I sometimes feel like a relationship counselor. Navigating the complexities of a shipper and third-party logistics (3PL) relationship requires diplomacy, tact and a healthy dose of pragmatism. I never take sides. Generally, though, the shippers are the most vocal in their complaints, often accusing 3PLs of indifference, overcharging and deteriorating customer service. Some 3PLs are equally as vociferous at expressing the shortcomings of their customers. After all, is the customer always right?
Growing accusations by shippers of profiteering on the part of the 3PL community concerns me. What happened to all the goodwill expressed by shippers toward their 3PLs just a few months ago as the world grappled with the COVID-19 pandemic? While I am not one to take sides, it is interesting how some shippers are the first to cry foul when prices are increasing and the first to claim market forces when prices are in free fall.
Logistics leaders are grappling with seismic shifts in their industry. Unfortunately, some are looking for someone to blame. Over the past 12 months, ocean container rates on some global trades have increased by more than 300% compared to pre-COVID levels. In that same period, service levels, for many reasons, have rapidly deteriorated and are struggling to recover.
Carriers across all modes of transport have forced change in the way they manage capacity and pricing, no longer accepting bad behavior from the shipper community. Carriers are demanding better forecasts, greater transparency in capacity plans, and more loyalty and sustained support for a fair price. They control the assets and access to them. This pendulum shift in power base has sent significant shockwaves through the industry. I accept that the change for some has been too much, too soon and a more collaborative balance is required. However, it is necessary and over the long term will make for a more robust, resilient and sustainable industry.
Those logistics leaders who believe that technology will save the day might want to think again. I wholeheartedly believe that technology has revolutionized and, in many respects, improved logistics. However, our decades long obsession with it has also almost laid waste to those interpersonal skills that defined logistics as a people driven business. What will you do when your computer says no?
Value your 3PL partnership because it is your competitive advantage.
Where is the safe harbor for logistics leaders? According to a recent Gartner survey on logistics outsourcing trends, more than 65% of about 250 logistics leaders claimed that they intended to increase outsourcing over the next two years. In addition, nearly 70% of the respondents said that their 3PL service providers had a positive or extremely positive effect on their competitiveness. Surely the answer to that question is with their 3PL partners. If that is the case, why are some shippers so reluctant to embrace and value their 3PL relationships and truly establish a long-lasting and meaningful partnership?
I first published this graphic a few years ago. This sets out the influence of time, commercial value and service delivery on typical shipper and 3PL relationships.
I have seen this graphic presented back to me time and time again, so I am confident that shippers understand and accept the principle of what it is communicating. Some companies, like Lenovo and Unilever, demonstrate great partnership behaviors, which are reciprocated by their 3PL partners. Others… not so much, still stuck in their tactical mindsets and annual tendering carousels of ever diminishing returns.
If the increased outsourcing trends are to be believed, shippers must focus more of their time and effort in managing relationships rather than being hands on in executing tasks. In fact, relationship management is a skill that in many respects is woefully lacking in logistics. Working productively and collaboratively with a 3PL partner often requires more listening and less talking. Shippers must be prepared to manage their expectations and empower their 3PL partners to deliver the service for which they have been engaged. Too often we see critical shippers standing back and preparing for failure rather than leaning in and contributing to success.
The 3PL community has a lot to offer and the shipper community has a lot to gain. In the face of growing carrier influence and customer selection, shippers and 3PLs must work together to mutually protect their vested interests.
Gartner Supply Chain