Companies don't hire third party logistics providers because of sophisticated computer systems, fancy technology or advanced reporting capabilities. Rather, they hire logistics providers to do one thing above all others: be invisible. That's a lesson more and more third party providers are discovering, sometimes at their own cost.

Like virtually all leading third party logistics providers, C.H. Robinson invested considerable amounts of time, money and energy in giving its customers the ability to dive deep into its computer systems and get incredibly specific, up-to-date information about shipments in motion.

"We've opened up our system so that customers can come in and track freight," says Barry Butzow, senior vice president at the Eden Prairie, Minneapolis-based company. Initially, customers were excited about the new capabilities and spent considerable amount of time and energy utilizing them. After a while, though, the customers usually have a revelation: tracking shipments is something they've hired C.H. Robinson to do. "They'll use the technology for a short time," Butzow says. "Then they'll say, 'I hired Robinson's services and I expect you to do that,'" he says.

Users want help, not numbers

What users are looking for isn't data or even information so much as the analytic capabilities that come from dealing intensively with a market for decades. "For a period of time they'll watch and look at your systems," Butzow says. "Then they say, 'take your 4,000 people and manage that process. I shouldn't have to look at this-but give me your reporting and I'll look at that,'" he says.

In a challenging economy, companies are trying to achieve as much as possible with limited resources. Logistics providers, therefore, are under increased pressure to provide not just services, but wisdom as well.

Several factors are driving the market

The factors driving the market include efficiency, transportation expertise, and the ability to connect with customers, say the experts.

"While shippers want the most for the least cost, they want value for their spend," says Russ Dixon, marketing director for Jacksonville, Florida-based Vexure Inc. "A dollar is a dollar, so if they can maximize the spend of that dollar by getting a higher level of service or convenience, they will go that route," he says. That situation can place intense pressure on 3PLs, he says, adding, "What used to be considered value-adds in this business are now 'standard equipment.' It's kind of like buying a Cadillac at a Chevrolet price."

At the same time, with all the technology available today, it's easy to forget that, in the end, a logistic provider's job is to move stuff-at task that's not as easy as it seems in an increasingly complex and crowded transportation sector. "The biggest challenge in the area is not security, it's the ability of Los Angeles ports to handle all the business that is coming their way," says Michael Stark, president and chief operating officer of Santa Fe Springs, California-based Weber Distribution. Projections are that the challenges involved in dealing with the local and global transportation system will increase, not decrease.

"As we continue to increase importing goods to this country, those infrastructures get stressed," says Barry Butzow of C.H. Robinson, who also emphasizes the ability to connect with customers. "The number one thing is to be aware of the changing environment so we can talk to your customers," he says. "The key to a successful third party logistics company is your relations and your integration with your customer's business. You have to be integrated with you customer's operations so they view you as their logistics department. We're part of business planning with our customers both tactical and strategic," he says, noting that, "When we sit with our customers we talk about 90-day tasks and initiatives."

Down economy makes logistics expertise attractive

In many ways, the down economy has worked in the favor of the third party logistics providers, executives say. "It's one of those good news bad news things," Butzow says. "As companies keep downsizing in trying to control costs, on the one hand the functions don't go away, so they go to outsiders to perform," he says.

Still, there are risks looming. Indeed, some of the factors that are saving shippers money now may wind up costing them in the future. "The slow economy of the past two years has produced an overall smaller base of traffic than existed in the late 1990s. This has created a greater degree of bargaining power for larger shippers," says Vexure's Russ Dixon. "If it were not for the shrinking carrier market caused by an increasing number of carrier failures, rates would have gone up. Instead, they are holding constant. But, the carriers' operating costs have increased, not decreased. Insurance is more costly, security is more costly, fuel is more costly, etc.," he says.

Today's low rates may create future troubles

Eventually the economy will get better and demand will increase. One result for shippers could be a sharp increase in prices because of the limited number of service providers dealing with the market, Dixon says.

"Unless prices are increased, more carriers will cease to operate. Thus, when freight volumes finally return to post-recession levels, there will be less carriers in business to haul the freight. Shippers will find it difficult to locate carriers willing to wear out their equipment for the privilege of hauling the shippers' freight. Service levels will likely suffer because quality costs more than some shippers may be willing to pay," says Dixon.

Valuable expertise worth buying

All this means that 3PL providers themselves are becoming more attractive targets for other companies. Just recently, Crowley Logistics purchased Miami-based Apparel Transportation, Inc. Apparel has all the things that make a 3PL valuable-specialized market expertise, sophisticated information systems and a strong knowledge base.

"Our acquisition of Apparel Transportation is a unique opportunity to add a complementary business line to our present logistics activities," states Tom Crowley Jr., chairman, president, and CEO of Crowley Maritime Corp.

Even if the economy is moving slowly, goods will still need to move fast-and that's what ultimately makes a good 3PL.

Sidebar: Online Logistics Gaining in Europe

Forrester Research says that the use of online logistics will increase substantially in Europe within the next few years. According to a recent report by the Boston-based research firm, online logistics revenue will jump to $122.5 billion by 2005, accounting for 21 percent of overall logistics spending.

The trucking industry is especially poised to take advantage of the growth. Specifically, the report says that over half of the online logistics activity will be conducted by the trucking industry, which will capture $63.5 billion in revenue.

As for end-users, the construction industry is expected to take the lead in moving logistics functions online. Although the sector spends only 5.2 percent of the cost of sales on logistics, it will manage to pull in approximately $126 billion by using more Internet-based logistics networks, online exchanges, and private hubs in their operations.