This is part two of a post discussing the place of niche service providers in the 3PL industry and their advantages. Part I can be found here.

One thing to remember is that the smaller players are all very different. Despite marketing to the contrary, they all have their specialty or “niche”. The particular company I worked for, which was a true full-service 3PL, specialized in close, personalized service. Some companies have a particular advantage or specialize in a specific geographic area, such as China or South America. We had a very strong overseas agent in Scotland which allowed us to offer superior services and rates to our much larger competitors, which resulted in Scotland being one of our top volume air export destinations and vaulted us into the top 10 list of forwarders with the local airline we were using. Still others may specialize in services, being particularly good in domestic airfreight or focusing only on oceanfreight services. When I worked on the east coast, one of our neighbors in the building specialized only in same day domestic shipments – we would often use their services for our own customers because they could do it so much cheaper and easier than we could on our own. Another niche player is the 3PL that specializes in product, such as hazardous materials or perishables. I knew a company that only handled artwork and expensive auctions that made a killing importing and exporting art around the world because they were so good at handling the shipments and dealing with the art industry. The thing to keep in mind is that while all the major players can handle all kinds of products and offer a full line of services, a smaller niche player may do a better job for a particular product, lane segment, or service.

Another way to solve the supply chain puzzle is to de-centralize the process by dividing up your logistics needs amongst a variety of “niche” service providers. This is not a strategy for all, or even most companies. Again, careful investigation and analysis into the pros and cons, as well as costs, of making such a move should be carefully weighed before execution. However, those companies that find such a solution makes sense will find advantages in utilizing a multiple “niche” service provider approach.

I once knew a company that had taken this approach to great advantage. They sold a variety of large, difficult to handle products whose raw materials and supplies involved both hazardous and regular materials sourced from a number of countries around the world. They sold the finished product both domestically and internationally, which meant they had to export product all over the world. At one time they had utilized an enormous one-size-fits-all 3PL to handle all their transportation and logistics needs. Specific repeating problems began to crop up with a number of their shipments and they began to have trouble dealing with their service provider whenever these problems occurred.

So they decided to take a good hard look at their logistics process and figure out what was going wrong and how they could fix things. The sales rep for their logistics provider, to his credit, did his best to try and alleviate their concerns and resolve the issues, but his company was just too big and the multiple layers of services and people across the organization were too great to efficiently communicate and manage the changes that needed to be made.

After careful consideration, the customer decided to scale back the business they had given to their logistics provider. They found that their service provider was very efficient at bringing their general supplies and raw materials from their suppliers around the world and the U.S. So they decided to keep that business with their current provider. However, they spun off their storage and distribution to 3 different regional logistics companies that specialized only in storage and distribution and were key players in their own regional markets. They also took away the hazardous materials shipments and gave that business to a niche company that specialized in hazardous material transportation and storage. The export business they gave to a medium sized forwarder who had strong local agents in all their key export markets. They also did quite a bit of trade show business and gave that business to a company that specialized in the trade show market. These are just some of the major decisions they made, but you get the picture. They had to hire additional logistics personnel to manage all these relationships, but the savings advantages in terms of speed and control far outweighed the additional head count. Inventory went down, efficiency went up, and they experienced far fewer logistics “hiccups” then before.

Every company’s supply chain and business is unique and therefore the services they require are equally unique. What may work for some will not work for others: every company should analyze their logistics needs carefully to decide what kind of 3PL or forwarder will work best for their business. In some cases a large global 3PL will be a good choice. For others, it makes sense to utilize a smaller “niche” player or several smaller “niche” players. Bottom line, there’s room for all kinds of players in the 3PL market, who you choose and why should be a decision carefully considered.

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