More and more of today’s purchases are now being made online and one of the beneficiaries of this movement is the shipping industry. The industry is expected to continue to increase but modern third-party logistics companies (3PLs) face a few challenges keeping up with the growth spurt.
According to a new market report published by Transparency Market Research, the logistics market in terms of revenue is expected to reach USD $15522.02 billion by 2023, growing at a compound annual growth rate of 7.5 percent from 2015 to 2024. While this type of growth is a good thing for 3PLs, it brings challenges that can limit service and profitability if not handled properly.
In this article, we’ll take a look at some of the challenges that modern 3PLs face.
With the logistics market growing and no slow down in sight, 3PLs are suddenly finding themselves short-staffed. Working in the logistics industry is already a more time-consuming job than your normal 9 to 5 job but as 3PLs find themselves with more business and fewer employees to handle the additional business, workers are putting in long hours running at higher stress levels.
Modern 3PLs today are hiring at unprecedented rates, but quantity isn’t always better than quality. 3PLs have to invest time and money into getting new hires up to speed with their operations and company expectations. The logistics industry isn’t a fit for everyone, so retaining new employees becomes a challenge in itself.
Whenever you are driving behind a semi-truck on the highway, odds are there is a sign on the back of their trailer saying that they are hiring. When e-logs went into effect in December of 2017, many owner-operators and carriers with smaller fleets decided to step out of the industry, lowering the supply of available equipment. The e-logs now force trucks to sit for a rest period according to regulations, where drivers had been altering their paper logbooks previously in order to keep moving. Drivers could move more shipments in a week by cooking their log books but with no way around the e-logs, drivers are not nearly as productive as they were before.
According to the American Trucking Association (ATA), the trucking industry is short about 51,000 drivers currently. If the trend continues the way it has been, the driver shortage is projected to hit 106,000 by 2022. Fewer trucks available plus the rise in shipping demand from customers has been a perfect storm for carriers still in operation because they are now raking in rates that were previously unheard of. Contracted freight rates are up 6-10 percent, while spot freight rates are higher than they’ve ever been, up anywhere from 30-60 percent currently.
Amazon has created an e-commerce market where anyone can sell products out of their home and many people are moving to e-commerce full-time. E-commerce business owners generally start operating out of their house but once the demand for their products outgrows the physical space in their house, they look to 3PLs who offer warehousing and fulfillment services. 3PLs are a valuable asset to e-commerce businesses because the 3PLs take care of their inventory, picking, packing and shipping process. Concurrent to the e-commerce boom, warehousing costs have gone up. According to Armstrong and Associates, warehousing costs in 2010 totaled about $112 billion dollars. The warehousing costs in 2017 were an estimated $148.7 billion dollars.
E-commerce is a non-exact science, so 3PLs who are offering fulfillment services to their customers may have some days with very little on their plate and other days with too much volume to handle due to an influx of sales. If a sale is large enough or if multiple companies utilizing the same 3PL have sales, then there may not be enough staff on-hand to process all the orders based on the customer’s standards. This can lead to an increase in overtime, a sudden hurry to hire temporary employees and a lack of company-specific branded shipping supplies.
As 3PLs handle more than just over-the-road shipping, they need to continually implement new technology to keep up with their internal demands. 3PLs may have to operate through multiple different software systems depending on what they are trying to accomplish. A fulfillment team and a shipping team may be working with two different types of software and when these two departments need to cross-function, the results could end up being choppy. If the two systems cannot communicate with each other, this means that each department will have to waste more time on generating data and reports as opposed to focusing on something else more important within the supply chain.
According to Datex, companies are now outsourcing to 3PLs in order to obtain a partner with more IT capabilities. Although IT services are not outsourced as often, the rate of adoption is increasing. According to the 2017 3PL Study, in 2017, 17 percent of shippers outsourced IT services to a 3PL, a 6 percent increase over that of 2016. So as customers are struggling with their own technology issues, they are turning to 3PLs for help. This means that the modern 3PL needs to have the most innovative and cutting-edge technology available so they can be as efficient as possible with their own data, as well as their customer’s data.
3PLs are being forced to adapt to a growing shipping market as they deal with customers who have higher demands and expectations. There are plenty of other challenges facing a 3PL but these staffing, the driver shortage, technology and the need for warehousing and fulfillment are generally the most pertinent for most modern 3PLs.