Logistics is all about managing the movement and storage of goods from “the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal, and external movements,” explains the Lombard, Illinois-based Council of Supply Chain Management Professionals (CSCMP).
More specifically, logistics entails moving raw materials and parts from suppliers to manufacturing companies, then moving finished goods from manufacturers to distributors and retail clients. The scale of such operations is gargantuan. According to The Annual State of Logistics Report released by the CSCMP this June, business-related logistics costs in the United States stood at a whopping $1.149 trillion last year.
While the concept behind logistics is simple (get goods to customers), the actual process is multi-faceted and complex. It is important, for example, to distinguish between third-party logistics (3PL) and fourth-party logistics (4PL).
The CSCMP, which was founded in 1963 and is the leading industry association of its kind, defines third-party logistics as “outsourcing all or much of a company’s logistics operations to a specialized company.” The term third-party logistics arose in the early 1970s, to describe intermodal marketing companies (IMCs) who emerged to serve as intermediaries between shippers and carriers. IMCs began tendering goods from shippers to rail carriers, becoming pioneering 3PL providers in the process.
Today, third-party logistics firms offer a wide variety of services, from transportation and warehousing to inventory management, freight forwarding and cross-docking. “Preferably, these services are integrated or ‘bundled’ together by the provider,” notes the CSCMP.
Businesses providing 3PL services include courier, carriers, freight forwarders and “other companies integrating and offering subcontracted logistics and transportation services,” according to Minnesota-based third-party logistics firm Cerasis.
Logistics remains a highly lucrative field. “Overall, U.S. third-party logistics (3PL) market revenues were up 10.5 percent to $184.3 billion [last year],” states a June 7, 2018 press release from Milwaukee, Wisconsin-based logistics research firm Armstrong & Associates.
Two decades ago, a new concept emerged: the notion that there might be a new supply chain category similar to but separate from third-party logistics. In 1996, Andersen Consulting – now called Accenture – dubbed this new concept fourth-party logistics.
So, what’s the difference between 3PL and 4PL?
According to the CSCMP, “A 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners,” whereas a 4PL organization, “acts as a single interface between the client and multiple logistics service providers. In an ideal situation, the 4PL will manage every facet of the client’s supply chain. Large 3PLs can form a 4PL division.
“A 4PL is neutral and will manage the logistics process, regardless of what carriers, forwarders or warehouses are used. The 4PL can and will even manage 3PLs that the customer is already currently using. Many 4PLs have addressed the huge requirements of electronic interface between numerous companies,” says Cerasis.
Having said all that, it is helpful to look at who the big players are within the 3PL and 4PL fields.
Each year, Armstrong & Associates compiles a list of the top fifty U.S. logistics providers. The top three American firms on the most recent list, released this spring, were C.H. Robinson, XPO Logistics, and UPS Supply Chain Solutions. Last year, these companies counted gross revenues of $14.86 billion, $9.5 billion, and $7.98 billion respectively.
C.H. Robinson, founded in 1905 in Grand Forks, North Dakota, calls itself ‘the original 3PL.’ The company has a focus on produce and truckload services and boasts 73,000 transportation providers and 120,000 customers worldwide. Currently headquartered in Eden Prairie, Minnesota, C.H. Robinson has offices in North America, Europe, South America, and Asia.
Greenwich, Connecticut-based XPO Logistics has a network in over thirty countries and more than 95,000 employees in 1,466 locations. XPO can offer drayage, intermodal, less-than-truckload, freight brokerage, global forwarding, and other transportation services. The company serves the aerospace and government, food and beverage, automotive and industrial, chemical, healthcare, agribusiness, and oil and gas industries, among others. On average, XPO makes 160,000 shipments daily.
In the first quarter of 2018, XPO Logistics reported an 18.4 percent year-over-year increase in revenue to $4.19 billion. Fortune magazine recently named XPO one of the world’s most admired companies.
