4th Translog Conference, Hamilton (Canada), June
15-16 2011
The Functional Relations
between Third Party Logistics
and Intermodal Transport
Systems
Jean-Paul Rodrigue
Associate Professor, Dept. of Global Studies &
Geography, Hofstra University, New York, USA
Marc-André Roy
Vice President, CPCS - North America, 72
Chamberlain Avenue, Ottawa, Ontario, Canada
The Product as a Supply Chain…
iPad 1 (2010)
iPad 2 (2011)
3.1 lbs.
25.4 cm
2.8 lbs.
4.3 cm
5.1 cm
Let’s Begin with the Conclusion about 3PLs…
Growing organizational and functional complexity
Blurring of roles and services
Asset stigma
Significant clustering of actors
Layers to Logistics Services
Actors
Services
1PL
Manufacturing, Retailing
Carriers
2PL
Transportation
Logistics service
providers
3PL
Lead logistics providers
& consultants
4PL
Service integration
Cargo owners
Supply chain integration
Logistics
Supply chain
management
3PL: An Attempt at a Definition
A firm that adds value to
the supply chains of
beneficial cargo owners,
directly or indirectly, by
providing a range of
logistics services beyond
the mere carriage of goods.
3PLs control 40% of the
global TEU in transit
through maritime
shipping
Third Party
Services
• A firm other than the
BCO, and usually but not
necessarily independent
of the carrier(s).
• Range of logistics
services provided can be
narrow or wide, regional
or global, sector or
commodity specific.
Assets
Value Added
• 3PLs can be asset-based
(operator of modes,
terminals or DCs) or nonasset based (forwarding,
planning, consulting)
logistics services
providers.
• Value is supply chain
specific (e.g. time or cost,
increased reliability)
rather than specific to
physical characteristics
of goods.
Key Drivers for Third and Fourth Party Logistics
Providers
Globalization
• Supply chains becoming increasingly global (even within manufacturing
processes), requiring greater management of supply chains
Core competencies
• Manufacturers and retailers are focusing on their core business (and
outsourcing logistics services to specialized firms)
Innovation and management
• 3PLs becoming increasingly sophisticated in supply chain management,
making investments, realizing economies of scale
Asset utilization
• 3PL model promotes greater asset utilization (e.g. balancing flows,
backhaul, within their networks) and asset-sharing alliances
Main Core Competencies of Third Party Logistics
Providers
Sourcing
Shipping
Product
Transport
Warehousing
Routing
Getting Blurry: Services Offered by Third and Fourth
Party Logistics Providers
3PL ►
◄ 4PL
Standard
Advanced
Complete
Integrated
Transportation services
Carrier selection
Rate negotiation
Fleet management
Warehousing
Cross docking
Pick and Pack
Distribution (direct to
store/home)
Dispatching
Delivery documentation
Shipment consolidation
Vendor managed
inventories
Stock accounting
Customs clearance and
documentation
Assembly
Packaging
Labeling
Managing product
returns
Financing
Retail delivery, set up
and on site training
Inventory tracking
Order planning and
processing
Information and
Communications
Technologies (ICT)
management
Single invoice
Landed duty paid cost
(per piece)
Payment collection
Real time inventory
updates
Just in Time (JIT)
inventory management
Production planning
Sourcing
Routing transit times air
vs. ocean
Supply chain consulting
Complete real time
supply chain monitoring
and adjustment
Location of 3PLs in Canada by Number of
Employees
Reflective of the Canada’s commercial geography of
gateways and corridors.
Ontario: 50.2% of employees
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Location of 3PLs in Canada by Number of
Headquarter Employees
Reflective of the Canada’s urban hierarchy and crossborder intensity.
Ontario: 64.2% of headquarter employees
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Asset and Non-Asset Issues
■ Asset Stigma
• Perception that an asset-based firm will be pressured to
route flows through its own assets.
• Majority (85%) of 3PLs brand themselves as non-asset
based (may lease facilities or use hybrid model).
• Large 3PLs:
• Greater share of asset-based firms.
• Networks of assets.
• Small / micro 3PLs:
• More alliances (sharing of assets).
• Smaller long-term commitments to assets and more focus on being
agile.
The Clustering of 3PL Activities: Observed Patterns
Transactional centric
• A location within major central business districts where close interactions with
major customers, in the form of corporate head offices, is key.
Airport centric
• A location in proximity to a major airport terminal to effectively deal with the
time sensitivity of air cargo.
Border centric
• A location in proximity to a major cross-border gateway to assist customsrelated procedures and take advantage of cargo consolidation /
deconsolidation opportunities.
Port centric
• A location in proximity to port terminals. This type of location tends to be
coincidental with central business districts.
