Burned in the past by deals gone sour, 3PLs have become wary of investing in warehouses, trucks and even forklifts. Now they're asking their customers to share the risks.
In these days of technologically supercharged logistics services, it's almost possible to believe that cargo can be willed across the country by the right software—not hefted onto trucks by forklifts and hauled down dusty highways. Certainly, judging from the way most third-party logistics companies (3PLs) talk, you'd think ownership of assets like distribution centers, forklifts and tractor-trailers was simply too mundane to bother with. In the last three or four years, most 3PLs have advertised an "asset-light" philosophy, strategically shying away from investments in these areas. Capital, it seems, is for growing through acquisition and installing whiz-bang computer systems to help serve the customer better.
BDP International Inc., a freight forwarder turned 3PL, is typical. "Our assets are people and technology, and we look to partner with people with assets," says Richard Bolte Jr., president of BDP International in Philadelphia. "We prefer to concentrate on the things we feel we do best and allow the asset providers to do the same."
But the reality is that most 3PLs still make most of their money by providing warehousing and trucking services. According to industry analyst Dick Armstrong, last year 22 percent of the $65 billion spent on 3PL services went for transportation management, and 21 percent was spent on warehousing services. So-called lead logistics services,where a 3PL takes over the entire logistics operation and coordinates the activities of all service providers, accounted for only 4 percent. "They're still providing basic services," says Armstrong.
Covering their assets
If that's the case, why are 3PLs publicly moving away from owning a fleet of shiny trucks or a well-appointed DC? And what does it mean for customers?
3PLs argue that keeping out of the realty business allows them to be more flexible in the s ervice they provide. There's some merit to their argument: If your 3PL has a million square feet of warehousing in Long Beach, Calif., but you want to shift your receiving operations to Oakland, you don't want your logistics service provider to be a drag on that change.
"Those companies that are getting into warehousing services today tend to lease space rather than purchase their own space, primarily because they want to [be free] to take advantage of growth opportunities and also to add value to their customers' businesses," says Joel Hoiland, president and chief executive of the International Warehouse Logistics Association (IWLA ), which increasingly represents 3PLs. "One of the intangible offerings [of 3PLs] is flexibility, and owning assets doesn't necessarily imply flexibility."
Big 3PLs, such as U.K.-based Exel, do still own large amounts of real estate they can leverage to serve the customer. But any dreams shippers may have had about simply shifting the capital risks associated with logistics operations to their third-party logistics providers are all but gone.
"All of the 3PLs are much less adventuresome about the projects they get into and are much more conservative about having their assets covered," says Armstrong."Back in the mid-'90s, you had 3PLs that were going after really big clients and really got their fingers burned." The public falling-out between Ryder and Office Max is a good example, Armstrong says. In that case, the contract ended over bickering about who was paying for what.
Joel Hoiland sees another reason for the shift. "Twenty or 30 years ago, the entrepreneurs who were getting into the warehousing business were purchasing assets and making fortunes, and then they built strong operations around those assets.But then,in the '90s,the industry began changing. Mergers and acquisitions became prevalent, venture capitalists and investment bankers became interested in the logistics industry, and investors wanted different performance results, which look better without significant investment capital sunk into assets."
When UTI Worldwide bought Standard Corp., a logistics provider, the handover included none of Standard's assets, which are now owned and leased separately. Likewise, USCO divested itself of many of its assets when it was bought by Swiss 3PL giant Kuehne & Nagel.
However, 3PLs are service providers first and foremost and,in a highly cut-throat business,there's huge pressure to provide the car rier and warehousing services the customer wants. As a practical matter, 3PLs shy away from sinking dollars into truck and warehouses in markets where there's plenty of capacity. But when there are problems getting hold of storage space and reliable transport elsewhere, 3PLs are forced to take a more hands-on approach.
Indiana-based transportation and logistics provider Air Road Express is one company that has come to realize that not all assets are dirty. The company specializes in less-than truckload shipments for automotive companies manufacturing in Mexican maquiladoras. Because good trucks that don't break down can be hard to find in Mexico, the company has found itself buying trucks to service parts of that business. "This is a good example of where assets have strategic value,"says Ben Gordon, a logistics consultant based in Boston.
Lessor of two evils?
