It’s pretty well known that asset heavy industries like transportation have a large burden to mitigate the risk of not achieving an economic profitability. I’m calling economic profitability the point of return that allows for sufficient reinvestment back into the business for growth. Asset based transportation requires large capital and highly efficient operations to achieve economic profitability; or to just keep the doors open.
As we know in this competitive business environment, getting by is not enough for long term success. Not achieving an economic profit will keep the doors open for a year or so, but as soon as your competition finds a way to differentiate themselves they can quickly secure market share from you. In an industry that is reliant on asset utilization, it does not take much market erosion to quickly flip getting by into losing money.
Furthermore, keep in mind roughly 97% of all trucking companies operate a fleet of six or less trucks. This does not leave room for a large R&D budget or innovation department. As a result, most of the trucking companies have to day in and out focus most all of their emphasis on load execution. Moreover, having to keep up with the ever changing regulations and uncertainly, and adjust price accordingly to maintain an economic profit.
So as an asset based trucking company that falls into the 97%, how can they improve utilization, yield management, and innovate? One way most carriers have achieved two if not all three of the above economic performance indicators is by partnering with a 3PL. I do not mean any and all 3PL’s, but with rigor determine which 3PL will align with your strategy and business model that has led to the success you have achieved so far. By doing your homework and understanding your strengths and weakness and aligning these with a strategic 3PL, then both parties should be able to increase economic profit for both parties.
Here are four key ways 3PL’s can improve the economic performance of a carrier partner.
Load and Asset Visibility – 3PL’s technology should allow for on-demand tracking and asset visibility, load alerts, and in transit exception reporting. Along with the option to allow the carrier tools to offer this to their customers.
Market Insight – utilizing more information and intelligence on market rates, supply, and regional trends. By utilizing this information, carriers should be able to improve pricing strategies and yield management.
Account Receivables – consistent process for submitting and receiving payables. A standard process along with electronic (automated) capabilities will simplify and lesson the demands on a carries account receivables department. This will allow for faster payments and improved cash flow.
Business Development – partnering with a 3PL provides instant access into a well operating sales engine. The work of business development has already been done, and provides access to hundreds of new customers and lanes. The cost to hire, train, and maintain a sales force can quickly outweigh the profits driven by the sales. If this is the case for your company, partnering with a 3PL eliminates these risks.
As you can see, partnering with a 3PL can have a profound and beneficial impact on carriers. From my experience, a growing number of carriers want to improve profitability and asset utilization, without having to invest additional capital to do so.