When it comes to logistics and transportation, the lines between services and service providers have become blurred. Transportation companies are becoming 3PLs, logistics providers are stretching into warehousing and distribution, and distribution companies are providing supply chain engineering services. There are few single service providers left.

The expansion of services can be attributed to globalization. As the supply chain has expanded in length and complexity, service providers are finding themselves being asked to do more, particularly as the goods reach North America. After many years of focusing on getting the goods into the port, there is renewed interest in the ‘in North America’ part of the supply chain. It makes for a challenging business environment, but a little research shows that transportation and logistics providers are rising to the occasion.

A changing relationship

Tom Mentzer, Executive Director, University of Tennessee Integrated Value Chain Forums, says he has seen an evolution in the transportation industry. “There has been a transformation [for transportation companies] from being a trucking company to a supply chain company,” he says. It makes sense. Time and miles are money so in order to maximize the use of limited capacity, advance shipment planning benefits both the shipper and the carrier. “Carriers are establishing information systems that allow them to plan out shipment patterns and are looking for shippers that want this sort of collaborative relationship,” says Mentzer.

Mentzer says this shift in the transportation industry is primarily the result of infrastructure and capacity deficiencies, coupled with rising transportation costs. Where once transportation was the low cost part of the in-country equation, it has now become the highest cost element. This has led to a complete re-thinking of the supply chain, as well as a shift in the relationship between carrier and shipper.

“Where before our customers were chasing the labor rate, they are now chasing fuel,” says Chuck Odom, Vice President Global Development, Averitt. Odom says that this has caused clients to re-evaluate their sourcing, and consequently their supply chain. Some companies have even gone so far as to move their manufacturing to Central America in order to be closer to the U.S. market. “Speed to market becomes 9 days versus 30 days,” says Odom.

Proximity though is just one part of the equation. Driver and equipment shortages along with deficits in the country’s infrastructures have put additional pressure on the ground transportation systems. Mentzer says that carriers are now playing a role in which they must educate shippers about the constantly changing transportation landscape while adapting their capabilities to keep pace with customer needs. But the responsibility also lies with the shipper who “must be more thoughtful in planning ahead if they expect carriers to commit trucks,” says Mentzer.

This collaborative relationship has seen many carriers stretch beyond their traditional roots in truckload or LTL to a more fully integrated service provider. “Our customers were needing things other than just transportation and with the rise of 3PLs, we wanted to be more than just a commodity,” says Phil Pierce, Executive V.P. Sales & Marketing, Averitt. The company, which began primarily as an LTL carrier, has long since made the transition to a multi-service company and has several clients for which it is the single-source provider.

“We are becoming a true strategic partner to our clients,” says Pierce. Like Averitt, many service providers are reaching outside the traditional boundaries of logistics to offer even more expanded services to its clients. Activities such as product sourcing, manufacturing site location services (both domestic and international), coordination of deliveries from multiple sources, and direct-to-consumer delivery are becoming commonplace. Most recently, Averitt has aligned itself with an engineering firm that specializes in packaging in order to help its clients optimize the packaging section of their supply chains.

Keeping it simple

While there are customers looking for complete solutions, Tom Escott, President, Schneider Logistics, cautions against making things too complex. Today’s shipper is extremely knowledgeable—they know what they need and want to see results and numbers supporting those results. “Sometimes it’s better to do things that are simpler, where the value proposition is clearer,” says Escott. Rather than expecting their transportation or logistics company to meet every need, many clients are looking for quality services in the areas that matter most to them. Escott says that things like freight brokerage, or products such as Schneider’s Transportation Advisory service, while only a small part of the 3PL puzzle, are meeting the needs of shippers. “For both, the value proposition is clear, there is a rapid return, the time to implement is quick, and the investment is low,” says Escott.

Rather than providing end-to-end solutions all of the time, Escott says that some Schneider clients only need such a service for a short period of time. “Most customers build supply chains that work for normal replenishments, but when there’s a promotional event that demands increase amounts of stock, the regular supply chain doesn’t work.” Schneider offers clients a Special Events product that handles such situations. “It addresses a clear need,” says Escott.

