Third-party logistics (3PL) providers are here to stay—but more shippers are reducing or consolidating their partnerships with these services.
Both 62 percent of shippers and 87 percent of 3PLs said shippers are increasing their use of outsourced logistics services, up from 54 percent and 81 percent last year, respectively, according to the 28th Annual Third-Party Logistics Study.
However, 78 percent of shippers said they are either cutting or consolidating their 3PL spend with fewer providers, up from 71 percent a year ago. Among 3PLs, 84 percent agreed shippers are reducing or consolidating use of their services, 9 percent more than the 75 percent that shared that thought last year.
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Costs and efficiency are the likely culprits for the consolidation. The number of shippers that said they’re collaborating with other companies and competitors to achieve cost and service improvements dropped to 50 percent from 52 percent in the year prior.
“Instead of having eight or 10 3PLs that work for you, you have five of them, and you are able to, on the average, increase their business by two times. You can develop much better relationships with them when you try to do that,” said Dr. C. John Langley, supply chain professor and researcher at Penn State University. “If you can outsource something that is not part of your core competency, then that’s typically a good rationale for doing it.”
Shippers report 37 percent of their total logistics spend will be directed toward outsourcing in 2024, down from 42 percent in 2023 and 56 percent in 2020.
Warehousing gets the lion’s share of outsourcing, with 65 percent of shippers saying they use 3PLs for this purpose—the most among all logistics services. Sixty-two percent of shippers are outsourcing domestic transportation, while 53 percent leverage customs brokerage services and 51 percent outsource international transportation.
This year, 95 percent of shippers report having a good relationship with their 3PL partners, up from 83 percent last year, according to a recent study.
The 28th Annual Third-Party Logistics Study, created by Langley, along with NTT Data and Penske Logistics, said these partnerships are driving results, with 89 percent of shippers reporting that 3PLs contributed to improving service and 80 percent saying 3PLs helped reduce overall logistics costs.
Supply chains still rely on talent to function efficiently, More than three-quarters, or 78 percent, of shippers and 40 percent of 3PLs said labor challenges have impacted their service level agreements.
“It’s pretty readily accepted that there’s a real need for talent, in terms of educated people who understand supply chains. There are a lot of nuances and types of knowledge that are necessary to be a good supply chain manager,” Langley said. “We don’t have the kinds of talent that we need, whether it’s the operations-level people, or, in some cases, the higher level of middle management/executive level where you need certain skill sets. They’re just not as readily available.”
Forty-three percent of shippers and 3PLs cited a lack of adequate talent as a key barrier preventing them from adopting and using emerging technologies. Only a lack of a clear business case (54 percent of shippers and 56 percent of 3PLs) and a lack of capital (50 percent of shippers and 46 percent of 3PLs) were considered significant barriers to investing in technology.
Like many areas in the supply chain, the relationship between shippers and 3PLs would benefit from more data sharing. The most common data sharing challenge is its overall quality, according to 57 percent of shippers and 52 percent of 3PLs.
“There’s no magic bullet” to extracting high-quality data, Langley said. But he noted the improvement process starts with asking what the data sources, as well as how data is collected.
“Traditionally, a lot of data came from a manual might be an invoice, or a freight bill, or bill of lading, to document a freight shipment, and they were filled out by hand. Of course, when people do things manually, they make mistakes,” Langley said. “Now, it’s a matter of not only educating the people to do that properly, but also there are ways to automate the filling out of these documents with software, so you don’t have to use people, and you pull information from databases.”
Langley said streaming data, which most associate with platforms like Netflix and Hulu, is a major part of the logistics equation going forward, citing the Orion route optimization software that UPS developed.
“These big trucking companies have all kinds of diagnostic data that they’re receiving from the tractors that are hauling the trailers,” Langley said. “And they know pretty much at any point in time how fast the drivers going—it’s all those things that we can see on our dashboard. Streaming data can be pretty pure, so there are far fewer inaccuracies in streaming data.”
