Third Party Logistics: The Secret Mentality of the Broker

Let’s talk ethics…but first a question.

Is a non-compete really binding?

Legally, yes…but what about when the content is just an arsenal of general terms to describe a knowledge base “unlike any in the industry”; a knowledge base “SO UNIQUE”, that “only [they] who possess such knowledge are able to utilize. What if the Writer of this “Legal” Document proceeds to list the occupations considered as competition; yet fails to define what a “supply chain service” truly represents, if not the entire industry?

My BSBA from Ohio State University declares the contract to be Horse Shit!

*I’m technically still bound to the contracts; however, nothing I have written in the following or have done up to this point is in breach of them...*

...But that’s why I’ll cut this introductory rant short…truthfully, these contracts became null the moment I realized [they] cared not for Ethical Policy. I was thrown into the cold streets of Boston with nothing but a Pennsylvania ID and a soft promise that I would get $15 per hour at Chik Fil A. I was promised glory, not insults to my innovative thought processes. I was promised Fortune and Fame; they claimed it was easy to become a success! But let me ask you this…

If the choice were between holding to your Ethics or making the Big Bucks…what would YOU pick?

After a short break, The Topics That Matter is back up and running! I have centered this blog around Supply Chain for obvious reasons, but the bounds are limitless on what I will write about in the future. For this post, I will be writing about a topic of which I have direct professional experience: Third Party Logistics (3PLs). I will first talk about 3PLs from a purely informational perspective, providing a background on the history of third-party logistics, how they function, and the services they provide. The second section will be an opinionated representation of my experience working for one of these companies; and I want to emphasize that everything I include in this will be 100% THE TRUTH. Pure, honest, and potentially brutal, truth. The third and final section of this article will be my prediction of the future for third-party logistics and how I anticipate their role changing as this new decade progresses. Reader discretion advised…

Introduction to Third-Party Logistics

To begin this discussion about Third-Party Logistics, it is important that you understand the history of this type of company and the value they can add to a supply chain. The true origin of Third-Party Logistics is unknown to all, but it stemmed from the incessant growth in the number of trucking companies in the industry and the need to create a platform where companies have access to an equal opportunity to find work. If you break down the words in the phrase ‘Third-Party Logistics Providers’, the concept is rather simple. 3PLs are companies that provide logistical services to companies in need of them from a disconnected, or Third-Party, standpoint.

The services that 3PLs provide to their clients vary from company to company, because every supply chain is different. For example, a deficiency for one company might be another’s core competency. A partnership with a 3PL is formed when a company decides that it is most beneficial for them to outsource a specific process rather than to utilize their resources to complete the task in-house. The strongest reason for companies to partner with third-party logistics providers is to gain access to their carrier base and to reduce the energy required to secure transportation for freight. There are thousands of carriers in the United States and to form relationships with all of them is a lengthy process for some companies and the teams in charge of carrier maintenance.

With a 3PL, this process is simplified completely, allowing for the Freight Manager of a company to focus only on their relationships with 3PL representatives, rather than with each individual carrier of varying service levels. In addition, 3PLs control the entire delivery process from pickup to delivery to ensure your product arrives at its destination on time and undamaged. If the product does arrive damaged or too late, resulting in a lull in production, the 3PL will handle all claims against the carrier to pay for the setback or damage.

From experience, I can say that the negotiation of contracts to secure transportation with reliable carriers IS a full-time job. It is difficult because the trucking industry is unpredictable; as confident as you may be in a driver or a trucking company, there is always an unknown variable that you must factor into consideration. Accidents happen! Trucks break down! And traffic is inevitable, especially when transporting product into an urban area or on a busy highway at rush hour.

There are also circumstances where a driver will change his mind minutes before a pickup time and decide that he no longer wants to pick up a load and instead, wants to go home to his family. I once had a driver fall out of a load because he decided the money we were going to pay him appealed to him less than the amount of free alcohol he would be able to consume at his cousin’s wedding (his words, not mine).

These last-minute decisions are physically not possible to predict, and they make the job extremely difficult. For companies that do not utilize 3PLs, it can result in a missed pickup with irreversible consequences. With a Third-Party Logistics company, however, these decisions can be anticipated and responded to within minutes, creating a seamless transition from one carrier to another without so much as a second thought. Outsourcing this process to 3PLs grants the company and its employees the time and ability to focus on other areas of importance without the fear of a missed delivery or a shortage in production as a result. Oftentimes, the broker is able to find a replacement before the customer even knows the carrier wasn’t going to make it in time.

