90 percent of Fortune 500 companies in the U.S. were working with third-party logistics providers in 20171. 3PL, 4PL, and 5PL logistics providers bring efficiency to the supply chain and to distribution channels by offering specialized combinations of technologies, equipment, relationships, expertise, and service. Often a logistics provider’s offering is developed to optimize transportation and handling of a specific product line in a particular geographic region. Manufacturers, distributors, trucking companies, and warehouses may rely on an outsourced logistics partner (or partners) to add value by shortening delivery schedules, streamlining transaction costs, and freeing up time for other priorities. This is most clearly evidenced in the dynamic chemical industry marketplace which offers logistics service providers the opportunity for close cooperation due to the special requirements of the goods being moved. However, some manufacturers consider internal logistics a core competency and may be reluctant to share this responsibility.
This article expands on our previous post, 3PL, 4PL, 5PL What’s the Difference? to look at:
- Commonly outsourced logistics activities,
- The risks and benefits of outsourcing transportation logistics, and
- Key considerations when hiring an outsourced logistics provider.
Which Logistics Activities are Most Commonly Outsourced to 3PL or 4PL Providers?
A 3PL company generally refers to the “3rd party” who brokers logistical transactions between a sender and a receiver. These transactions focus on completing necessary operations on the supply or distribution side. However, the role of the 3PL is focused on optimizing the specific task or tasks necessary to complete the operation. A 3PL company may in itself use either in-house resources or contract relationships to conduct their responsibilities as efficiently as possible.
A few examples of 3PL activities include:
- Warehousing
- Transportation
- Freight inspection
- Custom clearances
A 4PL provider focuses on the strategy and tactics required for efficient supply chain management, providing technology-based solutions, and often contracting with one or more 3PL providers for execution. 4PL providers offer companies access to experts with a holistic view of logistic operations.
Examples of 4PL activities are:
- Contract management for transport activities
- Contract management for warehouse operations
- Customs transactions
- Logistics network management
- Project management
Source: “Success Factors of 4PL, LLP, 3PL in Chemical Logistics.”2
What are the Risks and Benefits of Outsourcing Bulk Chemical Transportation Activities?
When considering the risks and benefits of outsourcing bulk chemical transportation activities it is important to identify your organization’s goals and objectives. Understanding internal priorities and objectives will inform the decision-making process and aid in evaluating these risks and benefits3.
In general, consider some common advantages and disadvantages of outsourcing bulk chemical transportation:
Advantages
- Cost Savings – Logistics companies with access to additional resources, specialized equipment, and/or key relationships may pass on savings to their customers.
- Time Savings – Outsourcing logistics enables in-house experts to devote time to other priorities.
- Increased Efficiency – Outsourcing supply chain, warehousing, logistics, and management may result in shorter delivery times and improve customer satisfaction.
Disadvantages
- Upfront Investments – Outsourcing logistics should pay for itself in the long-run, but the initial cost can be high, particularly for low volume transactions4.
- Requires Change – Transition from internal control to an outsourced logistics provider requires a learning curve while employees are trained and new procedures established4.
- Loss of Control – Outsourcing requires relying on others to accomplish your objectives. It is important to carefully evaluate your 3PL and 4PL providers and work with a proven firm whom you trust.
How to Find the Right Logistic Provider?
When it comes to transporting chemicals, it is imperative to work with trained specialists who understand the chemical properties and hazards, safety communications and precautions, temperature requirements, and the shelf-life of the materials being moved, stored, and handled3.
The following are just a few questions to consider when selecting a logistics provider for your goods:
- Does the company have the specialization and experience to meet your defined organizational objectives?
- Do they employ quality equipment to transport your bulk liquid chemicals safely and efficiently?
- What technological systems do they offer?
- Do they have experience transporting similar products along the distribution route?
- How have they handled the legal requirements for the transportation of your product volume?
- Do they have available resources to meet your delivery schedule?
- What is their safety record?
- Does the company have a stellar reputation for transporting bulk liquids?
- How long has the company been in business, and are they agile and flexible over time?
Do your research, compare providers, and above all make sure you choose a logistic provider whom you trust to be responsible throughout the transportation process. Research companies that meet your criteria and send them an RFP. Also ask if they own their own equipment or lease reliable tank trailers and tank chassis from Matlack Leasing, LLC.
Sources:
- Berman, Jeff. “Armstrong report points to the continued increase in 3PL usage by shippers.” Armstrong & Associates, Accessed September 2020.
- Kille, Christian, and Constantin Reuter. “Success Factors of 4PL, LLP, 3PL in Chemical Logistics.” DASCHER Chem-Logistics, Accessed September 2020.
- Patrick Burnson. “2020 State of Logistics: Third-Party Logistics (3PL)”, Accessed September 2020.
- Jami Deloe. “Beginner’s Guide to Using 3PL Providers”, Accessed September 2020.