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Why outsourcing transportation makes good business sense

Why Outsourcing Transportation Makes Good Business Sense

  • Stephen Beard

Long gone are the days when a brand would put out a request for proposal (RFP), choose a carrier based on the best rates, and then have their transportation taken care of for the next three years as a result. Over the last decade, transportation as an industry has been turned on its head, making it more complex than ever to understand, let alone keep up with, and leading more brands to consider outsourcing transportation services – and for good reason. 

Following the rapid and intense growth of eCommerce over the last ten years, which saw a combined annual growth rate of close to 18% in the US, the industry has been faced with a massive capacity crunch as more and more parcels enter the supply chain. Even before the Covid-19 pandemic, the peak of 2020 – known as ‘shipageddon’- saw millions of eCommerce orders fail to be delivered in time for Christmas, as capacity problems boiled to a head. 

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 change and shift in leverage to the carriers, the result of which has brands facing surcharges and volume caps like never before, 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.

Playing by the new rules

Rather than handing all volume over 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 capability in-house to keep up with this new narrative. With a strong focus on product, there is often less resource to dedicate to operations. Even large enterprises are finding it challenging to keep up in a game that has changed so quickly and significantly over 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. Enlisting someone who is savvy to the ways of the industry and focused on staying abreast of all the moving parts can put your brand at a crucial advantage, ensuring you can forecast and navigate any potential risks to business continuity that may lie on the horizon.

Building a diverse carrier network

The recent speculation around UPS strikes, which have since been settled, 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 around this, alternative carriers are becoming more specialized in the background – carefully picking and sticking to what they do best. 

For brands that know how to leverage these specialisms, an effective and diverse carrier network can be built. However, with an abundance of hidden costs behind every rate card – including fuel surcharges, address corrections, 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 as without the knowledge of hidden costs, the cost of sending a parcel can vary greatly, having a significant impact on a brand’s bottom line. 

Technology is not a panacea 

One trap that many brands fall into is believing that technology and solutions such as a transportation management solution (TMS) will act as a silver bullet for tackling this new complex carrier landscape. Unfortunately, this is simply not the case. While such 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 is no good 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 for a transportation solution that need to be taken into consideration in order to reap the benefits. 

A vehicle for sustainability 

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 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, 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 in order to negotiate. Again, knowledge is power in this scenario, making working with a partner who is aware of all these options and supportive of your own sustainability goals a key objective. 

The insourcing argument

There is often concern 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’. And choosing the right partnership 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, but for it to work, a strong element of trust needs to be present from day one. 

Outsourcing transportation – trust is key

To be effective, brands need to go all in with their 3PL. In other words, “You’re no longer dating, you’re married”. While this certainly requires trust, it also requires brands to pick their partner wisely. This begs the question, what makes the right 3PL partner?

A good 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. The recent speculation around UPS worker strikes again works as an example of how working with a trusted partner is essential for preparing for such events. With the cost of transportation three to five times that of warehousing, you can’t be a good operations or warehouse partner if you’re not a good transportation partner. Proactivity around this area within the business is needed not only for brands to continue to trade effectively, but also to remain competitive and fulfill their own growth ambitions – both now and in the future.

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Stephen Beard

A seasoned supply chain expert, Stephen offers 30+ years working with the leaders in the transportation industry. In his role as Director of DC Transportation at PFS, Stephen designs parcel and freight solutions that help brands and retailers employ the right balance of cost and quality service to support positive delivery experiences that encourage growth and customer loyalty.

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