"Shippers need to be more willing to collaborate with one another and less reticent to working with others, even if it means working with competitors, just to get carriers to listen," advises Paul Lomas, vice president of sales/marketing at TLC, the 3PL that was acquired earlier this year by Minneapolis--based Supervalu. "They need to be working with carriers to link shipments together and do closed--loop runs. That also applies to backhauls and multi--stop runs."
And, while the cost increases on transportation service may seem like a lot, the service still often comes out cheaper than if a retailer or manufacturer tried to run his own fleet.
"The 3PL can bring savings in other areas. Most notably, the shipper doesn't have to invest in his own fleet and all that goes with it," says Schneider's Miller. "Our biggest challenge is in getting the shippers to understand the value that a 3PL adds. On--time deliveries, less out--of--stocks, etc., lead to real dollars saved, and there is more value in that than just a cost issue."
"The worst thing in the world for a shipper is an out--of--stock, and if we can take out--of--stocks out of their system, it's a tremendous benefit for them," adds Transplace's Sanderson.
Warehousing Less Affected
Price increases on the warehousing side of the 3PL arena are not as steep. "There are certainly costs pressures on the transportation side...but in distribution center operations, we do not see those same cost structures," says Mike Jones, vice president of business development at Logisco, a mid--sized 3PL based in Brentwood, TN.
The two items that were most expected to drive up 3PL warehousing costs have not really done so, according to Jones. "On our side, RFID is certainly a cost--add, but it's still a relatively small part of what is going on out there. The other cost--add is government regulations for bioterrorism and food safety, but most of the industry was already doing most of the things that are now being required."
But just because 3PL warehouse prices haven't seen the same increases doesn't mean manufacturers and retailers can’t cut costs further. Much of that can be done during contract negotiations.
"Clients have a lot more leverage on the warehousing side. In fact, many clients are trading away risk for margins, signing a management fee contract as opposed to a unit cost contract," says Jones, who also notes that many customers are signing longer contracts--most for three to five years--to lock in better rates up front.
"In warehousing, longer term deals are more attractive," says TNT's Thomas. "If it's a dedicated warehouse, you can create more attractive deals with us. Customers can also go with larger facilities. As long as they can keep it utilized, it lowers their total overall operating costs."
Take Steps To Become Carrier Friendly
Prashant Bhatia, senior director of product management at Manhattan Associates, Atlanta, recently authored a white paper in which he recommends a number of ways shippers can improve their partnerships with carriers.
"With the capacity crunch, fuel costs and driver shortages expected to continue, the dynamic between carriers and shippers has changed dramatically from a buyer's to a seller's market," he observes. "As a result, it is more important than ever for shippers to forge and maintain strong partnerships with preferred carriers. Central to this relationship is a strong understanding of what factors are driving carrier’s costs."
"In many ways, a shipper's behavior and practices relative to shipment execution can have a significant affect on a carrier's cost. Rate negotiation aside, a shipper can often improve the service and cost they pay for transportation by becoming a more "carrier--friendly" shipper.
How, then, can shippers adopt a new and collaborative paradigm that makes it easier for high--quality carriers to partner and do business with them? Consider the following: