3PLs are seeking profits over growth

By James A. Cooke -- Logistics Management, 9/1/2005

DEDHAM, Mass.—A recent study indicates that third-party logistics (3PL) companies are starting to focus on profitable growth rather than on revenue growth. ARC Advisory Group in Dedham, Mass., canvassed 20 third parties for its report, "Strategic Guide for Logistics Service Providers (3PLs): Industry Trends, Provider Profiles, and Maturity Model."

One strategy for improving profits is for 3PLs to brand themselves as unique. "Three service providers mentioned to me that branding was their top priority," says Adrian Gonzalez, director of ARC's Logistics Executive Council. "[They want to know,] what do customers and the media think when they hear our name?"

As part of their efforts to drive up profits, 3PLs are moving away from generic service offerings to industry-specific solutions. "They are taking their services and bundling them together and positioning them to a particular industry," says Gonzalez. "They are catering to particular vertical industries, such as automotive or the consumer products."

Another tactic involves customer selection, as third parties seek shippers whose needs match their service offerings. "Part of the objective is to get the right kind of customers—customers that are aligned with the vertical industries and services that are most profitable to them," Gonzalez says.

The study also found that 3PLs are using information technology to differentiate themselves from their competitors. "They are viewing technology as a way to get a foot in the door of new clients," Gonzalez observes.

The biggest challenge for third-party logistics companies may be adapting to shippers' growing demand for global services. "Only a few 3PLs are truly global players," says Gonzalez. As a result, most 3PLs are facing the difficult prospect of transforming themselves from domestic enterprises to international providers, he said.