Published on October 7, 2013 in Articles
The supply chain business has experienced a transformation of accepting “outsourcing” in the Warehouse and Transportation Management arenas. In fact, both of these segments have seen at least 50% of all companies utilizing 3PLs for their business. Simply put, they bring a level of expertise and value to an organization’s supply chain. However, the parcel market has not experienced this type of change, largely driven by a transportation segment that is controlled by two major players (FedEx and UPS). Let’s take a look at each of these and explore what can happen in the parcel business.
The warehousing market in the US is a $130 billion business. The practice of outsourcing has been widely accepted by over 50% of all companies at varying levels. The e-commerce business is having a profound impact on this area because more DCs are being asked to expand their capabilities in handling the B2C market. This will create more outsourcing to fulfillment companies and/or warehouse networks that need to expand their footprint. This will also create a change in the parcel business… more on that in a minute.
The transportation business is a $836 billion business in the US, with $647 billion coming from the LTL and TL segments. The motor carriers in the US account for over 70% of all goods transported. The 3PL industry has brought expertise in driving out cost be effectively managing the procurement process and the execution of a transportation strategy. They offer flexibility and technology that allows for a nimble supply chain at an optimal cost.
The parcel segment is a $70 billion business in the US. The domestic market is controlled (85%) by two major players (FedEx and UPS). The USPS has been gaining market share (10%) in the ground business and is becoming the new “challenger” brand. The international market is a little more competitive because DHL is still a key player in the US and dominates the parcel market outside the US. With all this said, outsourcing is still not an accepted practice. The Third Party Negotiation (3PN) organizations have given us a taste of what outsourcing can do in the parcel business. They have done an excellent job in providing value relative to contract negotiations but there is more that can be achieved outside of the pricing game.
Parcel outsourcing has begun to take root in the US. As the 3PL and Warehousing/Fulfillment organizations continue to grow and offer up a more complete solutions to their customers, we will see more companies relying on their expertise to provide a more robust “parcel management solution.” There are many common characteristics in the 3PL industry that can be deployed in the parcel industry. We will see shared contracts, mode optimization and preferred partners being used in this ne outsourcing model. As you ready to “look outside the box” to find these new strategic partners?
— Michael J. Ryan
written for September/October 2013 issue of Parcel