How building density in freight and transportation networks drives profitability for 3PLs

Adam RobinsonFreight Market Blog

The rise of digital logistics and freight market intelligence has a profound implication for third-party logistics providers (3PLs). Companies are finding ways to do more with less, but as a 3PL or a freight brokerage, doing more with less can almost feel like doing way more with less profit per transaction. And according to Seth Clevenger of Transport Topics, “margins will compress as transportation becomes more efficient, but 3PLs also will be able to handle more volume because they’ll be more productive. At the same time, many 3PLs that have focused primarily on freight brokerage in the past may morph into more comprehensive service providers offering supply chain optimization, multimodal service, warehousing management, and other value-added services.” Thus, 3PLs need to act now to increase density in freight transportation networks to ensure long-term profitability. 

The problem with limited freight ecosystems for 3PLs

The problem with freight networks for 3PLs is simple. Without enough contracts and relationships, 3PLs cannot find the most competitive freight rates and services for their shipper customers. At the same time, they cannot find the best loads for their partnering motor carriers. A bigger network is better for 3PLs. And it’s not just the limits of the network itself; it includes the boundaries of the network carrier types. For example, spot market carriers, contract OTR carriers, and dedicated fleets may all still work with 3PLs to maintain profitability. And as a 3PL’s network shrinks, that goal becomes more troublesome.

Consider these other issues that arise with limited freight transportation networks and ecosystems:

  • 3PL customers may have trouble sharing freight data and tracking shipments from the cradle to the grave.
  • End-users may require more transparency into the entire history of an item – mainly produce.
  • Fewer relationships fail to make the most profits per load. 
  • Less trucking capacity may result in higher refusal rates when shippers contact a 3PL.

That’s only the beginning of problems. Fortunately, a more comprehensive network offers substantial benefits and cushions the significant growth expected within the industry.

Successful 3PLs depend on a broader network

Unlocking scalable infrastructure as a 3PL requires a more extensive network. And as more companies fully digitize operations, the need to compress profit margins will undoubtedly lead to increased activities. It’s a self-propagating cycle that builds more movement through automation and the ability to reach more shippers and motor carriers. Industry insiders are already anticipating significant jumps in the annual average growth of the 3PL market too. As further explained by Clevenger, “Robert Voltmann, president of the Transportation Intermediaries Association, also said the 3PL industry is poised for significant growth in the decade ahead.  TIA predicts that 3PLs will be making 50% or more of all freight purchasing decisions for shippers by 2030, which would be double the current level of outsourcing, he said. In that same time frame, the association anticipates that the 3PL industry could expand from just under $300 billion per year to $600 billion, he added.” So, future growth depends on a broader network to capture more of the market, work with more companies, and increase efficiency.

Tips to increase transportation networks’ density through freight sourcing

Freight and carrier sourcing hinges on finding the best loads and lucrative moves. For 3PLs, that’s the literal name of the game. 3PLs’ businesses are transportation management. It’s that simple. To maximize value, 3PLs need to know a few tips to build density in freight transportation networks. These tips include:

  1. Bring on more lanes as needed, using data to guide RFP processes.
  2. Work with more carriers and use data during annual truckload RFP processes and mini-bids.
  3. Offer competitive tender rates based on market conditions for the location, not a broad economic assumption.
  4. Know what carriers expect for shippers to gain shipper-of-choice or 3PLs to gain broker-of-choice status.
  5. Share data with carriers to plan asset allocation and utilization better, such as using Lane Score data to take advantage of backhaul opportunities.
  6. Use data to measure freight transportation networks’ performance to either choose preferred carriers or next-class transportation providers.

Apply freight data with the right freight forecasting and planning platform

Regardless of what happens, 3PLs and freight brokerages alike need to get their hands on data insights and actionable freight analytics. That’s what it all comes down to, and the sooner companies realize that data is key to building density in freight and transportation networks, the healthier their profit margins will be. Request a SONAR demo to learn more about how 3PLs can maximize throughput with data-driven freight network negotiations today.