Asset ownership has also turned out to be advantageous for 3PLs operating in non-U.S. locations, especially the burgeoning trade zones in Asia such as China, Taiwan and Malaysia. " In China, it's not the same kind of business as in the United States" says BDP's Bolte. "It may be difficult to get warehousing in Shanghai, or the warehouse-owning partners there may not be reliable. So there might be times in emerging markets where we take on a long-term lease, but even then we would look for customers to … share the risk."
Neil O'Connell is of the same mind. "We lease warehouses when it's necessary," says O'Connell, who is chief technology officer at Stonepath Group, a Philadelphia-based 3PL started two years ago by Dennis Pelino, the former president of Fritz Cos. "But we don't seek to become a large warehouse lessor."
Bob Voltmann, president and chief executive of the Transportation Intermediaries Association, says he sees a new issue developing, as more and more asset-heavy carriers try to get into the business of providing 3PL services. "The carriers now see that the value-add is in the 3PL service, including information expertise, as opposed to moving a piece of equipment along a fixed rail or roadway. So we're seeing more carriers enter this space, and they are by definition more asset-based. But they need to form themselves on an asset-light basis or they're not performing on the best basis."
Voltmann acknowledges that customers are wary of 3PL services tied to asset-owning parent companies, as they were when the big ship-owning companies like APL and Maersk set up their own logistics divisions. "To be successful, they're going to have to operate as if they didn't have assets," he says. "Some will be able to and some won't."
Spreading the risk
This is the new, complex face of logistics services. A shipper might end up using a 3PL provider that was originally a freight forwarder or customs broker, or perhaps one formed from a conglomeration of several companies' logistics departments. Or it could be a trucking or ocean shipping company that's decided to branch out. Or even a brand-new company funded by venture capitalists, with an entirely different approach to financial management. Tibbett & Britten, the U.K.-based logistics company, creates a whole new subsidiary every time it enters into a major contract with a shipper. "I suppose the issue is that with everybody migrating into the same space it becomes confusing," says BDP's Bolte.
Confusing or not, one clear trend is toward asking customers to take more financial responsibility for the assets they require. Especially in the case of warehousing, a customer might have to take on responsibility for a lease before the 3PL will sign off on it. This is partly because customers need increasingly customized warehousing and distribution as they ask 3PLs to do more for them than simply store and ship products.
"When you take on a half-million square-foot facility, along with the entire workforce, computer systems and everything else involved, it's a completely dedicated, non-leverageable deal, so they have to agree they'll be there for a certain amount of time ," says Bob Bianco, president and chief executive officer of Menlo Worldwide Logistics of Redwood Shores, Calif.
Even investments in technology—an area in which 3PLs have spent a huge amount of their own money—are becoming increasingly deferred to the customer, Armstrong says. "A company like Exel is probably running three different warehouse management systems, but its customers will ask it to use their own systems on the contract, because that's what they have in the rest of their network. So Exel will spend money on these things, but it's usually spending it only if there's a guarantee on the use of the assets," Armstrong says.
Creative teams
The 3PLs talk more and more of entering into partnerships with their customers, based on changes in their needs as well as increased demand for technology-based services such as tracking and order management. As shippers outsource and defer many of their core logistics functions, and especially as shippers ask for more international service,the idea of using a 3PL as a non-asset-owning logistics management partner makes sense. "I think the scale and geographic scope of some of the contracts these guys are signing mean you're not going to be able to own everything yourself. It's just not feasible," says Robert Lieb, professor at Northeastern University in Boston.
Ultimately, shippers continue to benefit from the 3PLs' ability to leverage their buying power into better leasing and service deals from the companies that do own those assets. They're also in a good position to pick and choose cutting-edge technology for better transportation management.
"There are a lot of creative solutions out there," says IWLA's Hoiland. "Our mem bers come in as solution providers, which means they need to be creative and definitively add value for the customers. The assets become somewhat irrelevant." If a 3PL happens to own a warehouse that would be useful to a customer, then it's a boon. But if not, the 3PL will find warehousing elsewhere.
