#COVID-19#3PL

How COVID-19 has transformed the logistics and 3PL industry

Jaap Bruining, Head of Europe at Coyote Logistics, discusses the business benefits of 3PL services and the industry’s transformation due to COVID-19

|Jul 31|magazine26 min read

 “In Europe — and many places around the world — the term “3PL” (third-party logistics) can encompass a wide range of services and shipping solutions,” says Jaap Bruining, Head of Europe at Coyote Logistics. These solutions include the likes of Less than truckload (LTL) and truckload brokerage, intermodal, transportation management, freight forwarding, value-added logistics, warehousing, reverse logistics and final-mile. “3PLs also service a wide range of businesses, both large and small. But, the main takeaways are that not all 3PLs provide all services, and for every facet of the supply chain, there are 3PLs that offer shipper and carrier solutions.”

With this in mind, Bruining explains that the global freight market is large, complex, and fragmented. “The higher the complexity, the more attractive it is to outsource to a 3PL provider. Taking Coyote as an example: we ship 10,000 loads per day and have a global team of 200 IT staff to continuously improve processes and with that our customer and carrier experience. It’s difficult to replicate that in-house. Another example: if you’re a relatively small company with thousands of different customer addresses across Europe, it will be labour intensive to cost effectively outsource this to dozens of different carriers who will each have their own geographical strengths. That is where 3PLs come in.” Bruining goes on to explain when 3PL services are beneficial for both carriers and shippers:

“For carriers, keeping their trucks loaded and moving profitable freight is the number one priority. While many work directly with shippers to source freight, it is extremely difficult to have every driver loaded in every direction all the time. This is especially true for smaller carriers, who do not have the sales resources or fleet size to build relationships with a huge network of shippers. By working with a 3PL provider, carriers gain access to thousands of shippers (and their loads) whenever and wherever they need them. They also get a representative that manages the entire quoting, booking and tracking process. For shippers, working with a 3PL provider gives them access to the carrier capacity they need. Similar to carriers, while most shippers will develop direct relationships with carriers, they do not have the internal resources or shipment density to procure 100% of the capacity they need. 3PLs help to fill in the gaps, as well as provide flexibility. No matter where they need their goods picked up and where they need them delivered, a scaled 3PL can help quickly connect their shipment to a carrier looking to move a load in that lane. By handling this entire booking and shipping process, and offering support throughout, 3PL providers give shippers time back to focus on other parts of their business. Additionally, many 3PL providers offer multimodal solutions, which means they can connect shippers to several types of trucks, such as flatbed, lorry, refrigerated van and many others. This dramatically streamlines the procurement process, which lends to cost efficiencies.”

When it comes to emerging trends within the industry Bruining contemplates that “it is difficult to separate “current trends” and “technological trends” within the standard and third-party logistics space. Even trends that are not centred on a tech product are often made possible through technological advances.” For example Bruining details the rise of ecommerce which has been a pervasive force throughout the global supply chain, but the level of service is only possible with the use of sophisticated operating , planning and inventory systems. “The e-commerce trend is driving faster, more efficient shipping, high inventory turnover and inventory staged in forward locations near consumers. There has been a huge influx of 3PL providers to help support this incredibly complex supply chain, providing a wide range of service.” As a result, “ecommerce has amplified the importance of the supply chain function in almost every business that ships physical goods. Some companies are choosing to make tremendous investments to build out the function internally, while many others are looking to 3PLs to outsource the function.” Another trend that Bruining has seen emerge is the demand for flexibility. “As the world becomes increasingly globalised, and consumer demand for fast and free shipping keeps climbing, so does the demand for 3PL services. Not only does the industry continue to grow, but 3PLs share of shippers’ routing guides continues to grow. 3PLs are also expanding their scope of services, giving shippers access to more solutions without managing more relationships.”

The impact of COVID-19 and how it is transforming the logistics and 3PL industry

With the effects of COVID-19, significantly impacting supply chains around the world, Bruining explains that “the shock to international supply chains since the pandemic broke out has been unparalleled. In April, global air freight capacity was down 38.7% year-on-year as passenger flights were taken out of commission, causing air freight rates to surge. ‘Almost all trade lanes across the world are seeing double-digit air cargo capacity declines compared to last year," says Philippe Gilbert, President of Supply Chain Solutions at UPS (Coyote Lositics’s parent company).

“With transatlantic air cargo capacity down 44% from the United States into Europe, and 58% in the reverse direction. Charter rates are running four to six times higher than normal, though we expect rates to come down as passenger air capacity recovers some ground in the coming months,” adds Bruining, who describes the phases Europe has experienced so far. “In Europe, we have seen two phases, the first phase was in March where not only facilities closed but also borders got difficult to cross for trucks. During this phase there was a lot of confusion and uncertainty and conditions from the people driving the trucks were very tough. We are now in the second phase, most unclarities around border crossings have been resolved. That said, a lot of facilities are still closed, with some industries hit significantly harder than others, resulting in a sharp drop in demand, estimated to be around 30% across Europe. Carriers have been struggling during this phase but as we see a gradual opening up of facilities, demand is slowly recovering. As a result of all of this, there has been a need for the industry to handle the situation dynamically.” 

