Our World is becoming increasingly complex. While the internet provides a wealth of free information on almost any subject, there is still a cost; the most valuable commodity; time. True experts are valuable. They save you time and money. The World of transportation and logistics is no different. This article explores the value of the 3PL in the transportation transaction.
Why 3PL’s rarely get the credit they deserve
There is a commonly held belief that if you cut out the middle man, you are better off because you save the “fee” that goes to the intermediary. This is primarily why 3PL’s get criticized, because they receive beneficial value both from the shipper and carrier, both of whom are trying to squeeze cost out of the equation and increase their profits. The 3PL seems like an easy target. However, this is a short sighted view. In any transaction there is always monetary value exchanged for some other value. This is the basis of financial transactions. The value 3PL’s bring is not always apparent at the time of transaction and is often devalued. Let’s have a look at the value 3PL’s bring to the transaction.
The Value 3PL’s bring to the transaction
There are 1.2 Million carriers in the U.S. which is great for choice. However, choice has a cost. Which one should you choose for your particular shipment? How should you contact them? Who even has capacity right now to move your shipment? These are questions any buyer of transportation services has to deal with on a daily basis when dispatching freight. The value 3PL’s bring is managing the choice. Typically, a buyer of transportation has the following choices:
1. Deal with the local guy or the ones that make sales calls
This is the easiest choice. Simple! You meet with the local carriers or the ones that reach out to you and contract with them. The downside of this approach is that you’re missing out on so many service providers that could provide you better service, capacity and pricing.
2. Search internet to find carriers in certain areas
This at first glance seems the way to go. Uber is the biggest taxi company in the World, yet owns no vehicles, Alibaba is the World’s most valuable retailer, yet has no stock, Air BnB is the World’s largest accommodation provider, yet owns no real estate. The World is moving to internet matching buyers and sellers, so why not transportation?
The key difference here is that logistics is an ongoing service while much of what is bought and sold on the internet is a one off transaction. The other key difference is the consequence of a poor choice. If you’re choosing a bed and breakfast on the internet, the downside is maybe one bad night’s sleep and a tasteless breakfast. However, if you were going to stay somewhere 3 times a week for the next 2 years, you need to be a little pickier about how you select a provider. This is why unless you’re transporting a one off shipment, the internet can be a poor method of carrier selection as you do not have experience with the provider. Plus, the provider owes you nothing! You don’t have a long term contract, the provider doesn’t have a book of business with you, when push comes to shove, and the carrier needs the truck for a regular client, who’s shipment do you think won’t get picked up? Plus, you have to ask yourself what is the consequence of a poor choice of carrier. Will you miss a deadline with an important client? Lose a customer? Or, worse?
3. Use directories of carriers
This approach is very similar to searching the internet, just old school. Plus, it takes an extraordinary amount of time to contact and verify the carriers listed.
4. Gather all your traffic info and create a bid
This approach can work but the complexities of preparing a bid are enormous. Just gathering all the data required for an accurate bid can require hours of data mining, meeting with various facilities, etc. If you’re a small shipper, then a complex bid for a few laneways won’t garner much interest with larger carriers. Beyond the time and expertise required to manufacture a bid process, the real disadvantage of an RFQ approach is to limit your choice. So let’s say you award a particular laneway to a primary carrier at $XXX and maybe a secondary at $XXX+. What typically happens is at some point the primary carrier just doesn’t have equipment where your freight is. The secondary might not either. Now what? You’re stuck! You can reprimand the carrier, even fine him, but that doesn’t solve the problem. On a large book of business, this happens almost every day with different laneways causing headaches for you and your company.
How 3PL’s Manage the Choice of Carrier and Deliver Value
Here at DSN we understand that we really have two basic objectives
- To choose an appropriate carrier at best possible cost for the client
- To manage the shipment from pick up through delivery to negate any negative occurrences that may occur during shipment (ie: missed pick up, lateness, damage).
Here’s some of the things DSN does to add value and ensure the best possible experience for our clients:
- We partner with our carriers and work with them all year long. This allows us to make sure we know the strengths and weaknesses of each provider and contract with them appropriately. There is also an incentive for the carrier to service our clients well because the carriers receive regular ongoing business.
- We don’t add very many carriers each year. Because we’re selective about who we do business with we create loyalty with our group of carriers. We don’t have them out competing with each other every day on price. We negotiate fair prices in exchange for ongoing business, loyalty and service.
- We strive to move at least 85% of our freight with our diamond carriers. This means that our clients business taken as whole, means something to the carriers we contract with. Our book of business is more valuable because we bring a large group of clients together and contract with a small group of the best carriers.
- We pay our diamond carriers within 20 days . This strengthens our relationship with our best carriers. Industry standard is 30 days, plus! Carriers are always strapped for cash. It’s a cash intensive business. By paying our carriers faster, they are more inclined to move our freight when capacity is tight because they know they’ll get paid faster.
- We have a very stringent safety vetting process that is automated. In today’s World of over-litigation, making sure you vet carriers is important. Vetting carriers for safety can be a very laborious task, especially if you have a large carrier base. At DSN we’ve made the investment in technology that maintains and excellent vetting process while driving costs out of the process.
- Our safety vetting system is constantly monitoring all our carriers’ safety records. This means we have the most up to date safety information. Can you imagine checking up on your carriers regularly and often? It’s a monumental task! At DSN, we’ve invested in technology that does this on a regular basis, and because it’s automated, drives cost out of the system.
- We talk with our carriers constantly usually at least once a day building the relationship and becoming an important customer to them. This is important because while many people think that matching freight is a purely informational task, best left to computers, in reality, it’s not. People move freight. Dispatchers talk to shippers, who talk to drivers, who talk to 3PL’s who talk to clients. Communication is key and all successful communication starts with a good relationship between the parties communicating.
- If something goes wrong we work with our partners to make sure our customer is looked after. Because we have strong communication and an ongoing relationship with our carrier group we can work together and collaborate to find solutions, rather than just figuring out how much it will cost and who’s to blame. This is the strength of strong relationships.
- We get to know and record directly what our carriers are best at doing and we focus our offerings to their strengths. Over time, we build a profile, both an algorithm of data, and personal relationships between the carriers and ourselves that allow us to target providers that would be best suited for the job. This saves our clients cost in the long run and ensures better service over time.
- We only use the load boards strategically to find new strong carriers, and keep abreast of the market. We sometimes explore the internet load boards. This is how we know about all the pitfalls and that this is not an optimal solution to move freight! However, it allows us information about the market and possible introductions to new providers. We use this option as a last resort.
- We limit the number of carriers we use so that we are always using only the best of the best. How do you have the best team? You make sure you have the best players! This is our strategy with our diamond carrier group. We focus as much of our business as we can on a few carriers that we know can do the job and do it well.
- We monitor our carrier’s performance and we sit down and discuss the ways that we can work better together as partners. This is how you truly drive costs out of the system. Collaboration! Working together and communicating with our regular group of carriers allows us to find synergies and provide the best possible price/service combination for our clients.
DSN Brings Value
Here at DSN we understand that the value we deliver in any Logistics transaction has to outweigh our compensation. This is the only way we can grow our business by constantly delivering value to our clients. If you’d like to experience a better way to move your shipments, contact us today. We’d love to talk to you. By the way, our dispatch has no voice mail. You always talk to a live person. We look forward to speaking with you.