United Parcel Service (UPS) was founded in 1907 in Seattle, Washington, initially as a messenger company. Now headquartered in Atlanta, UPS describes itself as “the world’s largest package delivery company and a leading global supplier of specialized transportation and logistics services.” Goods are transported by sea, ground, air, and rail.
In 2016, UPS delivered 4.9 billion documents and packages around the world. The company serves over 220 countries and territories, including “every address in North America and Europe,” according to its website. Delivery is accomplished by “108,210 package cars, vans, tractors, motorcycles, including more than 8,100 alternative fuel and advanced technology vehicles,” states the company.
Allied Market Research, a market advisory and research firm of Allied Analytics, LLP, cites Global4PL and Accenture Consulting as leading fourth-party logistics providers.
Global4PL is based in Milpitas, California and has branches worldwide. The firm offers a variety of services, including supply chain consulting that covers benchmarking, cost analysis, import and export compliance, supplier management, transportation agreements, free trade agreement qualifications and compliance. Trade compliance to ensure that clients comply with American regulations, trade law to help companies engaging in global trade deal with the increasingly frequent U.S. government audits, customs brokerage, and technological services are other services provided. Global4PL also assists companies with importer of record and exporter of record (IOR/EOR) issues.
Accenture, meanwhile, is a major professional services firm that provides a wide variety of solutions for companies. The firm says it partners with over three-quarters of the Fortune Global 500 firms and offers expertise in over forty industries. Logistics strategy is one of Accenture’s areas of focus.
Accenture’s clients also include Shell, one of the biggest energy companies in the world. A case study outlines how Accenture came up with a novel4PL logistics solution for Shell. “The growth and diversity of Shell’s upstream business activities created challenges that required a new logistics management solution,” states the case study on the Accenture website.
Shell’s problems involved an increased need for road transportation services and materials due to rapidly expanding unconventional gas operations and safety concerns due to the “fast-paced, volatile and intensive nature of the materials requirements in unconventional gas operations.” It also had complex supply chain arrangements often leading to “parallel logistics networks operated by multiple contractors,” and a lack of an existing logistics system to deal with such issues.
Accenture came up with a logistics solution for Shell that involved a 4PL provider that figured out new ways to plan and manage logistics for the energy firm. Accenture studied 4PL best practices, helped Shell run pilot programs to test 4PL plans, and conducted training with Shell staff.
The result was a new 4PL strategy that increased safety and service levels and decreased logistics costs and asset downtime for Shell.
As for the future, The Annual State of Logistics Report notes that e-commerce continues to be a significant growth area. This growth will have a big impact on the supply chain, says the CSCMP. For example, there could be increased demand for flexible warehousing in close proximity to large population centers.
There is a huge demand for truck drivers, however. At some point during their journey, goods almost always need to be moved on roads. According to the CSCMP, trucks transport about seventy percent of consumer goods in America. Yet, demographics, pose a most pressing challenge. The average truck driver is in late middle-age; as they approach their retirement years, there are not enough young people entering the profession to take their place.
The need for truck drivers might be slightly off-set in the future by the advent of fully autonomous vehicles and unmanned aerial vehicles (UAVs), states CSCMP. Also known as drones, UAVs might be capable of taking over some short delivery routes. Other high-technology trends to keep an eye on include artificial intelligence applications, electric vehicles, and autonomous mobile robotic systems.
This innovation is being fuelled in large part by soaring global demand for logistics services. “In 2016, the global third-party logistics market reached $802 billion [in revenue] and is on track to exceed $1.1 trillion in 2022. Global logistics costs were $8.2 trillion in 2016 and should surpass $11.1 trillion in 2022. Globally, the Asia Pacific region is the largest logistics market accounting for almost thirty-nine percent of total global logistics costs and thirty-eight percent of total global 3PL revenues,” states an October 2017 press release from Armstrong & Associates.
Regardless of market and technology developments, logistics will remain “a critical part of any supply chain,” as Rick Blasgen, chief executive officer and president of CSCMP noted upon the release of the report.
And within the larger logistics picture, 3PL and 4PL will remain vital elements in the age-old process of moving goods from one place to another.