs a greater degree of control over their freight. This concept, known as Freight Under Management (FUM), is essential to the functioning of the 4PL model, as higher FUM correlates with the major success of the model.
FUM has experienced an 11% increase from 2019 to 2022, and this upward trend is expected to continue over time. Transitioning from the 3PL to the 4PL model appears to be an attractive idea. However, it’s important to note that 75% of the FUM is currently managed by the top 10 4PLs in the industry, while the remaining 25% is divided among various emerging companies. While the concept seems appealing, it is undoubtedly a challenging effort, because success lies not only in persuading customers to entrust their freight management but also in generating revenue by handling a more complex process.
What to aim for?
The Third-Party Logistics companies model continues to play a crucial role in the supply chain process, developing a streamlined workflow is essential to stay competitive and up-to-date. Therefore it is crucial to recognize the tangible opportunity at hand, 3PLs need to continue investing in building extensive networks rich in tech-enabled processes to enhance their capabilities, fostering a vital culture of innovation, cross-selling, and collaboration.
At Cargo Care Services we have a top-notch team that excel in Cargo Insurance, Warehousing, Packaging, and Freight Inspections, we are ready to handle key operations within your supply chain.
Contact us to learn more.