Shippers have been contracting with third-party logistics companies (3PLs) for years. For most, the decision to outsource largely hinges on their desire to focus on their companies' core competencies rather than devote considerable physical and financial resources to logistics management.

Some shippers, though, have taken a very different approach to outsourcing. They've capitalized on their expertise by spinning off their logistics operations as 3PLs that serve not only their parent companies, but also other paying customers. And in a very recent development, two shippers have chosen yet another path—buying the logistics capabilities they need.

Could "building"—or buying—your own 3PL be the next big trend in outsourcing? And why are some shippers choosing to go that route?

Shippers began spinning off their logistics operations as 3PLs nearly two decades ago. The first to do so in the United States was Kaiser Aluminum and Chemical Corp. in Oakland, Calif. When times were tough 18 years ago, the company decided to shut down its transportation department. But Michael Goldsmith had a better plan.

"I made them a counteroffer, which was to start my own company by taking the entire staff, all the software and know-how, and sell back transportation and logistics services to Kaiser Aluminum. On Friday my staff and I were Kaiser employees, and on the following Monday we were all part of KLS Logistics," says Goldsmith, CEO and founder of the Livermore, Calif.-based 3PL.

Goldsmith, who had worked for Kaiser for 35 years, contracted with his former employer to guarantee a certain amount of business for two years. Kaiser went into bankruptcy not long afterward, but KLS Logistics Services continued to handle their shipments. Today, the contract logistics company has about 60 clients.

KLS may have been born out of adversity, but Caterpillar Logistics Inc. was formed in much different circumstances. Because downtime on Caterpillar Inc.'s heavy equipment can be very expensive, the manufacturer had made fast, dependable parts distribution one of its core capabilities. Thus, when Land Rover was trying to improve its own parts distribution network in the late 1980s, it sought advice from Caterpillar. Land Rover liked what it saw and asked the company to manage its parts operation. That led to the launch of Peoria, Ill.-based Caterpillar Logistics Services in 1987.

Today Caterpillar Logistics serves more than 50 companies in automotive, industrial, aerospace and defense, high-tech, and consumer durables markets. "We seek customers with service-parts-like characteristics, where there is an element of service criticality and an independent, variable demand, so we can leverage our know-how," says Chad McClaskey, marketing and media relations manager.

Access Logistics of Ada, Mich., was launched in similar fashion and has a similar approach to choosing clients. In 2000, Alticor, the parent of consumer products distributors Amway and Quixtar, set up its own 3PL to manage logistics operations for both of those companies as well as for outside customers.

The 3PL serves clients whose process and distribution requirements are similar to those of its parent organizations. "Our customers are very different from each other, but they all require individual, 'eaches'-type picking in health and beauty aids, personal care, and home-care products," explains Jim Siewertsen, vice president of global services.

Access's engineers developed pick-and-pack methodologies that fit the specialized requirements of those customers, including the "eaches" and individual orders that are a hallmark of online sales. "This was a [successful] niche for us, especially when the e-commerce boom hit in the late '90s," Siewertsen says.

The model that Kaiser Aluminum, Caterpillar, and Alticor follow is most commonly used by shippers that want to capitalize on their in-house logistics expertise. In the last year, however, there's been a new twist: A couple of shippers have gone out and purchased existing third-party logistics providers.

Last September, Sumitrans Corporation acquired ServiceCraft Logistics. Sumitrans, itself a spin-off from Sumitomo Corporation of America, operates as an ocean consolidator and freight forwarder. "But Sumitrans was outsourcing to a commercial 3PL for its North American requirements for warehousing and transportation services," says Michael Muhich, president and COO of Buena Park, Calif.-based ServiceCraft. "This was not price-competitive or a customized solution." Continued...

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