Shipping is a balancing act, particularly once the goods reach North America, where there is a constant tension between port issues, such as congestion and dwindling capacity, with increased consumer demand. And the problem is getting more intense. “Our capacity surges [times like the fall which leads up to the Christmas rush] continue to be shorter and the peaks more elevated,” says Escott. This presents a huge challenge for shippers and carriers who must be creative in coming up with solutions. “It’s a constant challenge of balancing commitments of capacity with customer needs.”

Not just storage

The evolution of supply chain services has continued into the distribution and warehousing arena. Where once goods were simply shipped in, stored for a period of time and shipped out, there is now a demand for more complex, value-added services. “There has been a shift in the things that are being done in the distribution centers. Companies are now trying to delay the final form of the product for as long as possible,” says Mike Peters, First Vice President, ProLogis Solutions.

This has resulted in changes in distribution center design. “The DCs of the future will be more of a hybrid,” says Valerie Bonebrake, Executive Vice President and Chief Logistics Officer, Meridian IQ. “They will be part deconsolidation, part consolidation and execution, and part for more standard operations.” The new centers will be geared toward providing value-added services- anything from packaging to consolidation, or even reverse logistics.

Customers are also asking for services and space on multiple continents. Meridian IQ whose parent company, YRC Worldwide, operates one of the largest transportation companies in North America has experienced significant growth by linking its transportation services to its distribution centers, both in North America and overseas. “Our focus now is to help the customer right from the factory door, rather than just from the port,” says Bonebrake. In order to keep the products flowing, she says that there is increased use of cross-docking and flow through at the distribution centers to increase velocity and get inventory out of the supply chain.

The incredible explosion in the number of products available to consumers—‘product proliferation’—means that companies have to ensure constant product availability. All companies are working to take minutes and inventory out of the supply chain, yet at the same time, absolutely must ensure that the product is available where the customer wants it, when they want it. With longer supply chains, has come longer lead times, which means companies have begun carrying more safety stock. “It’s creeping up on us—everyone is making improvements in velocity, but at the same time they are continually adding more products to the system,” says Peters.

Many service providers are finding themselves handling not only the shipment of goods out of the distribution center, but are now handling the return of goods as well. “We do offer reverse logistics for specific customers where we do collection back to our DCs, and within our own network we do some repackaging and reassembly,” says Tony Zasimovich, Vice President International Services, APL Logistics.

Eliminating nodes

As a product moves through the supply chain, every time it is altered or touched adds both time and cost. Eliminating these nodes can have a huge impact on the velocity of a customer’s supply chain, which speaks directly to their bottom line. “From large retailers to global manufacturers we are seeing more store-direct programs. Instead of twelve steps we’re down to three—receive, stage and ship,” says Averitt’s Odom.

Funny enough, in order to hasten the North American part of the supply chain, the service providers are reaching beyond the border. “Shipments are even being billed while they are still on the water,” says Odom. “The customer is learning that the distribution center is truly the ship, plane or train; that’s where the product is being distributed from.”

Schneider’s Escott says that eliminating hand-offs throughout the customer’s supply chain is more of a supply chain transformation project, one where there is a need to re-evaluate from end-to-end in order to make the entire process more free flowing. “It takes a big commitment to change [on the part of the customer] that involves the process, facilities, location, business methods.” It is a long-term undertaking and one that is increasingly being done in partnership with a service provider.

Mentzer agrees, saying that some companies are re-thinking the way they do their supply chain as a result of sky-high fuel prices and that is changing their service needs. “Package freight begins to look like a more viable alternative, where before it used to be too expensive.” The classic example, says Mentzer, is Dell computer who has parts shipped to a distribution facility where the final product is then assembled. “It’s cheaper to fly components to Memphis and assemble the computer there.”

