A while back, I wrote about the managed transportation services (MTS) market. According to ARC’s definition, 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. The market study I am wrapping up 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. It also excludes brokerage revenues and revenues associated with moving the shipper’s goods in assets owned by the 3PL, hardware and software revenues generated during implementation of the control tower IT environment, as well as short term consulting work like network design.
When looking at the main growth drivers for the MTS market, I highlighted the strong 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.
While the ROI argument is clearly a key market driver, other growth factors exist as well.
Additional Growth Factors
First and foremost, MTS providers are providing better technology today. Historically, one of the leading complaints about MTS providers was that their technology was not good enough. As these companies overcome that barrier, potential TMS customers may increasingly choose the managed services path. For those MTS providers that also offer a TMS, this allows for a transition from one service model to the other, with limited interruptions to service levels.
As the global economy expands, there is an increasing need for global solutions. This has led to the ability to provide global solutions among a few of the larger providers. From a structural standpoint, more customers are looking for a solution that provides a full global view of their supply chain. Outsourcing the transportation side of their supply chain to a global provider can alleviate stress during expansion.
A third growth factor is the changing nature of customer expectations. As expectations change, and supply chains become more complex, especially with the rise of omni-channel and e-commerce, shippers must evolve in order to stay competitive. With a shortage of qualified supply chain talent, many companies are looking to outsource their transportation rather than bring it in-house.
One of the most important parts of transportation is real-time visibility and shipment estimated time of arrival (ETA). There is a proliferation of companies integrating external data sources, such as FourKites, project 44, 10-4 Systems, MacroPoint (Descartes) to name a few. MTS providers are using these data streams to provide real-time visibility and predictive ETAs. As the MTS providers differentiate themselves based upon this ability, the market potential grows.
Finally, the MTS market is a massively under penetrated market. The growth in the 3PL market as a whole has slowed, but the MTS market is still growing fast. The MTS market is only a small portion of the overall market, and is from a much smaller base than carriage, brokerage, forwarding or warehousing services. However, there is still plenty of room for the market to grow.
The MTS market has showed strong growth over the last few years and all signs continue to point to its growth. While the 3PL market has slowed in its growth recently, the small segment that makes up MTS is not slowing like the carriage, brokerage, forwarding or warehousing services markets. There are a few key growth factors for the market. First and foremost, there is a strong ROI tied to the MTS model. On top of this ROI, MTS providers are continuing to offer improved technology to their customers. Changing customer expectations and an increasing need for global solutions are also fueling growth in the market. The final growth areas include improved real-time visibility and ETAs as well as the fact that the market is simply under-penetrated. While MTS arrangements will always compete with traditional TMS, TES, and new free TMS offerings, the market is still poised for growth.