If you are going to be involved in “transportation management” in the emerging E-Commerce age, we propose that you had better be an experienced and effective transportation manager.
For the casual reader, we will start by unraveling two acronyms used frequently below:
A 3PL is a 3rd Party Logistics or transport provider, one who is neither the buyer or the seller for the goods.
A 4PL is a 4th Party Logistics provider, one who is neither a buyer, seller or carrier/logistics warehouse operator
In the transportation world there are widely held to be two distinct groups of transport operators. The first group are asset owning transportation companies (carriers / 3PLs), the second is non-asset owning transportation companies; either freight forwarders [also 3PLs] or transportation management [4PL] companies.
At times, enterprises may also choose to own or lease significant transport & storage assets in their own right. And in a hybrid situation the enterprise may employ a third party to manage those assets, or consultants to assist in their transportation & logistic network design.
3PL logistic operators, those that principally provide warehousing and distribution services, are another species in the logistical arena. These 3PLs are more approximate in their orientation & outlook to asset-owning transport operators than the non-asset owning transport operators (freight forwarders). Many 3PL logistic operators further provide or manage transportation services, and these in turn can be either owned-asset operations, or non-asset based (3PL, freight forwarder, or 4PL).
To an outsider, these structural classifications may appear tangled, but the business case for each stands when underwritten by the specific roles they play in the supply chain network
Logistical solutions are crafted by, with, or for, shipper principals. In the main, the crafting of a solution is a collaborative effort. The shipping or receiving customers, the parties which contract with carriers, forwarders, 3PLs, or 4PLs, are usually the ultimate arbiter of process design. Naturally, the sanctity of design is disturbed when propositions are demanded, and contracted, and yet this plan proves not to be economically feasible for one-or-all of the parties in the wider supply chain.
Dysfunction is also assured when the shipper’s customer-facing value proposition falls short in logistical execution as a result of failures in the shipper’s supply chain, &/or their logistic & transportation network’s operational performance.
In the E-commerce arena, in particular, a confused environment is emerging in the tech-based logistical and transport solutions being offered to E-tailer merchandisers. In many instances, tech app providers appear to profess that they have moved into the 4PL space. There are, however, significant open issues in respect of tech-based products aspiring to add value in that area. An app with limited input data, may provide even more limited service depth, and can be a recipe for dysfunction if a website plug-in is all that sits between an E-Commerce merchant and a consumer in logistical terms.
Before we comment further on the 4PL (Transportation Management) issue, we will return to cite our experiences operating in the 4PL field. Those that have long been involved in the industry may recognise that the major drive behind 4PL sector growth in the 1990’s was also a tech based offering, usually then branded under the Freight, Audit, and Pay (FAP) generic marketing label. The said services were usually offered to companies who engaged many domestic carriers. They were also usually otherwise quite constricted in terms of adaptability to service the international freight or specialist transportation sectors.
In the first instance, these FAP systems were designed to monitor carriers billings to ensure that they were charging the right amount. Their secondary function was to consolidate bills in order to lower the accounts payable processing costs for a shipper customer. However, as the major carriers systems themselves became more rating automated, and less fallible weight and cubic dimension tests were implemented, the value proposition for Freight, Audit and Pay technology based offerings diminished.
From this point, the appendage of the Transportation Management marketing label emerged in order to value-add to the FAP business case. A Freight, Audit, and Pay system, one that has grown a few operating features and reports, is often still observed as being at the backbone of many 4PL offerings.
It is from this point, one of diminishing service returns, that questions over the newly labelled 4PL’s value-add process started to be asked in earnest. If there was sufficient “transportation management”, then the value proposition stood up; otherwise, given more automated E-business processes & integration that have opened between shippers and carriers, it might be defeated.
In terms of our own 4PL operating experience, we quite clearly recall a meeting where we were interrogated, in the most abrupt terms, by one of Australia’s most formidable domestic transport executives, on the subject of the very same value proposition. To paraphrase, he wanted to know, just what value we were adding as a 4PL when placing ourselves between him and one of “his” most significant customers?
And so, at a point approximately one elevator pitch past the above-mentioned styled confrontation, the 4PL may get a solid indication whether their business case will go the distance. Moreover, the same business case must have already been locked in beyond doubt with the shipper in advance to survive such a contest. In these circumstances, the matter of a carrier’s market power in these “enlightened” days can mostly be set aside in regulatory terms, largely because significant market player carriers can apparently determine their interests individually, without conspiring with others, and still arrive at the same conclusion in respect of decisions on whether to offer services to intermediaries, and at what pricing support level they do so.
We have encountered both better and worse answers from 4PLs in respect of their value-adding. Moreover, for some major shippers, the element of payment processing centralisation and improved reporting on overall network performance in a single format remains attractive. If there is sufficient economic value, there might also be introduced outstanding continuous network performance tuning, which can be achieved through the efforts of a bird-dog styled service exception chaser. Carrier contracting &/or price management are also usually essential propositional elements to maintain the 4PL model's value (even if this is seldom welcomed on the carrier/forwarder side).
4PL's systems have struggled to evolve & effectively internationalise to the same extent that E-Commerce has done in the past two decades. None-the-less, disparate modes of transportation are more likely to underwrite a transportation management based 4PL engagement than those purely relying on same-looking transportation vendor arrangements (ie: those with a similar yet multiple carrier option shipment offer rubric executed through a merchant’s E-Commerce portal).
In other words, if you are going to be involved in “transportation management” in the emerging E-Commerce age, we propose that you had better be an experienced and effective transportation manager. And by extension, you will also want to be a good freight forwarder, one who can negotiate effectively with asset-owning carriers, and bring solutions together from disparate sources – both in geographical and capability terms.
If a 4PL vendor is just offering multi-vendor portal access with multiple pricing options for third party transportation vendors, it might be construed that they are merely pitching for a transfer of the responsibility for carrier selection & service quality outcomes to the E-Commerce buyer.
Alternately, in praise of apps as "connectors", their employ has quite a lot to offer the transportation industry internally, and at the margins, as stated earlier. This is especially so in the case that participants have their credentials and performance management effectively handled elsewhere. Connecting an independent sub-contract driver to third parties and communicating rudimentary information that would otherwise have to be captured manually is such a case. Public weighbridges, permit agencies, inspection stations, grain aggregator sheds/silos, rail ramps, and empty shipping container depots are among those that come to mind. Anywhere with a slot system or queue is an open invitation for app developers dealing with a vehicle and independent driver employing his mobile device, because they have the most to gain (in time-is-money terms) by communicating a rudimentary amount of information accurately & in a timely fashion which in turn cuts queuing at a location; or alternately alerts the driver in advance of impending delays or rejection.
For the E-Merchant, however, the commercial realities are that ownership of the delivery efficacy issue will ultimately return to them in the real world. Further, any multi vendor offering suite will in time become necessarily limited to the number of vendors the E-Merchant, or its transport manager, can engage and practically manage at the right price. An additional selectivity issue, however, lies with the need to ensure carrier capability for each and every stock-keeping unit offered for sale. The emerging scenario includes a matter we spoke of earlier in this series; the broader array & larger sizes of E-Commerce goods now being shipped.
Next time, we will delve a little further into the Meccano pieces. We will examine transportation capabilities in combination with brand and organisational issues.