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.
A move by federal regulators to reinforce requirements for broker transparency in freight transactions is stirring debate among transportation groups, after the Federal Motor Carrier Safety Administration (FMCSA) published a “notice of proposed rulemaking” this week.
According to FMCSA, its draft rule would strive to make broker transparency more common, requiring greater sharing of the material information necessary for transportation industry parties to make informed business decisions and to support the efficient resolution of disputes.
The proposed rule titled “Transparency in Property Broker Transactions” would address what FMCSA calls the lack of access to information among shippers and motor carriers that can impact the fairness and efficiency of the transportation system, and would reframe broker transparency as a regulatory duty imposed on brokers, with the goal of deterring non-compliance. Specifically, the move would require brokers to keep electronic records, and require brokers to provide transaction records to motor carriers and shippers upon request and within 48 hours of that request.
Under federal regulatory processes, public comments on the move are due by January 21, 2025. However, transportation groups are not waiting on the sidelines to voice their opinions.
According to the Transportation Intermediaries Association (TIA), an industry group representing the third-party logistics (3PL) industry, the potential rule is “misguided overreach” that fails to address the more pressing issue of freight fraud. In TIA’s view, broker transparency regulation is “obsolete and un-American,” and has no place in today’s “highly transparent” marketplace. “This proposal represents a misguided focus on outdated and unnecessary regulations rather than tackling issues that genuinely threaten the safety and efficiency of our nation’s supply chains,” TIA said.
But trucker trade group the Owner-Operator Independent Drivers Association (OOIDA) welcomed the proposed rule, which it said would ensure that brokers finally play by the rules. “We appreciate that FMCSA incorporated input from our petition, including a requirement to make records available electronically and emphasizing that brokers have a duty to comply with regulations. As FMCSA noted, broker transparency is necessary for a fair, efficient transportation system, and is especially important to help carriers defend themselves against alleged claims on a shipment,” OOIDA President Todd Spencer said in a statement.
Additional pushback came from the Small Business in Transportation Coalition (SBTC), a network of transportation professionals in small business, which said the potential rule didn’t go far enough. “This is too little too late and is disappointing. It preserves the status quo, which caters to Big Broker & TIA. There is no question now that FMCSA has been captured by Big Broker. Truckers and carriers must now come out in droves and file comments in full force against this starting tomorrow,” SBTC executive director James Lamb said in a LinkedIn post.
The “series B” funding round was financed by an unnamed “strategic customer” as well as Teradyne Robotics Ventures, Toyota Ventures, Ranpak, Third Kind Venture Capital, One Madison Group, Hyperplane, Catapult Ventures, and others.
The fresh backing comes as Massachusetts-based Pickle reported a spate of third quarter orders, saying that six customers placed orders for over 30 production robots to deploy in the first half of 2025. The new orders include pilot conversions, existing customer expansions, and new customer adoption.
“Pickle is hitting its strides delivering innovation, development, commercial traction, and customer satisfaction. The company is building groundbreaking technology while executing on essential recurring parts of a successful business like field service and manufacturing management,” Omar Asali, Pickle board member and CEO of investor Ranpak, said in a release.
According to Pickle, its truck-unloading robot applies “Physical AI” technology to one of the most labor-intensive, physically demanding, and highest turnover work areas in logistics operations. The platform combines a powerful vision system with generative AI foundation models trained on millions of data points from real logistics and warehouse operations that enable Pickle’s robotic hardware platform to perform physical work at human-scale or better, the company says.
Bloomington, Indiana-based FTR said its Trucking Conditions Index declined in September to -2.47 from -1.39 in August as weakness in the principal freight dynamics – freight rates, utilization, and volume – offset lower fuel costs and slightly less unfavorable financing costs.
Those negative numbers are nothing new—the TCI has been positive only twice – in May and June of this year – since April 2022, but the group’s current forecast still envisions consistently positive readings through at least a two-year forecast horizon.
“Aside from a near-term boost mostly related to falling diesel prices, we have not changed our Trucking Conditions Index forecast significantly in the wake of the election,” Avery Vise, FTR’s vice president of trucking, said in a release. “The outlook continues to be more favorable for carriers than what they have experienced for well over two years. Our analysis indicates gradual but steadily rising capacity utilization leading to stronger freight rates in 2025.”
But FTR said its forecast remains unchanged. “Just like everyone else, we’ll be watching closely to see exactly what trade and other economic policies are implemented and over what time frame. Some freight disruptions are likely due to tariffs and other factors, but it is not yet clear that those actions will do more than shift the timing of activity,” Vise said.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index indicating the industry’s overall health, a positive score represents good, optimistic conditions while a negative score shows the inverse.
Specifically, the new global average robot density has reached a record 162 units per 10,000 employees in 2023, which is more than double the mark of 74 units measured seven years ago.
Broken into geographical regions, the European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. Next, North America’s robot density is 197 units per 10,000 employees – up 4.2%. And Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.
Broken into individual countries, the U.S. ranked in 10th place in 2023, with a robot density of 295 units. Higher up on the list, the top five are:
The Republic of Korea, with 1,012 robot units, showing a 5% increase on average each year since 2018 thanks to its strong electronics and automotive industries.
Singapore had 770 robot units, in part because it is a small country with a very low number of employees in the manufacturing industry, so it can reach a high robot density with a relatively small operational stock.
China took third place in 2023, surpassing Germany and Japan with a mark of 470 robot units as the nation has managed to double its robot density within four years.
Germany ranks fourth with 429 robot units for a 5% CAGR since 2018.
Japan is in fifth place with 419 robot units, showing growth of 7% on average each year from 2018 to 2023.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."