Post on 19-Dec-2015
4th Translog Conference, Hamilton (Canada), June 15-16 2011
The Functional Relations between Third Party Logistics and Intermodal Transport Systems
Jean-Paul RodrigueAssociate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA
Marc-André RoyVice President, CPCS - North America, 72 Chamberlain Avenue, Ottawa, Ontario, Canada
The Product as a Supply Chain…
iPad 1 (2010)iPad 2 (2011)
25.4
cm
3.1 lbs.2.8 lbs.
19.8 cm
20.3 cm
4.3 cm 5.1 cm
Let’s Begin with the Conclusion about 3PLs…
Growing organizational and functional complexity
Blurring of roles and services
Asset stigma
Significant clustering of actors
Layers to Logistics Services
1PL
2PL
3PL
4PL
Manufacturing, Retailing
Transportation
Logistics
Supply chainmanagement
Cargo owners
Carriers
Logistics serviceproviders
Lead logistics providers& consultants
Supply chain integration
Actors Services
Service integration
Third Party• A firm other than the
BCO, and usually but not necessarily independent of the carrier(s).
Services• Range of logistics
services provided can be narrow or wide, regional or global, sector or commodity specific.
Assets• 3PLs can be asset-based
(operator of modes, terminals or DCs) or non-asset based (forwarding, planning, consulting) logistics services providers.
Value Added• Value is supply chain
specific (e.g. time or cost, increased reliability) rather than specific to physical characteristics of goods.
A firm that adds value to the supply chains of beneficial cargo owners, directly or indirectly, by providing a range of logistics services beyond the mere carriage of goods.
3PL: An Attempt at a Definition
3PLs control 40% of the global TEU in transit through maritime shipping
Key Drivers for Third and Fourth Party Logistics Providers
Globalization• Supply chains becoming increasingly global (even within manufacturing
processes), requiring greater management of supply chains
Core competencies• Manufacturers and retailers are focusing on their core business (and
outsourcing logistics services to specialized firms)
Innovation and management• 3PLs becoming increasingly sophisticated in supply chain management,
making investments, realizing economies of scale
Asset utilization• 3PL model promotes greater asset utilization (e.g. balancing flows,
backhaul, within their networks) and asset-sharing alliances
Main Core Competencies of Third Party Logistics Providers
Sourcing Shipping
Warehousing Routing
TransportProduct
Getting Blurry: Services Offered by Third and Fourth Party Logistics Providers
3PL ► ◄ 4PL
Standard Advanced Complete IntegratedTransportation servicesCarrier selectionRate negotiationFleet managementWarehousingCross dockingPick and PackDistribution (direct to store/home)DispatchingDelivery documentationShipment consolidation
Vendor managed inventoriesStock accountingCustoms clearance and documentationAssemblyPackaging LabelingManaging product returnsFinancingRetail delivery, set up and on site training Inventory tracking
Order planning and processingInformation and Communications Technologies (ICT) managementSingle invoiceLanded duty paid cost (per piece)Payment collectionReal time inventory updatesJust in Time (JIT) inventory management
Production planning SourcingRouting transit times air vs. ocean Supply chain consultingComplete real time supply chain monitoring and adjustment
Location of 3PLs in Canada by Number of Employees
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Reflective of the Canada’s commercial geography of gateways and corridors.
Ontario: 50.2% of employees
Location of 3PLs in Canada by Number of Headquarter Employees
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Reflective of the Canada’s urban hierarchy and cross-border intensity.
Ontario: 64.2% of headquarter employees
Asset and Non-Asset Issues
■ Asset Stigma• Perception that an asset-based firm will be pressured to route
flows through its own assets.• Majority (85%) of 3PLs brand themselves as non-asset
based (may lease facilities or use hybrid model).• Large 3PLs:
• Greater share of asset-based firms.• Networks of assets.
• Small / micro 3PLs:• More alliances (sharing of assets).• Smaller long-term commitments to assets and more focus on being
agile.
The Clustering of 3PL Activities: Observed Patterns
Transactional centric•A location within major central business districts where close interactions with major customers, in the form of corporate head offices, is key.
Airport centric•A location in proximity to a major airport terminal to effectively deal with the time sensitivity of air cargo.
Border centric•A location in proximity to a major cross-border gateway to assist customs-related procedures and take advantage of cargo consolidation / deconsolidation opportunities.
Port centric•A location in proximity to port terminals. This type of location tends to be coincidental with central business districts.
Quebec – Windsor Corridor: Location of 3PL Firms and Value of Freight Transiting at Gateways
Source: base data from Dun & Bradstreet, primary NAICS code 488510
The clustering of 3PLs around major ports of entry along the Quebec Windsor corridor is notable. Ambassador ‐Bridge is largest Transit Point, but not largest cluster of 3PLs. Largest 3PL cluster around Pearson Intl. Airport.
