Outsourcing: Domestic Vs. Global

With Rick Underwood, vice president of contract services, Americas, APL Logistics.

Judging from recent trends, third-party logistics providers have considerable cause for celebration. As a 3PL provider, what changes do you see in the industry?

Underwood: Companies that outsource some of their supply chain management are now in the majority—as opposed to being the small minority they were during most of the '80s and '90s. And according to the International Warehouse Logistics Association, more than 50 percent of all U.S. and Canadian 3PLs enjoyed double-digit growth last year.

Nowhere is this growth more evident than in the global logistics sector. Since China joined the World Trade Organization in 2001, more than $50 billion in manufacturing investment has moved there, with more growth expected. And 3PLs have reaped the benefits. These phenomena have given rise to a new breed of 3PL: one that's multifaceted, multinational and more than ready to stake its claim for your business in places like China, Vietnam and India.

Besides the obvious—geographic reach—is there a difference between a domestic and global 3PL?

Underwood: The definition of a domestic 3PL is fairly obvious. The definition of a global 3PL is harder to pin down because any company that offers logistics services in more than one country can technically call itself a global 3PL.

The real distinguishing factor is whether a provider has locations in the key places where the world performs most of its manufacturing and consumption, what kind of experience and expertise it can demonstrate in those places and how well it can manage complexity, because international supply chains are considerably more difficult to plan and execute.

What kinds of 3PL services are especially important to domestic shippers? And which are especially important to global shippers?

Underwood: The most popular 3PL services are directly related to what shippers consider to be their greatest challenges.

In the case of domestic shippers, these challenges include truck driver shortages, strained rail capacity and rising fuel prices—all of which makes 3PL services like freight management, warehouse site selection optimization and cross docking more relevant.

In the case of global shippers, these challenges include all of the aforementioned plus increased inventory levels, international shipping congestion, heightened security and more potential for supply chain disruption. As a result, 3PL services such as consolidation, supply chain optimization, freight forwarding, contingency planning, expedited transportation, DC bypass and deconsolidation are in particularly high demand.

Third-party warehousing has experienced a resurgence among both target audiences, because supply chain volatility has increased and created a need for more safety stock. In fact there was one study that suggested this was the most popular 3PL service of all.

Has globalization changed the relationship companies have with their 3PLS?

Underwood: We 3PLs have been clamoring for shippers to use our end-to-end strategic supply chain capabilities for as long as I can remember. Today that wish is closer to becoming a reality.

Companies know they can't manage the complexities of their international supply chains without help, and they're trusting their overseas 3PLS to perform a wide variety of key functions such as vendor management and total supply chain optimization. They're relying on their 3PLS' expertise in mastering the idiosyncrasies of various countries' transportation infrastructures to help them integrate with area transportation providers. And they're looking for 3PLs to guide them as they deal with new governments, cultures, import/export laws and international shipping contingencies.

As a result, many companies are more open to viewing all 3PLs, both domestic and global, as partners rather than just vendors.

Are the contractual complexities of working with a global 3PL more daunting than they are with a domestic 3PL?

Underwood: Although it would be easy to assume global logistics contracts are from Mars and domestic logistics contracts are from Venus, the truth is the two have a great deal in common. If anything, the contract with a global 3PL may actually be easier, because those kinds of companies typically have more staff and expertise to handle contractual complexity.

Either way, a shipper signing any 3PL contract should have expertise in logistics, legal expertise from qualified contract attorneys and expertise regarding any applicable laws and regulations in the countries where the 3PL services will be performed.

Can you use a 3PL for end-to-end logistics services?

Underwood: There are some third-party logistics relationships that have come close to being exclusive. However, industry research is showing that most Fortune 500 companies still use multiple 3PLs, not just one—and that their biggest reason for doing so is they don't feel like there's a single provider whose service offering is broad enough. The results may be different in a few years, because there's still a lot of consolidation going on in the industry, and most large 3PLs like ours are continually growing their service capabilities. So stay tuned on that one.

Meanwhile, if your company is considering "single sourcing," make sure there's a precise fit between your needs and a 3PL's capabilities (both from a service and a geographic standpoint) before you pursue the possibility of an exclusive relationship.