Why More Brands are Outsourcing Transportation as Carrier Complexity Increases

Over the last decade, the transportation industry has experienced a rapid transformation. The rules have changed, making it more complex than ever to navigate and strike the right balance between cost and speed. Brands are realizing the complexity and turning to 3PLs to help streamline the process.

With a combined annual growth rate of nearly 18% in the US, the intense growth of the eCommerce industry is undeniable. This surge has placed the transportation and logistics industry under immense pressure as it grapples with the rapidly increasing volume of parcels entering the supply chain. Many forget that the term 'shipageddon' emerged before the Covid-19 pandemic. The term was coined during the 2019 holiday shipping crisis when millions of eCommerce orders missed Christmas delivery deadlines. This marked the initial escalation of capacity issues, only to be further exacerbated with the onset of the pandemic.

With industry growth showing no signs of slowing down and pivotal events causing national carriers to change their approach– cherry-picking business based on profitability and higher margins, rather than quantity, has become commonplace. Such a shift in leverage to the carriers, which resulted in brands facing new surcharges and volume caps, has meant that it is no longer viable to put all your eggs in one basket when choosing a carrier. In fact, as demand continues to outstrip supply, smaller regional carriers that were once overlooked have now become a necessity to guarantee capacity. A well-defined multi-carrier strategy is the key to success moving forward.

Navigating a new path forward

There is no denying that this direction of travel has added additional layers of intricacy to the landscape. Rather than handing all volume to one carrier, brands must now have multiple carriers in their network to ensure all orders can be fulfilled on time. This makes defining and executing a robust and strategic approach to transportation more important than ever.

Unfortunately, many mid-size brands don’t necessarily have the in-house capability to keep up with this new narrative. With a strong focus on product development, there are typically fewer resources to dedicate to operations. Even large enterprises are finding it challenging to keep up in a game that has changed so quickly and significantly in recent years.

While insourcing the transportation function is certainly possible, it is no longer a simple task and requires the right focus and skills for the job. After so much change, knowledge is power. The right person for the job must be savvy to the ways of the industry and be willing to stay abreast of the moving parts to ensure they can forecast for and navigate any potential risks to business continuity that may lie on the horizon.

Evolving your carrier network to reduce risk

Last year’s UPS strike serves as a prime example of why brands need to acknowledge the risks associated with single sourcing within transportation. As the market continues to evolve, alternative carriers are becoming more specialized in the background – carefully picking and sticking to what they do best.

For brands that know how to identify and leverage these qualities, an effective and diverse carrier network can be built. However, with an abundance of hidden costs behind every carrier’s rate card – including fuel surcharges, address corrects, and extended area zip codes – choosing the best carriers can become an overwhelming and extremely difficult exercise. Rate cards can no longer be taken at face value. Without knowledge of hidden costs, the cost of sending a parcel can vary greatly, having a significant impact on a brand’s bottom line.

“With industry growth showing no signs of slowing down and pivotal events causing national carriers to change their approach– cherry-picking business based on profitability and higher margins, rather than quantity, has become commonplace.”

Technology alone won’t solve complex carrier problems

One trap that many brands fall into is believing that technology and solutions such as a transportation management system (TMS) will act as a silver bullet for tackling this new and complex carrier landscape. Unfortunately, this is simply not the case. While these tools certainly have their use within a business, they are not a replacement for defining and maintaining a well-thought-out strategy. Technology can support and inform a strategy, but it won’t work without a leader who can steer the ship, drive it forward and weather any potential storms. It is also important to note that having the right skills and leadership in place should inform which solution is the best fit for the business. Technology doesn’t follow a one-size-fits-all approach. There are a variety of factors that can influence the suitability and requirements needed from a transportation system that should be taken into consideration to reap the benefits.

Optimizing Transportation to Include sustainability goals  

With the right strategies in place surrounding transportation, brands have the power to not only increase profitability but also drive forward the sustainability agenda. While in most other areas of business profitability and sustainability sit at opposite ends of the scale, within the operations function the two go hand in hand. For example, when we get products closer to the customer by implementing a multi-node fulfillment network, transport costs go down due to reduced last-mile delivery distance, which naturally drives down carbon emissions. Using capacity on airplanes already carrying passengers is another great example of where this can be achieved. By optimizing resources to carry cargo, the carbon footprint of the package is effectively zero as the plane would have already been making the trip.

Making the most of alternative transportation options such as these, however, requires carrier diversity and optimization of your carrier network that enables you to negotiate. Again, knowledge is power in this scenario. This is why working with a partner who is aware of all these options and supportive of your own sustainability goals should be a key objective.

Finding the right 3PL partner

Retailers often have concerns that outsourcing to a third party means relinquishing all power and control over transportation and being fully dependent on the external partner. Where there is a potential lack of knowledge around the transportation landscape, brands can be left feeling vulnerable. While these concerns are certainly valid, the key here is the word ‘partner’.

Choosing the right partner is crucial to alleviating any apprehension surrounding the outsourced approach. Bringing in a third-party logistics provider (3PL) can have many benefits for brands going it alone on the transportation front. However, a strong element of trust is required for it to work.

Your chosen 3PL should be leading the conversation on transportation and bringing forward any upcoming issues that may lie ahead, along with any contingency plans that need to be considered. With the cost of transportation three to five times that of warehousing nowadays, you can’t be a good operations or warehouse partner if you’re not a good transportation partner. Proactive management of transportation activities within the business is needed not only for brands to continue to trade effectively, but also to remain competitive and achieve growth goals – both now and in the future.