1. The Functional Relations between Third Party Logistics and Intermodal Transport Systems
Jean-Paul Rodrigue
Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA
Marc-André Roy
Vice President, CPCS - North America, 72 Chamberlain Avenue, Ottawa, Ontario, Canada
TIMEFRAME: 40 minutes

2. The Product as a Supply Chain…
iPad 2 (2011)
iPad 1 (2010)
3.1 lbs.
2.8 lbs.
25.4 cm
19.8 cm
20.3 cm
4.3 cm
5.1 cm

3. Let’s Begin with the Conclusion about 3PLs…
Growing organizational and functional complexity
Blurring of roles and services
Asset stigma
Significant clustering of actors

4. Layers to Logistics Services
Actors
Services
1PL
2PL
3PL
4PL
Cargo owners
Manufacturing, Retailing
Carriers
Transportation
Logistics service providers
Service integration
Logistics
Lead logistics providers & consultants
Supply chain management
Supply chain integration

5. 3PL: An Attempt at a Definition
A firm that adds value to the supply chains of beneficial cargo owners, directly or indirectly, by providing a range of logistics services beyond the mere carriage of goods.
Third Party
A firm other than the BCO, and usually but not necessarily independent of the carrier(s).
Services
Range of logistics services provided can be narrow or wide, regional or global, sector or commodity specific.
Assets
3PLs can be asset-based (operator of modes, terminals or DCs) or non-asset based (forwarding, planning, consulting) logistics services providers.
Value Added
Value is supply chain specific (e.g. time or cost, increased reliability) rather than specific to physical characteristics of goods.
3PLs control 40% of the global TEU in transit through maritime shipping

6. Key Drivers for Third and Fourth Party Logistics Providers
Globalization
Supply chains becoming increasingly global (even within manufacturing processes), requiring greater management of supply chains
Core competencies
Manufacturers and retailers are focusing on their core business (and outsourcing logistics services to specialized firms)
Innovation and management
3PLs becoming increasingly sophisticated in supply chain management, making investments, realizing economies of scale
Asset utilization
3PL model promotes greater asset utilization (e.g. balancing flows, backhaul, within their networks) and asset-sharing alliances

7. Main Core Competencies of Third Party Logistics Providers
Sourcing
Shipping
Warehousing
Routing
Product
Transport

8. Getting Blurry: Services Offered by Third and Fourth Party Logistics Providers
3PL ►
◄ 4PL
Standard
Advanced
Complete
Integrated
Transportation services
Carrier selection
Rate negotiation
Fleet management
Warehousing
Cross docking
Pick and Pack
Distribution (direct to store/home)
Dispatching
Delivery documentation
Shipment consolidation
Vendor managed inventories
Stock accounting
Customs clearance and documentation
Assembly
Packaging
Labeling
Managing product returns
Financing
Retail delivery, set up and on site training
Inventory tracking
Order planning and processing
Information and Communications Technologies (ICT) management
Single invoice
Landed duty paid cost (per piece)
Payment collection
Real time inventory updates
Just in Time (JIT) inventory management
Production planning
Sourcing
Routing transit times air vs. ocean
Supply chain consulting
Complete real time supply chain monitoring and adjustment
Source: adapted from OECD, Logistics Integration in the Asia-Pacific Region, CPCS Transcom.

9. Location of 3PLs in Canada by Number of Employees
Reflective of the Canada’s commercial geography of gateways and corridors.
Ontario: 50.2% of employees
Source: base data from Dun & Bradstreet, primary NAICS code

10. Location of 3PLs in Canada by Number of Headquarter Employees
Reflective of the Canada’s urban hierarchy and cross-border intensity.
Ontario: 64.2% of headquarter employees
Source: base data from Dun & Bradstreet, primary NAICS code

11. Asset and Non-Asset Issues
Asset Stigma
Perception that an asset-based firm will be pressured to route flows through its own assets.
Majority (85%) of 3PLs brand themselves as non-asset based (may lease facilities or use hybrid model).
Large 3PLs:
Greater share of asset-based firms.
Networks of assets.
Small / micro 3PLs:
More alliances (sharing of assets).
Smaller long-term commitments to assets and more focus on being agile.

12. The Clustering of 3PL Activities: Observed Patterns
Transactional centric
A location within major central business districts where close interactions with major customers, in the form of corporate head offices, is key.
Airport centric
A location in proximity to a major airport terminal to effectively deal with the time sensitivity of air cargo.
Border centric
A location in proximity to a major cross-border gateway to assist customs-related procedures and take advantage of cargo consolidation / deconsolidation opportunities.
Port centric
A location in proximity to port terminals. This type of location tends to be coincidental with central business districts.
Most 3PL facilities, whether asset based or not asset based, already in key clusters, along key gateways and corridors. Note that rail centric is missing. At this point, no discernable patterns were observed in Canada. This may change as the development of inland ports and their logistics zones matures.

