3PL’s Future Trend in Emerging Markets, the importance of Own Trucks & Maersk Approach

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

1. What is the priority mission of the 3PL provider: Cost reduction, Innovation, Excellence of Service, or taking on the necessary investments by itself?
2. 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?
3. How have 3PL services evolved when the situation is compared five years ago, three years ago, and nowadays?
4. What is the 3PL provider's preferred future business model: operate by itself, subcontract and manage services, or operate as 4PL/LLP?
5. 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