Quebec – Windsor Corridor: Location of 3PL Firms
and Value of Freight Transiting at Gateways
Source: base data from Dun & Bradstreet, primary NAICS code 488510
The clustering of 3PLs around major ports of entry along
the Quebec‐Windsor corridor is notable. Ambassador
Bridge is largest Transit Point, but not largest cluster of
3PLs. Largest 3PL cluster around Pearson Intl. Airport.
Asia Pacific Gateways and Corridors: Location of 3PL Firms
and Value of Freight Transiting at Gateways
Clustering around Western Canadian cross-border ports of
entry. Related to customs activities and represent a
specialized and localized segment of the 3PL industry.
Vancouver: Canada’s sole
“all-centric” 3PLs cluster.
Source: base data from Dun & Bradstreet, primary NAICS code 488510
High concentration of 3PLs along the “sweet spot”; Louisville –Pittsburg.
Market-centric 3PL clusters around centroids of optimal regional
accessibility or intermediary locations along corridors of freight
circulation (e.g. Allentown, PA)
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Services and Commodities
■ Size matters
• Degree of supply chain integration tends to increase
proportionally to firm size.
• Largest firms most likely to offer a variety of service:
• Large 3PLs handle 90% of commodity/sector categories on average.
• Focus on economic sectors characterized by economies of scale
(mass market) along with stable demand.
• Some kinds of cargo (e.g. project cargo) are highly localized;
dominance of small / micros.
• Large players use a broad network, while smaller firms use a
patchwork quilt of alliances.
Vertical and Horizontal Integration in 3PLs
Level of Services Offered
(Vertical integration)
Large
Medium
Micro & Small
Commodities Served
(Horizontal integration)
Trade Focus
■ Import bias
• General focus on 3PL services to imports, rather than
exports.
• Importers also include pure freight forwarders who are
generally indifferent with respect to asset placement.
• Micros were significantly more inclined to be import-focused.
• Exports of raw materials:
• Tend to lean on economies of scale, move in large loads, have a
limited number of buyers and few value-added activities involved.
• The expertise of 3PLs is much less required and the tasks are
assumed by the carrier.
Main Export-Oriented Regions and Shipping Routes
Servicing North America: A Shift to Near-Sourcing?
The Big Port Squeeze: Largest Available
Containership, 1970-2013 (in TEUs)
20,000
“Triple E” Class
(18,000 TEU)
18,000
16,000
E “Emma” Class
(12,500 TEU)
14,000
12,000
10,000
S “Sovereign” Class
(8,000 TEU)
8,000
6,000
4,000
2,000
0
L “Lica” Class
(3,400 TEU)
R “Regina” Class
(6,000 TEU)
Supply Chain Differentiation: Pick Your Preference
Costs (38%)
Stability of the cost
structure.
Relation with the
cargo being
carried.
Time (12%)
Influence inventory
carrying costs and
inventory cycle
time.
Routing options in
relation to value /
perishability.
Reliability (43%)
Stability of the
distribution
schedule.
Reliability can
mitigate time.
Comparative Advantages in Supply Chain
Preferences: A Complex Balancing Act
Shipping Rate from Shanghai for a 40 Foot Container, Mid 2010
Vancouver
Montreal
$2,300
$2,110
$4,040
$3,950
Time
New York
$3,700
$1,830
Los Angeles
$2,620
$1,400
$3,510
$2,560
Inbound rates: function of distance
Outbound rates: function of trade
imbalances
Houston
Reliability (?)
$1,300
$2,100
Inbound
Outbound
The “Terminalization” of Logistics
Terminalization
BottleneckDerived
•
•
•
•
Terminal as a constraint
Rational use of facilities to maintain operational conditions
Storage space, port call frequency, gate access
Volume, frequency and scheduling changes
WarehousingDerived
•
•
•
•
Terminal as a buffer
Incorporating the terminal as a storage unit
“Inventory in transit” with “inventory at terminal”
Reduce warehousing requirements at distribution centers
CRB Index (CCI), Monthly Close, 1970-2011
800
700
Paradigm shift in input costs…
Reaping the consequences of
monetary policy.
600
500
400
300
200
100
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
0
100
Jan-70
Jan-71
Jan-72
Jan-73
Jan-74
Jan-75
Jan-76
Jan-77
Jan-78
Jan-79
Jan-80
Jan-81
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
West Texas Intermediate, Monthly Nominal Spot Oil
Price (1970-2011)
140
120
This is also going to propagate
along supply chains. Response
from shipping companies: slow
steaming
80
60
40
20
0
Conclusion (Take 2): 3PLs as the Emerging Supply
Chain Management Paradigm
Shift from shippers and carriers to 3PLs
Inherent propensity to cluster around commercial gateways
Customs procedures as the most salient issue for the industry
Significant knowledge gap (operational and education)
Expertise dominantly in import logistics