Pull back or go deeper—how the pandemic influenced shipper-3PL engagement
Third-party logistics providers are by design flexible and adaptable. The past year, however, challenged 3PLs in ways never before imagined—and exposed the fragility of the nation’s supply chains. What’s the post-pandemic 3PL world look like?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The growth of third-party logistics (3PL) outsourcing has been a consistent trend in supply chain operating strategies, of shippers large and small, across virtually every industry. Indeed, a Gartner Inc. survey of supply chain leaders released last month, titled Shippers Take Note: 3PLs Are Innovative and Here Is the Proof, reported that “nearly two-thirds of organizations mostly outsource logistics activities, and this number is set to increase as organizations look to manage the challenges and disruptions faced by the industry.”
The March 2021 report also shared this finding from an earlier, pre–Covid-19 logistics outsourcing strategy survey: “More than three-fourths of supply chain leaders believe that the number of disruptive events has increased, compared to three years ago.”
If they only knew then that what those survey findings foreshadowed would come a year later.
By March 2020, supply chain executives were starting to realize that the arrival of Covid-19 was not just any disruptive event. It was more like a 100-year storm—on steroids. March and April last year saw an unprecedented decline in economic activity and a corresponding free-fall in shipping volumes. Then by summer, it all came roaring back, and stayed hot through the end of the year and into 2021.
The pandemic represented an uncharted roller coaster of challenges that presented shippers with a conundrum: Do I go deeper with my 3PL, or do I pull back, hunker down, and try to ride out the storm alone?
Most went deeper, and in fact, pressed their 3PLs to be more innovative, agile, and responsive than ever before. The pandemic illustrated just how embedded 3PLs have become in shipper supply chain strategies. It also revealed, often in painful, stark detail, just how fragile today’s supply chains are.
THE VALUE OF TRUST
“We saw two things,” recalls Will O’Shea, senior vice president at the Concord, North Carolina-based 3PL Cardinal Logistics Management. “If you were an incumbent, you picked up a bigger share of wallet from those you were already doing business with, those who really trusted you. You became more focused on how to help them with their business [and] leverage that institutional knowledge.” The flip side, O’Shea notes, was that shippers became more risk averse and lost their appetite for “introducing new providers to the mix.”
“Shippers became more vocal and active partners with us,” says Tom Curee, senior vice president, strategy and innovation for the West Chester, Ohio-based 3PL Kingsgate Logistics. “If you think about the environment, when we face a common enemy, it can be a great incentive to come together and really solidify a relationship,” he says. “We got a lot of questions around ‘What else do you offer that we’re not tapping into?’ It was more a year of customers ‘leaning in’ than ‘backing out.’”
Andy Smith, senior vice president and chief operating officer for Memphis, Tennessee-based FedEx Supply Chain, cited stay-at-home consumer-driven e-commerce traffic and reverse logistics as high-demand areas from customers. “The largest increase FedEx Logistics saw was in … our fulfillment operations,” he says. “Throw in the impacts of testing and vaccine distribution … and it’s clear why this year has looked very different from years past.”
The growth in e-commerce volumes will continue, Smith says. FedEx originally projected the U.S. domestic package market to reach 100 million packages per day by 2026. Now, it expects that threshold to be surpassed three years earlier—in 2023—with more than 90% of that growth due to e-commerce.
LET THEM EAT CAKE …
One particular area that saw tremendous growth during Covid-19 was last-mile service. Spurred by homebound consumers who turned in droves to e-commerce, home deliveries of all types of goods exploded.
Among the beneficiaries of that surging demand for last-mile service was Roadie, which operates a nationwide network of crowdsourced “on the way” drivers who use their personal vehicles to make same-day deliveries. Roadie experienced a dramatic uptick in driver “gigs,” delivering everything from groceries and cleaning supplies to home-improvement products and home goods—even arts and crafts, recalls Marc Gorlin, founder and chief executive officer of the Atlanta-based firm.
“It’s clear the pandemic shifts in consumer buying behavior put huge pressure [on businesses] to find additional [last mile] capacity” and illustrated the need to diversify last-mile options, he says. Roadie was able to “flex up” and meet rising demand, he reports. “Our community of active drivers grew by 30% in 2020,” Gorlin noted, adding that the pandemic was a perfect test bed to illustrate how the crowdsourced model can quickly flex and tap into the latent capacity of everyday drivers to provide a scalable same-day delivery force.
