Bad news for the big boys: Customers prefer shipping with multiple providers

3PL Contract Logistics Supply Chain Management 0 comments

While the big boys of the 3PL/Freight Forwarding industry have been busy consolidating and gobbling up smaller players in an effort to become gargantuan one-stop-shops for their customers, recent studies show that most customers, particularly large ones, prefer to ship with multiple providers instead of centralizing with one major provider:

The Unisys study found that despite the billions spent on shipping industry consolidation in the name of efficiency and better customer service, almost three-quarters of large shippers would rather do business with several shipping providers than centralize their operations with one major supplier. Respondents overall felt that the bigger a logistics provider was, the less flexible and user-friendly its systems were.

Rather, many respondents indicated that they had an intentional, specific logistics strategy to diversify their business among multiple providers so as to encourage competition and lower prices. They felt that multiple suppliers keep prices and services competitive, and that often niche logistics providers deliver a better service, communicate faster, and are more flexible.

Emphasis ours. The author seems to disagree with the findings of the Unisys study, stating:

But there are more variables that are part of the overall cost equation than just rates. In addition to reducing costs, shippers also have the conflicting tasks of improving customer service, enhancing their supply chain execution, keeping up with technological advances and requirements and serving new markets. In such cases, employing many logistics providers may actually serve to increase costs when the performance of those relationships is examined in greater detail. What is gained through more competitive rates may be more than compromised by the difficulties and waste inherent in employing multiple providers, all of whom may employ different IT platforms and don’t have the expertise or scope to see the overall picture.

Current research also routinely indicates that shippers are looking for closer, more integrated relationships. Such relationships are far more strategic in nature and more focused on value creation. I’m not at all certain such relationships are possible when shippers try to have them with 30 different logistics service providers or when the providers involved have the feeling they are always just one low-ball rate quote away from losing the contract.

I’m not sure what kind of companies the author has been speaking with, but I highly doubt major shippers would be utilizing 30 different logistics service providers, nor would they want their current providers to work under the assumption they were “…one low-ball rate quote away from losing the contract….” With the complexities and difficulties of today’s global supply chains, companies are looking for stability and visbility: service providers that will offer dependable service at value rates and provide a high level of visibility into their clients’ shipments/supply chain. That just isn’t going to happen if your supply chain strategy is simply to juggle service providers based on the lowest cost.

My current company employes four logistics service providers. We split Asia between 2 service providers based on both costs and coverage respective to the areas they covered, gave Europe (excluding Italy) to another provider, and decided to keep Italy with a small niche provider who doesn’t even have any offices in the U.S. but does such a great job – and with great rates – out of Italy that it just didn’t make sense to give it to anyone else. In all cases it boiled down to who could service those origins best at the most economic cost. And underlying it all was a requirement that all the providers meet our EDI/Technology requirements as well as bringing a high level of visibility to the supply chain that other providers either could not meet or do as well. Companies that employ an old-fashioned, simplistic logistics strategy of always going with the lowest provider, playing providers against each other in a simple cost-cutting strategy, will soon find themselves out of business. Those days are gone.

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