A growing number of trucking companies and freight brokers, especially small and mid-sized ones, are looking to move up the value curve and become more than just providers of trucks or capacity for shippers. They want to become 3PLs — that is, provide shippers with managed transportation services.
That was the first question I asked the transportation providers who attended my presentation at the TMW Systems Transforum User Conference a couple of weeks ago. I received several responses from the audience, which boiled down to these two reasons:
- To diversify their business and create new revenue-generating opportunities
- To establish “stickier” (longer-term) relationships with their shipper clients
I offered yet another reason: Because a great market opportunity exists!
As the chart above illustrates, the majority of small and mid-sized shippers still don’t have a transportation management system and they still manage their operations in-house. For a variety of reasons (high cost of sales being one of them), most TMS vendors and 3PLs have historically underserved this segment of the market, focusing their sales efforts on large shippers instead. In contrast, trucking companies and freight brokers already have relationships in place with many small and mid-sized shippers. The challenge is moving those relationships up the value curve.
But how do they get there?
That’s the main question I addressed in my presentation (excerpted slides below), where I discussed many of the points I made in my recent blog posting, “If Operational Excellence is a Given, Then What Else Matters for 3PLs?” The main point I was trying to get across to the audience is that it takes more than implementing a TMS to become a successful 3PL; you also have to invest in the right people and take a more strategic approach to selling and managing customer relationships.
But implementing a TMS is certainly a piece of the puzzle, which is why TMW Systems, in response to customer demand, has enhanced its TMWSuite solution with transportation planning and mode selection capabilities. The new module, called TMW Mode Planner, provides rating, mode selection, multi-tier planning, and carrier selection capabilities. It’s a decent solution for a first version, but more work is required to close the gap with best-of-breed TMS offerings, which is why the company has hired experienced TMS developers from best-of-breed vendors to lead the effort.
The bottom line is that trucking companies and freight brokers are joining software vendors and consultants under the 3PL banner, and together they are going after a relatively large and untapped market opportunity: offering managed transportation services to small and mid-sized shippers. There are many good reasons to become a 3PL, but the road to success is anything but straightforward. In the months and years ahead, traditional 3PLs will face greater competition from new market entrants; shippers will have more partners to choose from, but they will also have to be more careful and thorough in their due diligence; and TMS vendors (if they aren’t already offering managed services or thinking about it) will see increased demand for their solutions from trucking companies, brokers, consultants, and other entities looking to get their piece of the small shipper pie.