13. Quebec – Windsor Corridor: Location of 3PL Firms and Value of Freight Transiting at Gateways
Source: base data from Dun & Bradstreet, primary NAICS code
The clustering of 3PLs around major ports of entry along the Quebec‐Windsor corridor is notable. Ambassador Bridge is largest Transit Point, but not largest cluster of 3PLs. Largest 3PL cluster around Pearson Intl. Airport.

14. Asia Pacific Gateways and Corridors: Location of 3PL Firms and Value of Freight Transiting at Gateways
Clustering around Western Canadian cross-border ports of entry. Related to customs activities and represent a specialized and localized segment of the 3PL industry.
Vancouver: Canada’s sole “all-centric” 3PLs cluster.
Source: base data from Dun & Bradstreet, primary NAICS code

15. High concentration of 3PLs along the “sweet spot”; Louisville –Pittsburg. Market-centric 3PL clusters around centroids of optimal regional accessibility or intermediary locations along corridors of freight circulation (e.g. Allentown, PA)
Source: base data from Dun & Bradstreet, primary NAICS code

16. Services and Commodities
Size matters
Degree of supply chain integration tends to increase proportionally to firm size.
Largest firms most likely to offer a variety of service:
Large 3PLs handle 90% of commodity/sector categories on average.
Focus on economic sectors characterized by economies of scale (mass market) along with stable demand.
Some kinds of cargo (e.g. project cargo) are highly localized; dominance of small / micros.
Large players use a broad network, while smaller firms use a patchwork quilt of alliances.

17. Vertical and Horizontal Integration in 3PLs
Large
Medium
Level of Services Offered
(Vertical integration)
Micro & Small
Commodities Served
(Horizontal integration)

18. Trade Focus Import bias
General focus on 3PL services to imports, rather than exports.
Importers also include pure freight forwarders who are generally indifferent with respect to asset placement.
Micros were significantly more inclined to be import-focused.
Exports of raw materials:
Tend to lean on economies of scale, move in large loads, have a limited number of buyers and few value-added activities involved.
The expertise of 3PLs is much less required and the tasks are assumed by the carrier.

19. Pacific Asia / American East Coast
Main Export-Oriented Regions and Shipping Routes Servicing North America: A Shift to Near-Sourcing?
Pacific Asia / American East Coast
Intermodal (60%)
Western Canada (5%)
All Water (40%)
Pacific Northwest
(20%)
Via Suez (5%)
Pacific Southwest
(75%)
Via Panama (95%)
Mexico (?%)

20. S “Sovereign” Class (8,000 TEU)
The Big Port Squeeze: Largest Available Containership, (in TEUs)
“Triple E” Class (18,000 TEU)
E “Emma” Class (12,500 TEU)
S “Sovereign” Class (8,000 TEU)
E “Emma” Class (2006)
S “Sovereign” Class (1997)
R “Regina” Class (1996)
L “Lica” Class (1981)
R “Regina” Class (6,000 TEU)
L “Lica” Class (3,400 TEU)

21. Supply Chain Differentiation: Pick Your Preference
Relation with the cargo being carried.
Stability of the cost structure.
Costs (38%)
Influence inventory carrying costs and inventory cycle time.
Routing options in relation to value / perishability.
Time (12%)
Stability of the distribution schedule.
Reliability can mitigate time.
Reliability (43%)

22. Comparative Advantages in Supply Chain Preferences: A Complex Balancing Act
Shipping Rate from Shanghai for a 40 Foot Container, Mid 2010
Vancouver
Montreal
$2,300
$2,110
$4,040
$3,950
Time
New York
$3,700
$1,830
Los Angeles
Costs
$2,620
$1,400
$3,510
$2,560
Houston
Inbound rates: function of distance
Outbound rates: function of trade imbalances
Reliability (?)
$1,300
$2,100
Inbound
Outbound

23. The “Terminalization” of Logistics
Bottleneck-Derived
Terminal as a constraint
Rational use of facilities to maintain operational conditions
Storage space, port call frequency, gate access
Volume, frequency and scheduling changes
Warehousing-Derived
Terminal as a buffer
Incorporating the terminal as a storage unit
“Inventory in transit” with “inventory at terminal”
Reduce warehousing requirements at distribution centers
Terminalization: Growing influence of transport terminals in the setting and operation of supply chains in terms of location, capacity and reliability.

24. CRB Index (CCI), Monthly Close, 1970-2011
Paradigm shift in input costs…
Reaping the consequences of monetary policy.
Source: Commodity Research Bureau.

25. West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2011)
This is also going to propagate along supply chains. Response from shipping companies: slow steaming
Source: Federal Reserve Bank of St. Louis.

26. Conclusion (Take 2): 3PLs as the Emerging Supply Chain Management Paradigm
Shift from shippers and carriers to 3PLs
Inherent propensity to cluster around commercial gateways
Customs procedures as the most salient issue for the industry
Significant knowledge gap (operational and education)
Expertise dominantly in import logistics