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January 6 2020

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110 The Journal of Commerce | Januar y 6 2020 Logistics 2020 ANNUAL REVIEW & OUTLOOK HEIGHTENED INVESTMENT IN logistics technology by software vendors and liner carriers is often seen as a threat to global third-party logistics provid- ers (3PLs). As intermediaries, these so-called middlemen in shipment coordination worry that technology is often perceived as a way to elimi- nate them. But 3PLs also can view the om- nipresent nature of technology in their space as an opportunity to shift from the resale of ocean and air ca- pacity to more meaningful services for shippers. In software parlance, this is known as "stickiness," where a product becomes so ingrained in its users' business processes that it's hard for the user to disentangle itself from use of the product. In some sense, that stickiness has taken the form of what 3PLs consider their most defensible char- acteristic: customer relationships. The human element of coordinating freight movements across the globe is often what originally drives ben- eficial cargo owners (BCOs) to use 3PLs in the first place. Shippers sometimes lack the resources or in-house expertise to manage all aspects of freight and so outsource some or all of that activity to a third party. A major component of that is the hand-hold- ing 3PLs provide to shippers, espe- cially when something goes awry. BCOs and 3PLs have regularly told The Journal of Commerce that this resolution management component of the relationship is still critical, even as software providers try to create systems to automate problem resolution. In that environment, 3PLs are navigating a tricky period in which they have to maintain what has been sticky in the past (relationships) as well as nurture what might well be sticky in the future (technology). "We do something our custom- ers don't want to do, can't do, or can't do as well as us," Marc Meier, the former managing partner and CEO of forwarder Fr. Meyer's Sohn, said in a September keynote address at the JOC Container Trade Europe Conference in Hamburg. "We get paid for our market knowledge, and our buying power with carriers. But this will change, this will not matter going forward. The big challenge is to monetize the value add." Meier stressed that three dis- tinct parties — which he categorized as customers, capacity providers, and solutions providers — need to work together to add value to supply chains. That value could come in the form of technology or process improvement. Addressing the shippers (cus- tomers) in the audience, Meier said, "technology doesn't drive anything. Don't focus on things like block- chain; focus on your business. Have clarity about how you're competing in the market." He also said the past is often not illustrative as a guide for the future. He encouraged all three parties to "design a vision of what we think the world will be from our perspec- tive, and don't take the past too much into consideration because what we thought we knew isn't valid anymore. We need to develop an understanding about what really drives our business models." The great leveler The opportunity for 3PLs in a technology-obsessed world lies in their ability to provide BCOs and capacity providers peace of mind in a way that diverges a bit from the past, and that has much to do with the way business processes are changing. As Meier suggested, 3PLs need to be able to adapt to however a shipper wants their help. Sometimes that's technology, sometimes not. It's important to note that 3PLs aren't merely clinging to life. The top 50 global transportation providers grew their collective annual revenue by 9.2 percent, to $815 billion, from 2017 to 2018, The Journal of Com- merce reported in October. Much of that growth was due to shippers front-loading cargo before deadlines for US tariffs on Chinese goods hit in 2018, and 3PL revenue growth rate slowed considerably in the first half of 2019 in response. But the larger issue is that the use of 3PLs isn't decreasing over time. Even non-vessel-operating common carriers (NVOCCs) have seen their share of capacity on key trade lanes "We do something our customers don't want to do, can't do, or can't do as well as us." Sticking point 3PLs searching for new ways to be indispensable By Eric Johnson Rather than driving 3PLs out of business, new technology can enable them to offer more vital services to customers.

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