Partnerships with Third-Party Logistics companies are most commonly formed to outsource carrier selection and tracking, but some 3PLs offer many more services. These services span from warehousing and distribution to cloud-computing and networking capabilities. Believe it or not, Amazon functions as a Third-Party Logistics Provider at its core. A company simply ships their product to an Amazon facility and Amazon handles the rest of the process, leaving only advertising and manufacturing for the company. Granted, Amazon is primarily business-to-consumer focused, but they have begun the transformation into the industrial sector by providing a platform for business-to-business relationships to form.

In summary, the main competitive advantages a company can gain through a 3PL are as follows:

1. Access to a large database of carriers and service providers

2. Full visibility of product throughout the entire transportation process

3. Redistribution of in-house labor that results from outsourcing

There are more, but these are the most important as I see them. 3PLs add significant value to a supply chain and they are trustworthy for the most part…but as you will read in the following section, the friendly, helpful voices you interact with over the phone every day…are hiding their true intentions from you.

BEWARE: The Secret Mentality of the Broker

**Disclaimer: I recognize the contradictory nature of some of the statements I make in the below article and I want to emphasize that they are not meant to target any one company or accuse all companies segmented into the Third-Party Logistics industry as being inherently unethical. 3PLs provide immense value to the industry, I will not deny that; my intentions are simply to use my direct experience to show how toxic cultures and training policies lead to poor ethical decisions when managing customer relationships.**

And with that being said…I will begin.

For those of you still unsure about the principle of Third-Party Logistics and the role it plays in the Supply Chain Industry, I will recap for you. A third-party logistics company (or 3PL), specializes in shipping your shit; it’s that simple. 3PL’s can also assist a company with their warehousing and inventory management, but for this section I will focus on their freight transportation services, as it is their primary market niche. Moreso, this article is intended to explore the true intentions of the broker and the company you utilize for this service.

Honestly, I just want to start this off by saying that I am grateful for the time I was able to spend in the 3PL industry, however short-lived it may have been. I gained hands-on freight negotiation experience and I learned quite a bit about logistical costs, largely in part to my independent analyses and the diversity of my broker’s account. HOWEVER, I also worked for a 3PL long enough to realize that they are money-sucking leeches looking for any opportunity to increase their cash flow…and ethical policy?

Pfff……*the sounds of stifled laughter ricochet through the room as I try not to spit out my coffee while I’m writing this*

WHAT ETHICAL POLICY?

From what I saw, the concept of “Ethics” was of little to no concern in the eyes of a broker trying to make the big bucks as a freight hustler. I honestly don’t know if some of those guys would know the proper ethical policy standpoint if it kicked them in the nuts…*Keyword here is nuts, because women generally see through the BULL SHIT before they sign the NDA and NCA contracts…which explains why about 90% of the workforce is male*

You see, I entered the Logistics Industry with the intention to OPTIMIZE the supply chains of companies who are lacking in one way or another. That was four years ago, and I believe that this same mentality was going through the heads of the creators of the first 3PLs when they brought their ideas to fruition back in the 70s and 80s. But just as quickly as their ideas came to bear fruit, Capitalism entered the equation like Capitalism enjoys to, and people began to realize that, “Hey! I can make a TON of money as a freight broker”.

Due to the difficulty of finding reliable carriers and the expensive nature of hiring employees to handle it in-house, the potential client list is endless…and it is SO EASY to outsource that responsibility to a 3PL...especially given the fact that you don’t even have to remember their number…they’ll call you, don’t worry!

Going along with this, another common reason for why companies choose to outsource their shipping to a 3PL, is that the friendly secretary at the front desk is tired of the 3PL CALLING THEM EVERY GODDAMN DAY!”

You think I’m exaggerating, but I’m not…they WILL call you at least every other day if not at 8am every morning, until you either run a load with the company or block their phone number. Because although they say they will put you on a Do Not Call list, they won’t. In fact, there is no such thing as a Do Not Call list at a 3PL, because in the mind of the broker, anybody with freight is worth a call. The goal is to wear the company down until they get so fed up with talking to and shutting down various representatives, that they decide, “You know what? Sure…we’ll give it a shot.” In this case the company has lost, and the 3PL rep has won. They have severed the head of the beast and they will try their very hardest to squeeze as much money out of the company as possible.

