I’m kicking off a new study on Managed Transportation Services (MTS). In an MTS arrangement, a shipper contracts with a third party to plan and execute their moves for them. In other words, instead of having internal planners plan and execute moves, those planners are employed by the MTS supplier, but work on the shipper’s behalf.
Managed transportation arrangements are based upon different operating models. In some cases, the 3PL also acts as a broker and has secured agreement from the shipper to broker some loads into their network. Some 3PLs are also carriers and these managed service arrangements include the understanding that a portion of the loads will be brokered to transportation assets owned by the 3PL. Finally, some managed transportation arrangements are pure outsourced service agreements strictly for planning and execution activities only.
For this study, I am looking at the planning and execution activities where the 3PL serves as an outsourced transportation department for a customer. This study is restricted to revenues generated from control tower environments. A transportation control tower is a central hub where all the 3PL planners reside, contains a transportation management system, and includes technology capable of providing real-time, multi-party visibility to transportation information.
While the 3PL market has seen some growth slow-downs, the MTS side of the business has been consistently fast-growing. The main driver for this growth has been the strong return on investment (ROI) from an MTS relationship. ARC Advisory Group has conducted multiple surveys that explored the ROI of both TMS and MTS, with the last two surveys taking place in 2014 and 2016. In the 2014 survey, 9 percent of respondents reported more than 12 percent freight savings from their MTS arrangement. However, at that time, 11 percent of respondents reported that the managed transportation arrangement actually increased their freight costs. In contrast, by 2016, 32 percent of respondents reported savings of 12 percent or more, and only 4 percent of respondents reported that the managed transportation arrangement increased their costs.
The key differentiator here was whether or not the 3PL was using a Transportation Management System (TMS) or Transportation Execution System (TES). Managed transportation arrangements that delivered freight savings of more than 12 percent almost always included a TMS implementation rather than the use of a TES with limited optimization capabilities. In most cases when a TMS was implemented, the shipper allowed the 3PL to use their standard TMS rather than specifying the TMS to be implemented.
Keeping service levels high is also a key component to the MTS model. By that, I mean that no one is going to be happy with lower freight costs if service levels decline. According to our research, 46 percent of respondents reported improvements in service, with just 8 percent reporting that the managed transportation contract reduced their service levels. The remaining 46 percent indicated no change in their service levels.
Historically, other growth drivers for the MTS market have included improved products from the 3PLs, the increasing ability to provide real-time visibility and shipment estimated time of arrival (ETA), new entrants to the market looking to complement existing services, and the overall under-penetration of the market. As I talk to 3PLs during the research process, I’ll be interested to see if these same trends are still driving growth today, what the new growth trends are, and where they see the market going in the next five to ten years. I imagine there is still significant room for growth.