Interview: STIFEL’s perspective on current state of 3PL industry

When the 3PL Value Creation North America Summit 2018 convenes in Chicago this October, shippers will hear from a diverse group of industry experts on how to drive the best deals with their lead providers in both the global and domestic arenas.

As Armstrong & Associates' 6th annual summit gets underway this fall, the consultancy plans on helping shippers gain fresh insights on 3PL trends and forecasts. At the same time, shippers will be seeking advice on how to establish and sustain relationships of trust and mutual benefit.

John G. Larkin, CFA, Managing Director - Transportation and Logistics, STIFEL Investment Banking, shares some of his views on industry in advance of his participation in the Summit.

Supply Chain Management Review: What are the greatest challenges facing 3PLs today in the domestic and global marketplace?

John Larkin: The biggest challenge relates to sustainably maintaining a technological edge over your customers and competitors without pushing the edge of the envelope out to impractical, unreliable, and uneconomic frontier. And like all businesses, 3PL’s struggle to find sufficient numbers of qualified and motivated associates.

SCMR: How can 3PLs best demonstrate competence in an ever changing business arena?

Larkin: Improve supply chain velocity and reliability while reducing inventory, lowering logistics costs, and meeting more stringent customer expectations. Once accomplished, use successful case studies to pitch services to other potential customers.

SCMR: What do shippers need to do when evaluating the best 3PL? Larkin: Many rely on pre-existing relationships where a high level of trust already exists based on demonstrated competence. Others conduct small scale tests to determine if claims by 3PL’s are reasonable. Still other continue to look only at the cheapest option - and that is not necessarily the cheapest all in life cycle logistics cost alternative - but just the cheapest compilation of freight rates.

SCMR: We hear a lot about collaboration. Is that still practical?

Larkin: Collaboration kicks in when the amount of freight exceeds the available supply of freight transportation capacity. Many shippers still revert to rate bashing when slack returns to the supply/demand dynamic. Not all shippers are enlightened quite yet.

SCMR: Finally, how many 3PLs should most shippers engage every year? Can one alone meet all their needs?

Larkin: It is seldom good to put all of your bread in one basket. Our sense is that it is wise to use a primary 3PL and a secondary 3PL that can help keep your primary 3PL from becoming complacent. It is also wise to solicit proposals from a wider variety of 3PL’s periodically, say every five years. This puts pressure on incumbents to keep pace with the state of the art.