A finely tuned crystal ball might provide a sharp vision of tomorrow’s transportation industry, though with an asterisk that the picture emerging depends on whose crystal ball you’re gazing into.
Critics and supporters of the Motor Carrier Act of 1980 and the Interstate Commerce Commission Termination Act of 1995 ’ which deregulated and forever changed interstate commerce ’ still can’t agree on a verdict, even after more than two decades. Yet, on one point they do agree: When the rules changed, the game changed, spawning a wild assortment of shipping options that are often perplexing to those outside or new to the industry, and sometimes even to industry insiders.
“Over the years it’s become a fragmented industry,’ said Lang Riddle, a transportation veteran of more than twenty years. Today, Riddle is executive vice president of Clarity in Gainesville, Ga., among the fastest-growing non-asset based third-party freight forwarders in Georgia.
RETRACING THE PATH TO TODAY’S ‘FRAGMENTATION’
On the heels of deregulation in the 80s and 90s came a need for a new, revolutionary freight management system, a network capable of sorting the complex (and by now digital) information sprawl to instantly link shippers, carriers, forwarders, brokers and goods receivers. Almost overnight, companies of varying resources and experience appeared to fill that gap.
Logistics companies were not the only ones to expand. By 1990, about 40,000 licensed carriers emerged, more than doubling 1980s numbers and intensifying the need for stronger communications links among the growing number of players.
Third-party logistics operations (3PL) gradually became the bridge between shippers, carriers and destination merchants, earning a modest place at the transport table beside established shipping giants, who still commanded the lion’s share ’ for a time. However, third-party logistics soon began to gain ground, offering astounding flexibility and speed using cutting-edge technologies. Also, they could offer bankable transportation experience upon startup by hiring top employees leaving larger transportation companies during downsizing or restructuring.
Today, it’s estimated that two thirds of Fortune 500 companies use 3PLs, and once dominant shipping giants are fighting to stay competitive in a landscape that’s literally reshaping itself under their wheels.
While 3PLs are on the rise, not all offer the same level of capabilities, service reliability and commitment. “Some would raise the capital required to obtain a $10,000 bond, obtain a broker license along with a phone and a fax ’ coupled with some good sales skills ’ and you’re in business,’ Riddle said.
Still, many brokers have thrived in long-term relationships despite the ‘gold rush’ atmosphere following deregulation. “The ones that last are the ones that understand the value of customer service,’ said Riddle.
TWO SIDES OF THIRD-PARTY TRANSPORTATION
3PL shipping comes in many styles and sizes, from the stereotypical ‘Uncle Jessie with a fax in the basement’ to a full-blown high-tech communications center. So the $64,000 question: Which kind of shipping mode should my company use? More than one employee suddenly promoted to shipping manager has nervously asked this question.
To learn the best option for your company, it’s good to answer a few other questions, too. For instance, what is asset-based compared to a non-asset based? Or a freight forwarder and a broker? Understanding these differences now can save you a lot of headaches later.
FORWARDER AND BROKERS
“From a distance, freight forwarders and brokers do the same thing every day, matching up shippers and carriers,’ said Riddle. “But the similarities end there.’
“The key advantage of the forwarder is they are fully insured for the shipper’s freight,’ Riddle said. Freight forwarder’s insurance is normally a contingent certificate insurance policy in the event that the actual carrier’s insurance does not cover the damages. This includes General Liability of $1,000,000