Since the outbreak of COVID-19, Bruining states that the pandemic has certainly been testing the global supply chain, highlighting the importance of innovation. “From a desire for greater resilience to the accelerated adoption of warehouse automation and alternative transportation modes, the crisis is throwing open a new world of challenges and possibilities. But it’s not only about improving supply chain resilience, it’s also about driving innovation at the same time. Companies that double down on innovation now will maximise their chances of emerging from the pandemic in good shape.” As a result of the pandemic, Bruining has seen the deployment of robotic process automation (RPA) and autonomous vehicles for moving and storing products accelerate further. “Although the trend lines were already in place, the reality of managing supply chains in the era of COVID-19 has dramatically upended old ways of doing things. Take physical distancing and stay-at-home orders, which are already having a deep impact on distribution and logistics. Warehouses that use robots may not only be more efficient but might be less likely to shut down if workers get sick.” With supply chains being reconfigured in response to the pandemic, Bruining predicts many organisations will relocate their operations to regions where free trade agreements are in place, particularly for companies now reviewing the finer detail of their supply chains. For similar reasons, an increased appetite for shorter supply chains is expected to drive a rise in nearshoring.”

Undoubtedly, like many others Bruining has witnessed an acceleration in the digitalisation of processes, not just in terms of consumer behaviour but also within companies. “What we have been seeing is that on the carrier side, carriers have become much more interested in engaging digital freight brokers like Coyote Logistics. On the customer side, we see people moving from telephone communication and meeting in person to online chatting, video conferencing and EDI/API integration. We have also seen customers finally accepting to move from paper to digital invoicing and PODs. As a company with a heavy foundation in technology is a big advantage to us.”

The future of 3PL logistics in a post COVID-19 world

Without a doubt Bruining states that “this has been the most difficult shipping environment for supply chain and logistics professionals in our observed history, but as an industry, we’re continuing to produce and deliver the essential goods that we all need to survive. As tough as the previous quarter has been, and though we are far from a full recovery, we believe that we have passed through the trough and have begun the climb upwards.”

With COVID-19 revealing for many organisations that they have a lack of visibility in the further reaches of their supply chain, Bruining expects to see a move toward improved visibility as the pandemic unfolds. “Technology has a key role to play here. Advanced data analytics will prove pivotal in helping firms gain more visibility into their supply chains and better mitigate anticipated disruption. Strengthening communications with Tier 1 suppliers is another vital element of improved visibility. When dealing with primary suppliers, it’s important to properly understand where they source from and any supply chain risks associated. Being able to act on this information will ultimately increase the resilience of your extended supply chain. This may mean diversifying your supply chain by proactively developing relationships with alternative manufacturers, allowing you to shift operations more quickly in response to disruption.”

Other expectations that Bruining sees for the future of supply chains and logistics is “a greater focus on inventory management, with lights-out warehousing and redundant inventory becoming commonplace. The adoption of lights-out warehousing, where facilities depend increasingly on automation and require few staff, alongside an emerging appetite for redundant inventory—or excess stock—mark what some suggest will be a swing away from an outright emphasis on efficiency to a more nuanced approach to supply chain health.” Bruining concludes that “while we are in the depths of one of the worst economic environments in modern history, we will recover, and we don’t believe it will be in the distant future.”

Actions for shippers to take in preparation for the bounce back post COVID-19

  • Develop a thorough return-to-work strategy - whether you are totally dormant right now, or just have some portion of your workforce operating remotely, you need to document your process and communicate it with your employees
  • Contact your strategic providers - whether it’s a supplier or a carrier, you need to know what will be available to you in the coming months, both in terms of inventory and how you’re going to move it
  • Add flexibility - find out ways to simplify production. Pare back product lines and minimize SKU counts. Make the shift with a mind towards in-home consumption. Work with providers that are going to be able to help you pivot quickly
  • Have a solid understanding of what money is owed to you - now more than ever, every pound counts, make sure the well-deserved revenue you earned is getting into your account
  • Re-examine your network needs - things have changed dramatically over the past few months, and the usual lanes you used to run may no longer be valid, make sure you have a clear understanding of what your network looks like today
  • Have a strategic call with your shippers - if you work with shippers, especially those that are not currently shipping, reach out to see what their forecasted needs are, go beyond a ‘what-can-I-get-this-week’ and try to get a realistic look into their supply chain needs for the remainder of the year

- Jaap Bruining, Head of Europe, Coyote Logistics 

READ NOW
SIGN UP NOW