Among Roadie’s most active users: bakeries. National chain Nothing Bundt Cakes grew into a “top 10”-volume customer. Local businesses engaged as well. Piece of Cake is an independent bakery company in Atlanta. Gorlin cited several days where the bakery did “as much business as several of our airline partners combined”—referring to the air carriers for which Roadie provides baggage delivery service. “Apparently, we love ourselves some cake during a pandemic,” Gorlin quipped.
A FOCUS ON FLEXIBILITY
As for what shippers want from their 3PL partners, Steve Sensing, president of supply chain and dedicated transportation solutions for Miami-based Ryder System Inc., noted that creativity, reliability, and being able to turn on a dime and adapt to changes were the top shipper demands—and will continue to be. Ryder, one of the nation’s largest 3PLs, manages some $6 billion worth of freight on behalf of its customers, over all modes, and has 20,000 carriers in its network. Its supply chain portfolio includes brokerage, dedicated transportation, warehousing, e-commerce fulfillment, and last-mile services—supported by a robust technology suite.
“Customers want flexibility and resiliency,” especially in disruptive times, Sensing observes. “That’s part of why the business continues to grow.” Ryder didn’t see clients pulling back during the pandemic. If anything, the crisis created opportunity. While early on, some sectors, like automotive, shut down for a period of time, other industries, like CPG (consumer packaged goods), retail, technology, and health care, surged. In response, Ryder was able to redirect resources and assets to those sectors. “That’s the luxury of working across many industries,” Sensing noted, adding that processes and best practices developed for one sector often can be applied to others.
“A lot of our customers’ supply chains are changing so rapidly you have to [be able to] move assets and resources in and out of those networks,” and be able to deploy enabling technology that ties it all together and gives the customer a real-time view into what’s happening and where things are, he notes.
Those pandemic-driven logistics challenges have given shippers a new appreciation of their 3PL partners, experts say. The toughest mindset to change, notes Dave Giblin, executive vice president, transportation, at Columbus, Ohio-based ODW Logistics, is a strictly transactional, siloed, price-driven approach. The pandemic did two things: focused shippers on risk management, and emphasized the importance of open communication, transparency, and truly collaborative 3PL relationships with carriers.
“It’s not really about the lowest rate all the time,” he notes. “It’s about knowing what your options are and how not to blow your budget.” He sees a key value of 3PLs as helping shippers identify and employ alternative cost-saving measures across a spectrum of supply chain activities that can achieve objectives without “beating down the carrier on rates.”
NO MORE SLOW SEASON
Third-party service providers navigated many new and pressing challenges in 2020, some of which have continued into 2021. One unique challenge, if you can call it that, has been the absence of any “slack” season for freight.
In past years, January and February, coinciding with the arrival of the Chinese New Year, typically foreshadowed a slowdown in shipping activity.
Not anymore. The peak shipping volumes that surged through 2020 barreled into the new year, showing few signs of subsiding. In fact, many industry executives project a sustained strong freight environment through the remainder of the year.
With inventory-to-sales ratios still low, restocking continues apace. At the same time, Covid-19’s impact on port workers also has slowed port operations—as of early March, the ports of Los Angeles and Long Beach had over 30 containerships at anchor waiting to unload.
And as if the pandemic were not enough of a disruption, February’s brutal winter storms provided yet another shock to the system. That “really painted the picture of how fragile supply chains still are,” notes Geoff Turner, chief executive officer of Preston, Maryland-based 3PL Choptank Transport. “It just caused incredible havoc with supply and demand of trucks.”
Trucking capacity already was stressed, as the pandemic has driven many independents and small fleets—the backbone of the truckload market—out of business. Between regulatory mandates, a driver shortage, skyrocketing insurance rates, and rising equipment, maintenance, and fuel costs, trucking operators are under extreme pressure, Turner says.
“Drivers cost more, and there are fewer of them [entering the business]. Every possible cost scenario is increasing [for carriers],” he notes. “No way can they operate profitably without passing along these costs to shippers.”
Turner’s team does its best to explain these realities to shippers, “but they have to realize at the end of the day that without profitable carriers—and drivers who are adequately compensated for their work and their time—freight will sit on the docks.”
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."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.