I’ve had 17 conversations with providers of managed transportation solutions (MTS) in preparation for eft’s 3PL & Supply Chain Summit in Chicago where I’ll be moderating a panel on this topic on June 15th. Managed transportation involves a shipper outsourcing the planning and execution of their shipments to a managed service provider. In this article, I want to highlight what I’m hearing.
Europeans and North Americans talk about this topic in different ways. In Europe, they often refer to this as a 4PL (fourth party logistics) service; in North America, we are more likely to call it “managed transportation” or “transportation management.”
When Europeans talk about a 4PL arrangement, what they are referring to tends to be more tightly defined and less flexible than what North Americans mean by “managed transportation.” For Europeans, 4PL means a logistics service provider managing other 3PLs as a single point of contact. They tend to think of these arrangements as being end to end in terms of the transportation process and existing across all modes.
The North American approach tends to be different. Some providers, Schneider Logistics, for example, are asset-based, which they argue is an advantage. Their shipper clients may have customers that demand high service levels, for example. Or their shippers may have lanes where they find it difficult to get capacity. Schneider can use their trucks in these instances, often in dedicated transportation arrangements. But, Schneider’s shipper customers have the final say on what carriers will be used, and which lanes they will be used on.
There are also brokers and freight forwarders providing managed transportation services in North America, often to small shippers that would have been considered too small to use these services in the past. The growth in this market has come from smaller shippers, even shippers with less than $5 million in freight spend. For a small shipper, a broker can often get better rates than the shipper could get for themselves. These MTS providers often make their revenues not by charging for transportation services, but based on the difference on what they pay the carrier and what they charge the shipper.
Another difference between North America and Europe, is that in North America a managed transportation deal does not necessarily cover the end to end process of network design, strategic procurement, planning, execution, and freight settlement. There is more flexibility in terms in terms of just doing some of these things for clients, but not all of them. For example, syncreon has very large high tech and automotive customers that prefer to do their own strategic procurement for carriers. But syncreon owns the rest of the transportation process.
There are also providers – BluJay Solutions, Transplace, C.H. Robinson TMC, and 4Flow that sell their own internally developed TMS and transportation solutions, or are willing to use their solution to do managed services on behalf of their customers. This allows for flexibility in deployment. A customer can start in a managed service arrangement with the firm intention of bringing transportation in house in a few years; or start with TMS and decide to outsource part of the transportation planning and execution process. BluJay, TMC, and 4Flow have control towers in all major regions of the world. And all are growing their MTS business quickly.
On the small carrier side of the market, which is the fastest growing segment, we are also seeing blended solutions, solutions that are part transportation management system (TMS) and part managed services. These solutions give the shipper a “free” TMS; the shipper then uses the route guide in the TMS to plan their loads. The route guide includes carriers that are part of the brokerage network of the managed services provider. When the planning is complete, the 3PL brokers the load. The 3PL makes their money on brokerage fees from tendered loads. Cerasis and Odyssey Logistics offer variations of this type of solution.
With the Odyssey solution, shippers start by loading their own carriers into their free WIN TMS. The condition for using this TMS is that Odyssey can see the shipper’s shipments, analyze the data, see whether some of the carriers in the Odyssey brokerage network could provide better service at a lower cost, and then be given the chance to bring these savings to the shipper’s attention.
Most of the biggest MTS providers have traditionally focused on very big shippers. Many are much more actively pursuing smaller shippers. I talked to an executive at Penske who mentioned that when he began at Penske, they did not have any MTS customers that with less than $100 million in freight spend that they were managing. Now they have some customers that have a freight spend as small as $3 million. Other MTS providers that were formerly focused on mid-sized shippers, are landing very large shippers. These include C.H. Robinson TMC, BluJay, and Transplace.
Big 3PLs – whether asset-based or non-asset based – that offer MTS as one of their solutions, tend to be some of the biggest suppliers in the MTS market. These include C.H. Robinson TMC, DHL, Echo Global Logistics, Geodis, Kuehne + Nagel, Penske, Ryder, Schneider Logistics, Syncreon, Transplace, and XPO. The largest MTS suppliers usually seek to leverage their visibility into the billions in transportation spend and freight under management under their control, and use that visibility to provide network advantages for their customers. I’ll cover this in more detail in my next article.