Transport and logistics are vital to organizations in the retail, wholesale, manufacturing and distribution industries. These functions serve as the backbone of the supply chain management process. In 2011, Data Monitor reported that logistics outsourcing was worth about $15 billion, with a compound annual growth rate (CAGR) of 5.82 percent. However, factors such as the post-recession environment, rising costs, and a highly competitive market is making growth difficult in an industry where supply now exceeds demand (2014 Third Party Logistics Study: The State of Logistics Outsourcing, Capgemini Consulting).

As shippers and companies face pressures to reduce operational costs and manage changes in the supply chain while increasing top line growth, the need for transport and logistics expertise is more important than ever. Because logistics functions account for a significant portion of corporate budgets, companies are always looking to improve the process and cost efficiencies of their logistics operations. The Capgemini study showed that use of outsourced logistics services is rising among companies in general, and both buyers (70 percent of respondents) and vendors (69 percent) are equally satisfied with the communication and transparency of their partnerships.

Most firms outsource transport and logistics functions to reduce costs, increase revenue, and improve capabilities (Logistics Outsourcing: Is It Right for Your Business, The Progress Group). Some companies outsource due to a lack of understanding of the logistics process and to determine the true cost of running supply chain functions. Companies find that experienced providers are better positioned to integrate their logistics activities and simplify supply chain management. Some are finding success and gaining better value by partnering with a single logistics vendor that provides multiple and end-to-end services, including transport, warehousing, freight forwarding, and materials planning.

Logistics and Transport Service Challenges

Shippers and companies face many challenges that providers are aiming to address more effectively:

Long transit times. For most companies, the time it takes to deliver products or services to the consumer directly affects cash flow. Slow transit time means later payment, with cash being tied up instead of being available for activities that further increase revenue.

Cost pressures. Logistics companies and shippers face mounting pressures to increase revenues while reducing operating costs. There is a growing need to maximize resources, particularly for small and medium-sized businesses, and minimize environmental impact.

Lack of understanding of logistics operations. Few companies can claim logistics as a core competency, and firms often do not have the resources to build in-house expertise to understand the inner workings of supply chain functions.

Corporate restructuring. Some firms are facing pressure to reduce headcount and trim their asset bases to achieve short-term improvements.

Transport and Logistics Outsourcing Solutions

Cost savings. Capgemini reported that shippers and companies that outsource transport and logistics to third parties saw an average of 11 percent and 23 percent reduction in logistics costs and fixed logistics costs respectively, and an average of 6 percent reduction in inventory costs. Training, staffing, paperwork, and audit expenses are also eliminated.

Innovation. Third party logistics vendors provide innovative methodologies and techniques to improve logistics processes and enable companies to easily scale up and down and meet changing business goals.

Access to domain expertise. Logistics providers are up-to-date on technology and logistics development and have in-depth knowledge of industry best practices. They have the tools to streamline inventory management, simplify reporting and improve visibility of the entire process. For example, 3PL providers use just-in-time applications to ensure that the right amount of inventory is shipped according to need.

Comprehensive solutions and process optimization. A 3PL provider can offer a cost-effective, all-in-one solution, from assembly to warehousing to distribution. Each step of the supply chain can be optimized using the most efficient and cost-effective method. For example, sophisticated supply chain management software can analyze and monitor practices and eliminate trouble spots.

Better resources. Providers have a deeper and wider network of resources that allows each stage of the supply chain to be executed in the most cost-effective way. 3PLs have longstanding relationships with other vendors and can offer volume discounts, leading to reduced overhead and faster transit times.

Better scalability. 3PL providers can easily scale labor, transportation and space according to inventory demands. During slow or peak periods and sudden market changes, the provider ensures that transitions are stress-free by mobilizing resources only where and when they are needed.