Asia Pacific Gateways and Corridors: Location of 3PL Firms and Value of Freight Transiting at Gateways
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Vancouver: Canada’s sole “all-centric” 3PLs cluster.
Clustering around Western Canadian cross-border ports of entry. Related to customs activities and represent a specialized and localized segment of the 3PL industry.
High concentration of 3PLs along the “sweet spot”; Louisville –Pittsburg. Market-centric 3PL clusters around centroids of optimal regional accessibility or intermediary locations along corridors of freight circulation (e.g. Allentown, PA)
Source: base data from Dun & Bradstreet, primary NAICS code 488510
Services and Commodities
■ Size matters• Degree of supply chain integration tends to increase
proportionally to firm size.• Largest firms most likely to offer a variety of service:
• Large 3PLs handle 90% of commodity/sector categories on average.• Focus on economic sectors characterized by economies of scale
(mass market) along with stable demand.• Some kinds of cargo (e.g. project cargo) are highly localized;
dominance of small / micros.• Large players use a broad network, while smaller firms use a
patchwork quilt of alliances.
Vertical and Horizontal Integration in 3PLs
Commodities Served(Horizontal integration)
Leve
l of S
ervi
ces
Offe
red
(Ver
tical
inte
grati
on)
Micro & Small
Medium
Large
Trade Focus
■ Import bias• General focus on 3PL services to imports, rather than
exports.• Importers also include pure freight forwarders who are
generally indifferent with respect to asset placement.• Micros were significantly more inclined to be import-focused.• Exports of raw materials:
• Tend to lean on economies of scale, move in large loads, have a limited number of buyers and few value-added activities involved.
• The expertise of 3PLs is much less required and the tasks are assumed by the carrier.
Main Export-Oriented Regions and Shipping Routes Servicing North America: A Shift to Near-Sourcing?
Intermodal (60%)
All Water (40%)
Western Canada (5%)
Pacific Northwest(20%)
Pacific Southwest(75%)
Mexico(?%)
Via Suez (5%)
Via Panama (95%)
Pacific Asia / American East Coast
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
The Big Port Squeeze: Largest Available Containership, 1970-2013 (in TEUs)
L “Lica” Class(3,400 TEU)
R “Regina” Class(6,000 TEU)
S “Sovereign” Class(8,000 TEU)
E “Emma” Class(12,500 TEU)
“Triple E” Class(18,000 TEU)
Supply Chain Differentiation: Pick Your Preference
Costs (38%)Stability of the cost
structure.Relation with the
cargo being carried.
Time (12%)Influence inventory carrying costs and
inventory cycle time.Routing options in relation to value /
perishability.
Reliability (43%)Stability of the
distribution schedule.
Reliability can mitigate time.
Comparative Advantages in Supply Chain Preferences: A Complex Balancing Act
$2,300$2,110
Vancouver
Los Angeles
Houston
New York
Montreal
$1,300$2,100
InboundOutbound
$2,620$1,400
$3,510$2,560
$3,700$1,830
$4,040$3,950
Inbound rates: function of distanceOutbound rates: function of trade imbalances
Time
Costs
Reliability (?)
Shipping Rate from Shanghai for a 40 Foot Container, Mid 2010
The “Terminalization” of Logistics
Bottleneck-Derived
•Terminal as a constraint•Rational use of facilities to maintain operational conditions•Storage space, port call frequency, gate access•Volume, frequency and scheduling changes
Warehousing-Derived
•Terminal as a buffer•Incorporating the terminal as a storage unit•“Inventory in transit” with “inventory at terminal” •Reduce warehousing requirements at distribution centers
Terminalization
CRB Index (CCI), Monthly Close, 1970-2011
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
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1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
100
200
300
400
500
600
700
800
Paradigm shift in input costs…Reaping the consequences of monetary policy.
West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2011)
Jan-
70Ja
n-71
Jan-
72Ja
n-73
Jan-
74Ja
n-75
Jan-
76Ja
n-77
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78Ja
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80Ja
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82Ja
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84Ja
n-85
Jan-
86Ja
n-87
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88Ja
n-89
Jan-
90Ja
n-91
Jan-
92Ja
n-93
Jan-
94Ja
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96Ja
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98Ja
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00Ja
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02Ja
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04Ja
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06Ja
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08Ja
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Jan-
10Ja
n-11
0
20
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140
This is also going to propagate along supply chains. Response from shipping companies: slow steaming
Conclusion (Take 2): 3PLs as the Emerging Supply Chain Management Paradigm
Shift from shippers and carriers to 3PLs
Inherent propensity to cluster around commercial gateways
Customs procedures as the most salient issue for the industry
Significant knowledge gap (operational and education)
Expertise dominantly in import logistics