Trends and Predictions for 2013 and Beyond

2012 was another banner year for many in the third-party logistics (3PL) sector. Shipper procurement strategy has continued to evolve, and there are certainly some notable trends that will shape future decision-making with respect to shippers, asset-based providers, and 3PLs alike. Technology, innovation, and transparency seem to be on the minds of many in our field. The rise of natural gas as an alternative fuel, along with an ever-changing regulatory environment, will be influential factors.

Following are the key trends that will continue to shape the way we all do business for 2013 and beyond.

The 3PL Value Proposition

The 3PL space has continued to expand at a steady rate, and its evolution will be shaped by intensified collaborative efforts at all levels of the supply chain. Shippers are looking for proactive and nimble 3PL providers who can do much more than simply manage transportation. They want deep relationships with a smaller number of partners—effectively asking 3PLs to invest more “skin in the game”—with the ability to adapt and respond quickly to changing dynamics. Larger 3PLs are seeing significant growth in contracted freight as a percentage of overall sales, and this will continue in 2013. The same trend toward partnerships is being played out in the ever-expanding fourth-party logistics (4PL)) model, which continues to gain traction among shippers of all sizes.

As these shipper and 3PL relationships become more partnership-oriented, so do the demands of successful 3PLs. In our business, we’re constantly being tasked to forecast and respond to unforeseen changes in capacity long before they exist. Superstorm Sandy is a prime example of an event that caused a significant disruption in the supply chain. A regional imbalance of equipment appeared almost overnight, but some companies were able to predict and successfully respond to the ensuing volatility by locking up dedicated assets in alternative markets and capacity days before they occurred. This type of planning requires a careful analysis of partner carriers and their respective capabilities. Capacity volatility is unlikely to diminish in the future.

On the carrier side, partnership models are gaining favor. Carriers are looking for more consistency and deeper relationships with the 3PLs they support, and they are funneling their efforts to fewer 3PLs as a result. They are also focusing on reducing empty miles and right-sizing fleets in the face of a changing regulatory environment.

3PLs must become more integrated with shippers and carriers on all levels to meet customer expectations. As shippers continue to focus on reducing inbound carrying costs and driving more toward just-in-time processes, the ability to forecast and respond to unforeseen deviations in demand will drive shipper decision-making logic for the partners they select.

Regulatory Environment

A multitude of ongoing regulatory changes impacting the supply chain warrant monitoring. The Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability (CSA) program has affected the way shippers select carriers and 3PLs alike. The controversial CSA program affects all transportation providers and buyers, who must utilize the data to the best of their ability. The CSA program has impacted asset-based providers by exacerbating an already-increasing driver shortage, and has forced carriers to place a much greater emphasis on driver quality. It has led 3PLs and shippers to become increasingly strategic, beyond service and price.

In addition to the CSA program, new standards for hours of service (HOS) and clean engines are affecting the way we all do business. Some distribution hubs and truck terminals become less relevant with every change in HOS. In addition, new clean engine standards are making it more cost-prohibitive for some companies to replace equipment. Electronic logbooks are on the horizon, and will certainly have an impact on small trucking companies from a monetary standpoint.

California recently passed legislation that went into effect on January 1, 2013, and has far-reaching implications for 3PLs, forwarders, trucking companies, and railroads. It requires every transport refrigeration unit to be tested and registered with the California Air Resources Board, and there are stiff monetary penalties for noncompliance. The regulatory environment is expanding the role of 3PLs beyond the typical scope of managing transportation. It will become increasingly important for shippers to have a much deeper understanding of every partner’s commitment to regulatory compliance in order to reduce its risk footprint.

Transparency

Improvements in technology are continuing the trend for increased transparency among carriers, 3PLs, and shippers. This has forced 3PLs to focus more on carriers that have the ability to provide constant visibility. This transparency will make it even more necessary for all parties to invest in infrastructure to support a totally transparent supply chain in the very near future.

Some 3PLs are responding to this demand by investing heavily systems to support a much greater number of key performance indicators that will allow them to monitor a multitude of metrics across all regions, carriers, and time increments. This increased demand for transparency is changing quickly, and there is no one-size-fits-all approach any longer. Every shipper’s supply chain is unique to its business. It’s now up to the 3PL to provide the tools to help manage that supply chain and unique carrier base.

Other Trends

The emergence of natural gas as an alternative fuel is still in its infancy, but the technology is now viable, and a geographic footprint is emerging in several corridors. Several large trucking companies and shippers are early adopters. The price differential in natural gas technology versus diesel engines is making it more attractive than ever from an investment standpoint. A nationwide network is not yet established, but it is well underway. Look for the continued emergence of alternatives to diesel over the coming years.

The transportation and logistics sector is in the midst of some of its biggest changes since deregulation. 2013 will play a pivotal role in discerning the winners and losers of many of the latest changes. This field has some difficult challenges—but some amazing opportunities. The companies that can leverage these most will reap the benefits.