Robots are revolutionizing factories, warehouses, and distribution centers (DCs) around the world, thanks largely to heavy investments in the technology between 2019 and 2021. And although investment has slowed since then, the long-term outlook calls for steady growth over the next four years. According to data from research and consulting firm Interact Analysis, revenues from shipments of industrial robots are forecast to grow nearly 4% per year, on average, between 2024 and 2028 (see Exhibit 1).
EXHIBIT 1: Market forecast for industrial robots - revenuesInteract Analysis
Material handling is among the top applications for all those robots, accounting for one-third of overall robot market revenues in 2023, according to the research. That puts warehouses and DCs on the cutting edge of robotic innovation, with projects that are helping companies reduce costs, optimize labor, and improve productivity throughout their facilities. Here’s a look at two recent projects that demonstrate the kinds of gains companies have achieved by investing in robotic equipment.
FASTER, MORE ACCURATE CYCLE COUNTS
When leaders at MSI Surfaces wanted to get a better handle on their vast inventory of flooring, countertops, tile, and hardscape materials, they turned to warehouse inventory drone provider Corvus Robotics. The seven-year-old company offers a warehouse drone system, called Corvus One, that can be installed and deployed quickly—in what MSI leaders describe as a “plug and play” process. Corvus Robotics’ drones are fully autonomous—they require no external infrastructure, such as beacons or stickers for positioning and navigation, and no human operators. Essentially, all you need is the drone and a landing pad, and you’re in business.
The drones use computer vision and generative AI (artificial intelligence) to “understand” their environment, flying autonomously in both very narrow aisles—passageways as narrow as 50 inches—and in very wide aisles. The Corvus One system relies on obstacle detection to operate safely in warehouses and uses barcode scanning technology to count inventory; the advanced system can read any barcode symbol in any orientation placed anywhere on the front of a carton or pallet.
The system was the perfect answer to the inventory challenges MSI was facing. Its annual physical inventory counts required two to four dedicated warehouse associates, who would manually scan inventory to determine the amount of stock on hand. The process was both time-consuming and error-prone, and often led to inaccuracies. And it created a chain reaction of issues and problems. Fulfillment speed is one example: Lost or misplaced inventory would delay customer deliveries, resulting in dissatisfaction, returns, and unmet expectations. Productivity was also an issue: Workers were often pulled from fulfillment tasks to locate material, slowing overall operations.
MSI Surfaces began using the Corvus One system in 2021, deploying a small number of drones for daily inventory counts at its 300,000-square-foot distribution center (DC) in Orange, California. It quickly scaled up, adding more drones in Orange and expanding the system to three other DCs: in Houston; Savannah, Georgia; and Edison, New Jersey. The company plans to add more drones to the existing sites and expand the system to some of its smaller DCs as well, according to Corvus Robotics spokesperson Andrew Burer.
Those expansion plans are based on solid results: MSI’s inventory accuracy was about 80% prior to the drone implementation, but it quickly jumped to the high 90s—ultimately reaching 99%—after the company initiated the daily drone counts, according to Burer.
“We actually had an incident early on where one of the forklift drivers ran into the landing pad, rendering it inoperable for about a week while the Corvus team fixed it,” Burer recalls. “When we restarted the system, we noticed MSI’s inventory accuracy had dropped down to the 80s. But after flights resumed, accuracy quickly improved back to near perfect.” He adds that such collisions are rare as Corvus mounts landing pads high off the floor to avoid impacts but that accidents can still happen.
Overall, the system has helped speed warehouse operations in two key ways: First, the accuracy improvement means that associates no longer waste time searching for missing material in the warehouse. And second, the associates who used to conduct the physical inventory counts have been reallocated to picking and replenishment—creating a more efficient, and optimized, workforce.
A SAFER, MORE EFFICIENT WAREHOUSE
Robot maker Boston Dynamics is well-known for its Stretch and Spot industrial robots, both of which are at work in warehouses and DCs around the world. Earlier this year, Stretch made its debut in Europe, teaming up with Spot at a fulfillment center run by German retail company Otto Group. The deployment marks the first time Stretch and Spot are being used together—in a partnership designed to improve Otto Group’s warehousing operations by increasing efficiency and making warehouse work safer and more attractive to workers.
The partnership is part of a two-year project in which Boston Dynamics will deploy dozens of its warehouse robots in Otto Group’s European DCs. The first location is a fulfillment site operated by Hermes, the company’s parcel delivery subsidiary, in Haldensleben, Germany—a facility that handles as many as 40,000 cartons of goods on peak days.
