Operating in a market that’s evolving at a breakneck pace, third-party logistics service providers (3PLs) certainly aren’t lacking in challenges. They remain the tip of the supply chain execution spear for businesses of all shapes and sizes.
Yet as they plan and execute such fundamental 3PL tasks as storing products, filling orders, managing carriers, and delivering goods on time at the lowest landed cost, increasingly, shippers are demanding more as they seek to control disruptions, reduce risk, and ensure stability to carefully crafted supply chain operations.
Among those issues are constantly rising operating costs, shifting tariff policies, regulatory mandates, geopolitical disruptions, labor shortages, and how and where to deploy emerging technologies across the logistics ecosystem for maximum benefit.
Whether it is product at rest or in motion, shippers want their 3PLs to provide the resources, tools, technologies, real-time information, and analytics they need to successfully operate in a constantly shifting supply chain landscape.
What will it take to be a 3PL survivor?
RESILIENCE, RELIABILITY, CONSISTENCY
“In general, shippers in today’s market want 3PLs to deliver resilience, reliability, and consistency,” says Steve Sensing, president of supply chain solutions and dedicated transportation solutions for logistics giant Ryder. He believes Ryder is in a unique position to meet that need given its “port to door” inclusive logistics approach, its scope of services, and the breadth of vertical industries it serves. The company, across all its transport modes, purchases just under 10 billion freight moves annually for hundreds of customers.
In terms of demand, “it’s been a weak freight market [that] has been elongated, now going into its fourth year,” Sensing observes. And while recent reports around improving manufacturing output signal a potential rebound, “we don’t expect [freight volumes] to bounce back this year,” he says. Sensing adds that with tepid economic growth, “customers are under pressure and are trading cost for service.”
Those cost pressures are not likely to abate, Sensing believes, and may become more intense as slim margins and higher costs force more capacity out of the industry. “As smaller [truckload] carriers exit the market, our role is to help customers get ahead of that [and secure reliable capacity at competitive cost] to be prepared for when the market bounces back,” he notes.
Is there a magic bullet for 3PL success? Sensing cites two areas. “First, during the RFQ [request for quotation] process, you have to understand deeply your customer’s business and what they are trying to solve. If you don’t do that, there will be disconnects, and you will fail,” he notes.
Clients often have strong ideas about the problems that need solving and what they want their end game to be, he says. But it is incumbent upon the 3PL, based on its experience and expertise, to communicate early and often, suggesting ideas or approaches that validate or improve on the customer’s objectives, and most importantly, collaborate honestly and openly with the client to come up with the best plan, Sensing explains.
The second area is start up. “The ability to effectively start up a new piece of business and communicate effectively with the customer from day one is critical. That is the most difficult part of what we do, and [it’s] where we make some of our most significant investment in the team,” he says. “You will have issues; no start up is ever perfect,” Sensing adds.
Then once the operation is up and running, it’s about defining the KPIs (key performance indicators) that will measure success—and reveal areas that need attention. Sensing believes that one area where Ryder stands out and others struggle is continuous improvement. He emphasizes that the process of delivering and executing a solution doesn’t stop once start up is done. That’s just the first inning. “We wake up every day trying to earn our customer’s business by saving it money and proactively driving improvement for it and its end-customers.”
CONVERGENCE OF THE PHYSICAL AND DIGITAL
While the fundamental role of the 3PL has not substantially changed, the challenges 3PLs face, the role shippers want them to play, and the tools they use to manage and execute the service are evolving in multiple directions, observes Matthew Beckett, senior director, analyst for the logistics and supply chain practice at the research and advisory firm Gartner.
“First, 3PLs are increasingly having to get involved in supply chain orchestration services, which requires that they extend beyond transactional activity,” Beckett notes. “Shippers want an increasingly diversified 3PL portfolio that is more supply chain-oriented, rather than a basket of siloed services.”
Second, shippers are demanding more flexible networks and diversification to help them be more resilient. “They want support to rapidly redesign their supply chains to cope with things like geopolitical pressures, labor issues, and manufacturing capacity,” he says. “They want the 3PL to mirror their [supply chain sourcing and distribution structure] and match that from a tactical standpoint … but also provide strategic network design and overview ability.”
Third is what Beckett calls “the blessing and the curse” of emerging artificial intelligence (AI) tools. “On the one hand, shippers benefit from AI that automates routine administrative tasks and can provide more autonomous decision-making that goes beyond standard visibility” and helps speed the transformation of operations, he says. Yet he also sees it as a curse that is “eroding some of those traditional client process relationships that 3PLs have had in the past.”
The onset of AI also is driving greater competition and more interest in insourcing some logistics tasks that 3PLs do today. “Shippers thought those [AI] capabilities were out of reach in the past, but now given the lower cost and faster deployment, [they’re] more attractive [for internal use].” That is driving a transformation of more competitive and responsive 3PL operations, Beckett believes, “but also increases risk from more competition from shippers themselves and the newer digital 3PLs not bound by legacy systems,” he says.
Physical and digital networks are converging, and with that the opportunity for 3PLs to move beyond the “pick up my parcel and deliver it” model to a more expansive and inclusive one. That model includes orchestrating data collection, integration, and presentation; incorporating order management, inventory, and shipping optimization; and “the ability to help the shipper derisk their supply chain and introduce tools like agentic AI and automation systems in a strategic manner that delivers real efficiencies,” Beckett concludes.