The cycle is endless. Turnover rates at 3PLs are among the highest in the country when compared with companies that actually value their employees and their intellect…and for this very reason, you will continue to receive calls from every fresh class of brokers who think they have a better shot than the representative before them.

At long last the mystery has been uncovered…I once and for all declare!

That yes, in fact…Third Party Logistics companies are secretly relentless call centers, plain and simple. And don’t even get me started about the dumbass metric they hold those lowest on the totem pole accountable for.

Because as with any Pyramid Scheme, the wealth divide is truly ridiculous within the corporate structure of these companies. The guys who joined the Third-Party Logistics realm ten years ago…or even five years ago when trucking really took off, are LOADED. They landed the big companies because they were the first ones to call and now they are racking in commission with an abundance of customers and new hires to do all their work for them…because what do you do when you have too much work and not enough hands?

Don’t do ANY OF IT and hire people to do the work for you, so that your ass can get nice and comfortable on the money piling up in front of you…the more money you make, the less work you have to do isn’t that how the saying goes?

At the core, Third-Party Logistics is all about the services it can provide to companies who do not have the time or resources to focus on carrier contract negotiation and shipment tracking...or whatever the company needs. Naturally, there should be some sort of cost associated with that service! Just as you would pay for a routine Monday morning coffee from Starbucks, one should expect to pay the person who found the carrier to move your shit for you. But…THERE IS A LINE. Sure, fluctuation exists within the pricing of the truck market and prices can be affected by many factors: weather, time of year, location, distance, weight, commodity, etc, with the number one factor being the availability of drivers located within your area of interest.

But psssst…I want to tell you a secret...

IT DOESN’T CHANGE THAT MUCH!

Your 3PL representative will tell you lie after lie about the “extreme” truck market fluctuations and that the truck costs an extra grand, when in reality…the pricing changed by 50 bucks or not at all. How do I know this, you ask? Because I analyzed pricing data over three years using five geographic radiuses and 35 cities across the United States and I determined that while there IS fluctuation in pricing based on the time of the year and the state of the economy…it is not enough to justify a massive increase in the rate your 3PL is charging you. Afterall, a Starbucks Holiday Latte with soymilk and peppermint syrup is slightly more expensive than a Regular Latte, but by no means is it a 300% increase in price.

And that brings me to my number one topic: MARGIN.

Margin is the driving component to a Third-Party Logistics Provider’s Revenue and Net Income. The higher the separation between price paid to the carrier and price charged to the customer, the more money the broker makes on the load. As I mentioned, no service should be left unpaid for, but how much is too much? $100? $200? $500? What about a $1000 margin? Is that something that you are okay with as a company who is trying to reduce cost and minimize waste? Because as I worked, it was not uncommon for me to hear people cheering in the workplace about landing a “G Rip”, or a “2 G Rip”. To emphasize this, in training we were actually encouraged to “rip” our customers and to raise the pricing to the highest level we possibly could without losing the trust of the customer or the business to another 3PL (who is undoubtedly trying to do the same exact thing).

Unfortunately, the smaller companies suffer more from this abuse, especially if they lack the means or knowledge to anticipate trucking prices or to negotiate contracts. “The dream customer”, for a 3PL representative is one who has NO CLUE what they should pay a truck. And here’s what will happen in this instance, picture yourself as the clueless customer:

You’ll get a call one day from a 3PL rep and once they’ve sold you on their services, they will slowly but surely become your best friend…but that should be expected! They make covering freight for you SO EASY! Your broker will charge you $1325 to move a truckload of your product, and you think that’s a great price. But you aren’t super familiar with trucking lanes and what you don’t know is that your lane is extremely common. In fact, on average it only costs about $400 to secure a reliable carrier. But does your 3PL rep tell you this? OF COURSE NOT!! Why would they? They would sooner feed you propaganda about the “difficulty of your lane” and the “tight truck market” (*which has been tight for years, by the way*). And you, being the clueless customer, will hang onto their every word as you justify the cost and contemplate their explanation.

Game Over. You lose.

