I was talking to CEO of a 3PL that provides co-managed transportation and other logistics services. The CEO mentioned that they have more than a billion dollars in freight under management. And that is where I asked a somewhat rude question: “What does it matter how much freight is under management? When 3PLs talk about being able to leverage their freight spend to get better rates for their shipper customers I’m always skeptical. This is not like Walmart getting a price break based on volume buying from their suppliers. If the carrier’s network does not line up with shipper origin and destination locations, the carrier can’t offer good rates.” There is a good CSCMP article that makes the same point I made.
The CEO agreed this was true. He saw freight spend under management as a marketing spiel that can be largely ignored by savvy shippers. What does matter is the expertise the managed services provider brings to the table. He did mention that a large spend with a carrier can get you better service.
Clearly, LTL pricing is particularly tricky. A LTL carrier can offer a 70 percent discount on a tariff. So if the initial cost was $1,000, the shipper pays $300. A different shipper with a 80 percent tariff is paying $200. Calculated from the low rate shippers perspective (using $200 as the denominator), the high rate shipper is paying 50 percent more!
Part of what a good managed services provider brings to the table is the ability to just eye ball a contract and understand it is way off. But 3PLs can also leverage the data they have collected on carriers’ lane by lane performance to understand when a carrier’s network is well aligned with key lanes for a shipper. Thus, it is not really a leveraged spend benefit, it is a leveraged data and expertise advantage.
I’m also in the midst of a ROI and benchmarking study of managed transportation services. The benchmark portion of the study involves interviewing survey respondents that have achieved particularly strong freight spend savings while maintaining or improving service levels. One shipper I talked to is a Transplace managed transportation services client. Transplace uses an internally developed transportation management system that is built on a multi-tenant architecture. What the multi-tenant architecture allows them to do is to easily leverage the data that flows through their system and see the billions of dollars of spend of their clients – on a lane by lane basis – and provide benchmarking that shows whether the shipper is paying above market, average market rates, or significantly less than market. The data is aggregated so that the rates a particular shipper paid are not revealed.
However, this customer was not able to use the Transplace benchmark data. He had to go out and prove the stellar results they were getting using a different third party’s data because management would have doubted the results, fearing that Transplace was using dummy data to justify an ongoing relationship. The third party data proved the performance was indeed excellent.
Finally, if you would like access to the ROI and benchmarking study ARC is doing, just take the survey. All valid respondents will get the full report.