Introduction
The global logistics industry spends around US$9
trillion per year to handle goods and move them around the world. Increasingly,
this is achieved through 3PL operations. 3PL providers are integrated
throughout the supply chain, embracing individual or multiple logistics activities
or even providing a unitary process. The outsourcing option also transforms the
customer into a potential competitor in providing 3PL services; therefore, the logistics
provider has to be better and cheaper than its competitors and customers. The
evolution of logistics and greater efficiency of customers has led to decreasing
uncertainties in the supply chain in general.
This study seeks to answer the main question: What
is the trend for a 3PL provider in terms of the business model regarding assets
(own trucks) in emerging markets? There are three main approaches to the
3PL strategy: (1) an ‘asset-light’ strategy; (2) subcontract and use its assets;
or (3) convert its business model into a 4PL concept. Strategy 1 fits with the
classical 3PL concept, prioritizing excellence in management and concentrating on
investing in people, technology, and systems. Strategy 2 permits more competitiveness
and allows the 3PL to achieve a better balance between operational costs and competitiveness;
on the other hand, this choice requires more significant investment in
management, impacting the EAC result. In choosing option 3, the 3PL provider
must rethink its business model entirely. The firm must provide state-of-the-art
logistics management, technology, controls, and innovation. The provider should
prepare its shareholders for lower EBIT (Earnings Before Investment and Tax) is
lower than in the other two business models.
Research questions
- What is the priority mission of the 3PL provider: Cost reduction, Innovation, Excellence of Service, or taking on the necessary investments by itself?
- Which services are currently offered by a 3PL provider, which ones should be offered, provided, and which ones are not the core businesses of this player?
- How have 3PL services evolved when the situation is compared five years ago, three years ago, and nowadays?
- What is the 3PL provider's preferred future business model: operate by itself, subcontract and manage services, or operate as 4PL/LLP?
- What are the positive and negative impacts and consequences of using or owning assets for a transport operation (road LTL and FTL transportation)?
The invitation to participate in the survey was
sent by e-mail to 2600 who were working or had previously worked, directly or
indirectly, in the logistics activities of the main actors of the Industry,
including, but not limited to: shippers, goods and services industries,
logistics customers, 3PL providers, single logistics service providers,
consultants, and researchers. Three hundred and fifty-eight professionals answered
the questionnaire, representing a 14% response rate, and of these responses, 284
(7,9%) were accepted as complete and valid. The population of respondents is a
set of senior professionals: on average, they are 40.6 years old and have
worked for 16.1 years in the logistics industry; more than 90% have a management
position; most live or work in Brazil, but there are representatives from other
continents (91% from Brazil, 4% from other countries in Latin America, 3% from the
USA, 1% from Europe, and 1% from Asia). The survey was done in 2020; the research
was updated and reviewed in 2022.
Results
The Graphs and table bring the summary of the
answers:
Conclusions
Below, we suggest some key examples of what makes
logistics in these economies more complex and distinctive in comparison to mature
countries in contrast with geographies, unbalanced economies and unbalances in consumption
by regions and between states mean unbalanced networks, leading to unbalanced
truck lines in terms of haul/backhaul.
·
Markets
require smaller trucks and more ‘last mile’ deliveries.
·
More
complex fiscal environment.
·
Poor
infrastructure exacerbated by long-distance transportation.
Consider this: should global 3PL providers
apply the same strategy in emerging countries as in Europe or the USA? The transportation
operation consumes 60% of the total logistics spent and takes more money in emerging
markets to move the same cargo; how can operators take more money in emerging markets
while also making money? For example, when 3PL providers that operated through asset-light
strategies in Europe and the USA entered the Brazilian market, they acquired
local companies with huge fleets; but will this continue to be their roadmap?
The answers obtained from the survey in the
case study show that customers and other players in the industry do see as essential
the Logistics Leader performing the role of carriers with its own assets and
drivers, or at least complete control of the assets.
Customers do not want to feel they are paying a “broker.” They also wish for customer
care, intelligence, management, and innovation. These skills can be offered by
3PL businesses, such as transportation companies acting as single logistics
providers. On the other hand, in emerging markets, the lack of maturity is also
felt in the services provided by the carrier fleet, dominated by independent
truckers, obliging 3PL providers to take on the role of operator and integrator;
and contract independent truckers. Below, the matter is summarized in three
trade-offs.
Trade-off 1:
Labour impacts
Operating assets in ground transportation are
not only about having trucks but also about employing more people, involving all
the labour complexity of emerging markets and the growing lack of drivers. Emerging
markets suffer the same difficulty, at almost the same level, in hiring truck
drivers, presenting important liabilities, significant administrative, and a high
level of unionization.
Trade-off
2: Operational
Operating with a provider’s own trucks, infrastructure,
and employees in transportation is also relevant to the trade-off discussed
above, and some critical pros and cons are listed below.
Pros: potential gains in productivity and cost
reductions from consolidating shipments; service level improvement; higher
ability to cover transportation over demand gaps and peaks; faster reaction to
the need for investment or to demand volumes growing.
Cons: significant risk of financial losses in
volume slumps or periods of low economic activity; more complex operation
requiring intense management (drivers, maintenance, tires, fuel, productivity,
etc.).
Trade-off 3:
Financial
Owning and operating trucks brings higher
operational profit (or gross profit); however, it is necessary to develop and
manage an important physical network, handle high cargo volumes, and have
relevant structures in place to obtain this benefit. The 3PL provider must
utilize its hubs, trucks, and employees with high productivity to be
financially more efficient than competitors that outsource this activity. The
trade-off is higher operating profit versus poorer long-term results,
specifically ROA (Return on Assets).
Final remarks and the Maersk approach
The survey confirms the choice that the 3PL industry
has selected in most parts of the world: a balance between an asset and heavy
and light assets model.
Customers and the leading players in the
industry care about costs, innovation, technology, and quality of service and
want to feel confident in the service through the truck’s fleet availability. Companies
that own their trucks and equipment and partner with small companies with
assets or individual truckers get business benefits in quality, agility, and
operational profit; nevertheless, the cost and complexity of the management and
the pressure from shareholders may not offer a positive trade-off.
Maersk seeks this balance in its market, and it
is no different in Latin America. The company has one of the most extensive
ships fleet in the world, airplanes, ports terminals, buildings, warehousing
facilities, logistics equipment, and trucks; but it also understands the
customers and market; subcontracting, and materializing solid partnership with
vendors.
Own assets are crucial for a complete portfolio
logistic company, which the main proposal is to integrate the supply chain; in
times when resilience and effectiveness is the most wanted skill, Maersk comply
its vocation.
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Thank you, improbably reader
Douglas
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