At the site, Stretch—which is a mobile case-handling robot—autonomously unloads ocean containers and trailers, using its advanced perception system to pick and place boxes onto a telescoping conveyor inside the container or trailer. Spot—a quadruped robot—helps with predictive maintenance by collecting thermal data and performing acoustic and visual detection tasks throughout the facility to reduce unplanned downtime and energy costs. One of Spot’s jobs is to detect air leaks in the facility’s warehouse automation systems; future duties may include conveyor vibration detection, according to leaders at Otto Group.
Both Stretch and Spot will help the Haldensleben facility run more efficiently, especially during fall peak season when volume increases and work intensifies. The addition of Stretch addresses safety and comfort issues as well: Trailer unloading—a process that entails repeatedly lifting and moving heavy boxes inside a trailer, which can be dark, dirty, cold, and/or hot, depending on the weather—tends to be unappealing to workers. Along with reducing the amount of labor required, automating these tasks will have the added benefit for European facilities of helping them comply with EU (European Union) regulations limiting the amount of time workers can spend in those conditions.
Essentially, the robots are making life easier on the warehouse floor and for the company at large.
“Stretch is going to have a ton of benefits for customers here in the EU,” Andrew Brueckner, of Boston Dynamics, said in a recent case study on the project.
The trucking industry faces a range of challenges these days, particularly when it comes to load planning—a resource-intensive task that often results in suboptimal decisions, unnecessary empty miles, late deliveries, and inefficient asset utilization. What’s more, delays in decision-making due to a lack of real-time insights can hinder operational efficiency, making cost management a constant struggle.
Truckload carrier Paper Transport Inc. (PTI) experienced this firsthand when the company sought to expand its over the-road (OTR), intermodal, and brokerage offerings to include dedicated fleet services for high-volume shippers—adding a layer of complexity to the business. The additional personnel required for such a move would be extremely costly, leading PTI to investigate technology solutions that could help close the gap.
Enter Freight Science and its intelligent decision-recommendation and automation platform.
PTI implemented Freight Science’s artificial intelligence (AI)-driven load planning optimization solution earlier this year, giving the carrier a high-tech advantage as it launched the new service.
“As PTI tried to diversify … we found that we needed a technological solution that would allow us to process [information] faster,” explains Jared Stedl, chief commercial officer for PTI, emphasizing the high volume of outbound shipments and unique freight characteristics of its targeted dedicated-fleet customers.
The Freight Science platform allowed PTI to apply its signature high-quality service to those needs, all while handling the daily challenges of managing drivers and navigating route disruptions.
STREAMLINING PROCESSES
Dedicated fleets face challenges that evolve from day to day and minute to minute, including truck breakdowns, drivers calling in sick, and rescheduled appointment times. PTI needed a tool that allowed for a real-time view of the fleet, ultimately enabling its team to adjust truck and driver allocation to meet those challenges.
The Freight Science solution filled the bill. The platform uses advanced analytics and algorithms to give carriers better visibility into operations while automating the decision-making process. By combining streaming data, a carrier’s transportation management system (TMS), machine learning, and decision science, the solution allows carriers to deploy their fleets more efficiently while accurately forecasting future needs, according to Freight Science.
In PTI’s case, Freight Science’s software integrates with the carrier’s TMS, real-time electronic logging device (ELD) data, and other external data, feeding an AI model that generates an optimized load plan for the planner.
“We’re an integrated data analytics company for trucking companies,” explains Matt Foster, Freight Science’s president and CEO. “We’re talking about AI.”
The benefits of the real-time data are difficult to overstate.
“We’ve been able to execute in the toughest of situations because we’ve got real, live data on how long each event is actually going to take and a system to aid and even automate the decision-making process,” says Chad Borley, PTI’s operations manager. “From what traffic patterns we are battling in the morning and evening with rush hour and things like that, to the impact of additional miles to a route, or even location-specific dwell times, it’s been a huge differentiator for us.”