They have won the game, you will continue to give them business because of the “Amazing job they did”, and you will continue to lose $925 every single time you run that lane. If you run that lane once per week, the total amount you have paid over the price of the truck that year, is anywhere from $47,000 to $51,000 (taking into consideration the slight fluctuations I talked about). If you run this load more than once per week or if you have multiple lanes, that number will be much higher.

If this sounds like the situation you or your company is in, here is the simple 3 Step guide to closing that massive margin-gap that the 3PL has created:

First and foremost, you must tell the 3PL representative to go lie in a ditch on the side of the highway in the hopes that one of the semi-trucks with your product will run them over. This will allow you to dissolve your contract with the company in pursuit of better, cheaper alternatives. Second, do some math and figure out HOW MUCH money you have lost as a result of your high-margin 3PL relationship. And last but not least, USE that money to either hire a consulting firm to write and negotiate long-term contracts with carriers…or just pay a college graduate $47-$51k to do the job in-house.

Additionally, there are 3PLs (like the one my company uses), that only charge a processing fee per load…no margin, no bullshit.

Let this be your warning! If you are confused about why your trucks are costing so much, or why your broker continuously increases your rates…ask them. Some of the brokers studied Logistics and Supply Chain and will tell you all the reasons for why the rates are so high with legitimate utilization of their knowledge. But the vast majority will freeze like a deer in headlights. They will choke under the pressure and try to repeat what they think they know and what they’ve heard others say. But their critical flaw is that they believe they know more than you.

Do some research! Even so far as getting access to the DAT database; because trust me when I say that the evidence is in the numbers.

Just find the real freight cost and ask your broker about the rates that they found…if the margin is small, you’re in luck because you’ve found one of the good ones with ethical standards…but if the number looks weird…I challenge you to make their brows sweat and their wallets shrivel in fear of losing your business. Ask them, “Where did that number come from?”, then listen to their bullshit as they spew logistical terms at you and talk about the storm down in Florida that affected the cost for your load…

And when you DO drop the massively different rate you found with Cheetah Transportation on the DAT load board, they will get down on their knees and beg you to give them one more shot to find a better rate. Say yes! So that they will race and scramble to make it seem like they called a thousand carriers to secure a lower price, when in actuality all they did in their effort to keep you as a client was to knock a couple hundred bucks off the margin.

…and yes, Cheetah Transportation is a real and reliable company...

Just promise me that you will mute your microphone when laughing at their stupidity…for your load is not traveling anywhere near Florida.

Catching them in a lie is easy…

Lying is practically part of the job description.

The Future of 3PLs

A Giant amongst Earthlings. A triple shot of espresso in a decaf coffee shop. The largest e-commerce platform in the Unites States…Call it what you will, Amazon is an all-encompassing beast that has taken our world by storm, crushing competitors into the dirt with ease. They compete with not only brick-and-mortar retail stores, but with distributors and sellers of pretty much every product known to man. So much so, that the only option for some companies is to utilize Amazon’s Fulfillment program to reach a broad consumer base that would be unreachable otherwise. They are the reason that some businesses have failed, and many others have flourished.

People ask, “Who are Amazon’s competitors?”. But the answer is more complicated than just a simple list of companies, especially when considering Amazon’s immense diversity and innovative capability. Amazon started as a book company and has become one of the largest facilitators of e-commerce in the world; in addition to establishing themselves as THE player in the game of cloud infrastructure and software development (although Microsoft argues differently). And I will talk more about Amazon in the future, but the point I am arriving at is that they compete with whomever they want.

With that being said…you guessed it! Amazon also competes with…

…drumroll please…

Third-Party Logistics!

Amazon’s influence has already had an effect in the 3PL industry; their 1-Day and 2-Day Delivery options have caused an inflation of customer expectations when purchasing from companies other than Amazon. The need for faster delivery times has had a major impact in the supply chain strategies of companies, and the massive influx of new e-commerce customers as a result of COVID-19 has accelerated that trend. If there is one thing that I know for certain, it is that the customer wants their product, and they want it NOW!

This trend creates a strain on companies from a shipping perspective because it is not easy to predict customer demand, and parcel shipments are a pain in the ass. Many companies have simply switched over to the Fulfillment by Amazon program offered by the Logistics Whale, because it’s easier (and cheaper sometimes), to just make the switch. Many companies nowadays sell their products on Amazon already and utilizing their fulfillment program adds further ease into their supply chain. The result is shorter Purchase-to-Delivery times without the need to re-strategize their production lines; they must only change enough to accommodate for the inventory requirements of Amazon.