His other example is a clothing retailer that has a distribution center in Jacksonville, Texas. “The cost of sending trucks out to multiple stores was killing them” explains Mentzer. The company worked with its supply chain partners to reconfigure its entire distribution center in order to accommodate a more effective distribution strategy. As a truckload came in from a specific manufacturer, that load would be pulled, divided and sorted by store destination. Then, everything going to one particular store would be pulled from the warehouse and sent out at one time. “They cross-docked 70 percent, repackaged it, and sent it out, working on a ‘container-in, container-out’ model,” says Mentzer. The retailer’s distribution requirements increased as the system was streamlined, but they reduced their transportation requirements and costs.

“Our mantra is to try to provide end-to-end solutions and to try to control and eliminate hand-offs,” says APL Logistic’s Zasimovich. That’s partly why there has been a spate of consolidations in the industry. Not only are service providers trying to cover the total supply chain, but they are trying to do so in multiple countries. As an alternative to consolidation, others have formed strategic partnerships with other supply chain service companies.

Information vs. assets

Never before has information played such a critical role in global trade. In fact, it could be argued that transportation and logistics companies are now as much about information technology as they are shipping. As goods are produced around the world, and shipped across multiple borders via numerous modes of transportation, massive amounts of information are constantly being collected, analyzed and disseminated.

“Carriers are substituting information for assets,” says Mentzer. This is supported by Escott, who says the Schneider has invested heavily in analytics to help support the entire supply chain. “The more we know, the better we can help our clients,” he says.

“We have made acquisitions where technology was key,” says Escott. Information systems have become the nerve center of all logistics and transportation services. Timely information allows carriers, or any service provider, to plan and execute the most efficient and cost-effective moves for both the shipper and the carrier and to adjust for changes or delays.

“In some ways we’re moving toward the petroleum industry example of 30 years ago,” says Mentzer. “Companies knew where the ship was, when it hit the port, when and where the oil was in the pipeline, and most importantly, when it was time to switch over to an alternate source.” The same applies to companies trying to meet the insatiable demands of today’s consumer.

While everyone agrees on the importance of achieving total visibility, it is difficult to accomplish across the entire supply chain, with all partners having access to shipment information at all times. Averitt has put their money where their mouth is by creating their own technology—Averitt O.N.E. portal. The tool allows all of a client’s transportation partners to access shipment information in one place. “It’s an answer to a need, and it has had tremendous uptake,” says Pierce.

One thing is clear—regardless of whether the company provides transportation, distribution or logistics services, customers will continue to demand more from the service providers they rely on. It’s a double-edged sword—do it well, and they want more. “Ultimately all companies strive for partnership. We try to meet the client wherever they are,” says Bonebrake.

Sidebar: Linking to the Final Customer Remains The Ultimate Goal

While the market wants to go to direct-to-client delivery, we’re not really there yet say logistics experts. “It will come one day, but not yet,” says Tony Zasimovich, Vice President International Services, APL Logistics. “There are still too many steps, and the cost and economies of scale just aren’t there yet.”

There are some examples of small package services direct from the manufacturer to the customer, but these are still rare. However, while overseas shipments direct to consumer may still be few and far between, that’s not necessarily true for domestic shipments.

Valerie Bonebrake, Executive Vice President and Chief Logistics Officer, Meridian IQ, says that Meridian handles domestic direct-to-consumer shipments. “In those cases, the goods come either from the DC or supplier direct to the customer and sometimes will entail inside set-up and delivery.”

Zasimovich feels that it’s only a matter of time until direct-to-client delivery becomes more widespread. It makes sense. If you look back years ago, most of the merchandise shipped from overseas was going to a retailer’s warehouse. Those retailers now have a presence overseas and so are shipping direct to stores in order to increase the speed of goods through the supply chain. It’s only a matter of time before the market demands direct-to-consumer.

In anticipation of this, APL Logistics along with Con-way Freight, has recently introduced a service it calls OceanGuaranteed. Essentially, the company will guarantee delivery of less-than-container load (LCL) shipments from China to anywhere in the U.S. “This service was developed in anticipation of direct to home delivery,” says Zasimovich.