REALIZING RESULTS
A case in point: the collapse of Baltimore’s Francis Scott Key Bridge in March. PTI was scheduled to go live with a new dedicated account in the area just days after the collapse, which would mean rerouting and the potential for longer transit times. Instead of recalculating based on assumptions or latent data, PTI was able to reroute freight based on real-time information and analytics to give the customer timely updates.
“With the bridge going out, that changed our ability to make as many turns a day as the customer would expect,” Stedl explains. “But one of the things Freight Science could do [was to] quickly [assess] how much of an impact that traffic would have [and] what the turns [would] be based on what’s happening on the ground.
“So we were able to go back to the customer and readjust expectations in a real way that made sense, using data. Now expectations can be reset¾we’re not asking for forgiveness when there’s no reason for it.”
The system’s advanced algorithms make load planning more cost-effective and scalable as well. The platform allows PTI to monitor trucks, trailers, and driver hours in real time, recommending additional loads with remaining driver hours that would otherwise be wasted.
And they’re doing it all with much less. Stedl says tasks that used to require five people and hours of work can now be accomplished by one person in mere minutes, improving productivity and profitability while reducing labor and operational costs.
Terms of the deal were not disclosed, but Aptean said the move will add new capabilities to its warehouse management and supply chain management offerings for manufacturers, wholesalers, distributors, retailers, and 3PLs. Aptean currently provides enterprise resource planning (ERP), transportation management systems (TMS), and product lifecycle management (PLM) platforms.
Founded in 1980 and headquartered in Durham, U.K., Indigo Software provides software designed for mid-market organizations, giving users real-time visibility and management from the initial receipt of stock all the way through to final dispatch of the finished product. That enables organizations to optimize an array of warehouse operations including receiving, storage, picking, packing, and shipping, the firm says.
Specific sectors served by Indigo Software include the food and beverage, fashion and apparel, fast moving consumer goods, automotive, manufacturing, 3PL, chemicals, and wholesale / distribution verticals.
Online merchants should consider seven key factors about American consumers in order to optimize their sales and operations this holiday season, according to a report from DHL eCommerce.
First, many of the most powerful sales platforms are marketplaces. With nearly universal appeal, 99% of U.S. shoppers buy from marketplaces, ranked in popularity from Amazon (92%) to Walmart (68%), eBay (47%), Temu (32%), Etsy (28%), and Shein (21%).
Second, they use them often, with 61% of American shoppers buying online at least once a week. Among the most popular items are online clothing and footwear (63%), followed by consumer electronics (33%) and health supplements (30%).
Third, delivery is a crucial aspect of making the sale. Fully 94% of U.S. shoppers say delivery options influence where they shop online, and 45% of consumers abandon their baskets if their preferred delivery option is not offered.
That finding meshes with another report released this week, as a white paper from FedEx Corp. and Morning Consult said that 75% of consumers prioritize free shipping over fast shipping. Over half of those surveyed (57%) prioritize free shipping when making an online purchase, even more than finding the best prices (54%). In fact, 81% of shoppers are willing to increase their spending to meet a retailer’s free shipping threshold, FedEx said.
In additional findings from DHL, the Weston, Florida-based company found:
43% of Americans have an online shopping subscription, with pet food subscriptions being particularly popular (44% compared to 25% globally). Social Media Influence:
61% of shoppers use social media for shopping inspiration, and 26% have made a purchase directly on a social platform.
37% of Americans buy from online retailers in other countries, with 70% doing so at least once a month. Of the 49% of Americans who buy from abroad, most shop from China (64%), followed by the U.K. (29%), France (23%), Canada (15%), and Germany (13%).
While 58% of shoppers say sustainability is important, they are not necessarily willing to pay more for sustainable delivery options.
Schneider says its FreightPower platform now offers owner-operators significantly more access to Schneider’s range of freight options. That can help drivers to generate revenue and strengthen their business through: increased access to freight, high drop and hook rates of over 95% of loads, and a trip planning feature that calculates road miles.
“Collaborating with owner-operators is an important component in the success of our business and the reliable service we can provide customers, which is why the network has grown tremendously in the last 25 years,” Schneider Senior Vice President and General Manager of Truckload and Mexico John Bozec said in a release. "We want to invest in tools that support owner-operators in running and growing their businesses. With Schneider FreightPower, they gain access to better load management, increasing their productivity and revenue potential.”