Role of Freight Forwarding & Logistics Companies in Supply Chain Management

Global Logistics Scene is dominated by a handful of ten to twelve multinational Companies followed by smaller companies altogether numbering below fifty. Entire global trade is facilitated by these service providers. Major players in the field are lead by DHL, Kuehne + Nagel, Schenker/BAX, UPS, Geodis, Expeditors, Agility, CEVA Logistics, Hellman worldwide logistics, etc.

The last two decades have seen the emergence of multinational companies having acquired and bought out local and smaller players to acquire the multinational status coupled with the global network. The entire logistics field is filled with mergers and acquisitions in quick succession in the recent past.

Most of the logistics players have been traditionally freight forwarders dealing with cargo bookings coupled with origin and destination services. However, as the global business practices changed, and supply chain managements started gaining ground, these companies realized the potential of being able to offer multiple services including ground transportation, warehousing, and contract logistics under one umbrella as the future trend and quickly turned themselves to acquire the required capabilities and have managed to become single window service providers on global scale.

In any supply chain, these 3PL Service Providers further outsource certain functions and segments to many other local service providers. Any SCM expert would naturally wonder if it is possible to deal directly with the other service providers and cut out the 3PL Lead provider and thereby save some cost. In a global scenario, this would not be possible for many reasons.

3PL Service Providers can offer you standard operating processes and procedures across all locations and countries. If you are dealing with a 3PL office in Europe and another in Japan besides your local office in Houston for example, all three offices will follow the same methodology, documentation, and processes. Secondly, 3PL providers know the local situations and can adapt international processes to suit local situations better.

A principle company may not be able to get into the local situation be it with transportation or customs or legal compliance and is better left to the 3PL to deal with it effectively. By the size of these companies 3PL logistics providers have built core competencies and capabilities in all of the functions namely Freight, Customs Clearance and Contract Logistics and are equipped with cutting edge technology to support international operations and provide visibility to the customers at all time. 3PL companies rely heavily on electronic exchange of data and information in their businesses.

Today 3PL companies not only provide highly specialized inventory management and warehousing operations, but they also offer another value adds like Purchase Order Management, Semi, and Light Manufacturing, other value added services designed for niche segments called as Integrated Logistics Services.

3PL service providers are today investing in building distribution networks and facilities to cater to the client’s requirements wherever required. They are building in-house capabilities with employing SCM Experts to specialize in Automotive Logistics, Aero Spares, Medical & Environmental Logistics and other specific segments.

SCM strategy of the company today aims at converting logistics cost to transactional cost and thus avoids any investments into managing Supply Chain.

It would not be possible for a principal company to invest in setting up and managing logistics services and facilities in origin and destination locations for its Supply Chain and manage local regulations etc. It is best left to the best Service Provider as the partner and leverage on his competencies and skill sets as is being done today.