Now, this passive competition from Amazon on the Third-Party Logistics industry does not amount to enough where the major players, such as CH Robinson, will see a massive decrease in their profit margins. A slight dip perhaps, but then again it is passive…this is already happening and will only continue as the e-commerce trend thrives. But the “Big Dog” 3PL executives brush their shoulders and look behind them at Amazon, just a naïve puppy in their eyes. Companies at the top of the rankings believe that their hold on trucking and the industry *...and the court systems*…will withstand Amazon’s force…

I don’t think so.

Asset-based carriers will have a stronger defense against Amazon because…well…they’re asset-based, and they own trucks and employ drivers to drive them. So when Amazon deploys the 20,000 trucks that they have purchased over the past four years and starts offering discounted transportation rates to companies, at least they will have that base to fall back on. Because not only has Amazon revealed that it intends to be asset-based, but in April of 2019, they introduced their very own freight brokerage system. Freight.Amazon.com offers a simplified way to quote shipments. The full rollout of this system has been delayed to keep their shipping times low for the increased e-commerce demand, caused by COVID of course.

If you remember, in the previous section I talked about margin…*and you should remember because I had a lot to say about it*; but more importantly, I talked about how the broker has full control of that number. Oftentimes, companies are paying more to the broker alone than they would have the truck (in addition to the price of the truck). I used my Amazon account to log in to their quoting system and I explored the rates offered by Amazon for specific lanes, cross-referencing them with the numbers I had seen when working for a 3PL.

Guess what?

Amazon offers pricing levels that would essentially allow for a company to remove the middleman…no negotiation, no bull shit. The corporate value of Amazon allows for the company to offer Zero Margin Pricing or low margin pricing. This is incredibly important, because as technology reaches new heights, trucking will transform to the point where the vehicles themselves are automated, and as far as I am aware, you can’t negotiate with a robot.

I foresee Amazon becoming a major disruptor in Logistics this decade, as well as other major players like Alibaba who are piloting similar freight management services for their suppliers and customers. With this will come a significant decline in expected freight costs…automation is inevitable, and Amazon is at the forefront of that innovation.

The general consumer is focused only on when their package will arrive, as opposed to the physical process of how the item was manufactured and shipped. They pay attention only to what will provide the shortest time between purchase and delivery, not caring about the carrier or the work spent in the background to bring it to them at the Right Time and in the Right Condition, two of the Rights of Logistics.

In the near future, trucks will be driving themselves across the country and the population of drivers will continue to dwindle…very few people want those jobs nowadays, although I respect the HELL out of the men and women who have made driving Big Rigs, a profession. It’s not an easy thing to drive one of those behemoths, let alone if you’re transporting liquid, or worse…helium. The wind is unreal, and some civilians drive like assholes…just be patient and pass him when he moves back over...And GET USED TO IT! Automated trucks are programmed to link up behind one another to improve fuel efficiency and maintain a steady transit time; and robots aren't bothered by you riding their ass while they do it either!!

…but I’m getting sidetracked.

All in all, what I’m trying to say…is that 3PLs *especially those with inferior structures and unethical practices*…are fucked.

The 3PL CEOs can and will continue to smirk as they look back and see that cute little Puppy Dog, Amazon, trying to immerse itself in the trucking industry, assuming that they, themselves, know it all…that they are completely and undeniably beyond reach. In unison, the brokers will laugh at the thought of Amazon brokers taking negative margin on their loads, but robots and automation care not for ridicule. Laugh at yourselves, I proclaim, because as these brokers look at Amazon way back in the distance, they forget that the “small puppy” they are looking at is a Rottweiler; and he’s driving a Lamborghini. It is not a matter of IF Amazon and others can hit the gas pedal and overtake the Third-Party Logistics Industry…it is a matter of WHEN.

Afterall…

They have a Lambo…

They can do what they want.

Thank you to those that have read this three-part series, hopefully I didn’t bore you to death. My future posts in the Supply Chain category will encompass the life of a driver on the road, Amazon, and automation as it relates to trucking and manufacturing processes.

…and I also write about whatever else I want so stay tuned!

Don’t forget to subscribe!

Nathaniel Schilpp

Supply Planner and Writer

nathanschilppwriting@gmail.com