What You Should Know About Growing 3PL Segments

Hiring a third party logistics company, or 3PL, can revolutionize your business. Unlike distributors, 3PLs are contracted to your company, so you know they are always working with your best interests at heart. In addition, they handle everything required to get your goods from your factory to the end buyer, supplying the expertise your company may lack while helping to save your company time and money. With benefits like that, it is no wonder 3PL services are growing!

About 3PL

According to a 2014 study by Armstrong & Associates, third party logistics grew dramatically in 2014, bringing in revenues of $187.6 billion in North America, up from $54 billion in 2000. The majority of these sales were attributable to the fifty largest 3PL companies, each of which are based in post-industrial countries and each of which has enough scale to dominate broader scopes. The firm’s president, Dick Armstrong, explained, “These third-party logistics providers have scale based on geographical coverage, IT and processes that create threshold levels which bar smaller rivals from overtaking them with organic growth alone.”

Opportunities in Logistics

It makes sense; Sophisticated IT networks, lots of outposts, a large staff, and long-established processes can be tough for a small company to compete against. Without a large budget and the years of experience necessary to evolve those elements that drive logistic success smaller companies fall by the wayside. However, there are two areas in the domestic market that experienced double-digit growth in 2014, and this growth represents an opportunity for all 3PL companies, regardless of size. Even the smallest companies can distinguish themselves in these two areas: domestic transportation management (DTM) and dedicated contract carriage (DCC).

Domestic Transportation Management

This segment of 3PL grew 15.4 percent and increased net revenues by over 20 percent. DTM is a type of value-added transportation management concerned solely with movement inside North America. They usually broker freight movements. The problem is that the largest companies often produce a very large number of orders. DTMs optimize their logistics movements by combining long distance loads and making matches on movements so that trucks and trains never move empty. It saves money, but it also means that they run close to capacity. When demand peaks -- usually seasonally -- larger 3PL companies may contract with smaller ones to handle the load. Smaller companies can develop stable revenue from these periods.

Dedicated Contract Carriage

DCC grew by over 10 percent in 2014. Companies operating in this space are concerned with the physical movement of goods from place to place. The 3PL DCC segment includes tractor trailers, drivers, and the people who coordinate those services. Often the DCC owns the trailers and contracts their use. According to the American Trucking Association, there is a shortage of truck drivers in the United States – a shortfall of 35,000 to 45,000 drivers. Like the DTM segment, when the demand for drivers outpaces what an existing 3PL company can provide, they have to turn to the open market, hiring drivers from outside the company to transport the shipments.

If you would like to know more opportunities and trends in the 3PL industry, contact The Apparel Logistics Group for a free consultation today!

Posted: 10/21/2015 6:08:42 PM by Global Administrator | with 0 comments

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