SHARING THE LOAD
As shippers begin to examine alternatives to traditional 3PL services, in some cases they’re looking to insource certain functions, finding a blended solution that brings inside some strategy and planning, and outsources tactical execution. They’re also looking to take advantage of inexpensive and quickly deployable new technology tools.
Then there are shippers who are flipping the script.
They are leveraging the sophisticated, deeply resourced in-house networks, tools, personnel, and supply chain operations used exclusively to stage, manage, and move their own products, and carving out part of that capacity as a stand-alone service that others can use.
One example is Schreiber Foods.
Schreiber is one of the nation’s largest dairy manufacturing companies, with some $7 billion in sales and a presence in 90 countries. It manufactures a wide range of private-label dairy products, including natural, processed, and cream cheeses; yogurts; and beverages. “We partner with the largest retailers, restaurants, distributors, and food manufacturers around the globe,” notes Ali Pearson, account manager for the company’s Schreiber Horizon division.
Schreiber has built an extensive refrigerated logistics operation that in the U.S. supports multiple dairy product manufacturing locations and six distribution centers. It makes thousands of deliveries a week, operates in some 2,600 lanes, and contracts with some 80 vetted refrigerated truck lines for transportation.
Up until 2019, Schreiber’s network handled only products manufactured by Schreiber facilities. Then one dairy customer approached it and asked if Schreiber could also warehouse and deliver some of the customer’s own, independently branded and manufactured products. That customer was selling to big-box stores and wanted Schreiber to take its other products and have them ride along on the truck and be delivered to the same end-customer along with the traditional Schreiber-made goods.
That initial engagement was a seed that ultimately sprouted into a dedicated logistics management offering, available to other dairy product manufacturers and other firms with food-related goods that needed refrigerated warehousing and transport.
Today it’s a fully functioning service under the Schreiber Horizon banner, says Pearson. “We already had the assets, systems, processes, resources, and people in place,” she recalls. “We just had to adapt it to handle products other than Schreiber’s.”
And just like that, Schreiber converted a traditional cost center and leveraged it into a revenue-driving business, maximizing its internal capacity and expertise to deliver flexible, customer-oriented logistics services to other shippers.
The Schreiber Horizon service now has 20 suppliers on the network, and it continues to grow, notes Pearson. The service includes traditional 3PL offerings of warehousing, consolidation, real-time visibility into inventory and goods in transit, inventory tracking and control, analytics, and a “process engineering team to help clients solve product-specific issues and other unique complexities of their supply chains,” Pearson adds.
Among other products that today ride along with Schreiber-produced dairy goods are pickles, cookie dough, cold-brewed coffee, salsa, cured meats, and yogurt products made by other manufacturers.
VOLATILITY IS THE NEW NORMAL
“Shippers today are operating in an environment where volatility is part of the normal rhythm of the market,” says Fred Gilbert, regional head of product strategy and growth enablement, North America, for global shipping and logistics giant Maersk. “Right now, the most difficult challenges all stem from the same reality: Demand and sourcing patterns are shifting faster than traditional planning cycles can keep up with.”
Many companies no longer want rigid supply chain models, Gilbert has observed. They yearn for stability, particularly in the delivery of “fundamentals that consistently help customers control costs and maintain performance.” They want less complexity; easier and faster access to accurate, timely information; and agility—all in the name of more resiliency and derisking supply chains, particularly in what has been a constantly disruptive geopolitical and economic environment.
“They want the ability to adjust quickly as demand, inventory profiles, or transportation markets shift. It is less about reacting to disruptions and more about building systems that stay steady, even when the world isn’t,” Gilbert says.
That’s caused shippers to shift their approach, and their expectations, Gilbert adds.
Network design, once a seemingly gargantuan task that took months, is no longer one and done. Design and development are done under shorter timeframes and deployed faster. Digital twins let teams model operations in real time, run scenarios, and anticipate issues before they disrupt service. Similarly, real-time operating metrics enable timely measurement against key performance indicators and point out areas for improvement.
Technology no longer is held hostage by legacy platforms. With so many more function-specific tech tools available today, the real challenge is finding a practical approach to selecting the right core platform (often a large data repository and integration hub), picking the best of the best, and integrating those tools.
The result is a blended solution to improve planning and visibility, execution, safety, and predictability—and deliver the trusted analytics that enable effective measurement and improvement.
When asked where 3PLs are failing their customers, Gilbert cites three areas.
First, “many 3PLs treat technology as an add-on, rather than an operating discipline,” he’s observed. Too often, technology is layered upon broken or ineffective processes, hamstrung by systems than don’t talk to each other. “When there is unclear ownership or poor data quality, even the best tools can create more exceptions instead of fewer.”
Second is weak onboarding. Often those failures trace back to rushed transitions, incomplete data on requirements, or compressed timelines, he notes. “Sometimes customers wait too long to make a change. Sometimes the provider accepts timelines that [don’t allow for] proper planning. Either way, the result is the same: rocky startups and months of avoidable instability.”
Third is discipline, transparency, and predicable execution. “Ultimately, customers are not asking for perfection,” Gilbert says. “The 3PLs that will lead in the next era of logistics are the ones that slow down at the beginning, build strong foundations, and treat onboarding and technology with the rigor they deserve.
“At the end of the day, our operations are run by people,” Gilbert emphasizes. “Technology helps them do their jobs more safely, more accurately, and with better information, but it does not replace their expertise,” he notes, adding “when you combine strong operational talent with the right tools [and culture], that is when you get a safer, more resilient, and more predictable supply chain.”
