Copyright 2003, Traffic World, Inc.
There are a number of ways to measure the performance of a 3PL. A less obvious one is the revenue earning power of its employees.
Revenue per employee, or RPE, is a statistic that reflects the basic model around which a third-party logistics business is built, said Dick Armstrong of Stoughton, Wis.-based supply-chain consulting firm Armstrong & Associates Inc. A study of provider RPE carried out by Armstrong showed that it is indicative of the type of logistics business and how respective organizations perform.
Armstrong looked at logistics enterprises that are strong in transportation management and freight brokerage, namely Allen Lund, C.H. Robinson, Hub and Landstar Logistics. The average yearly RPE for this group was $131,000. The same analysis for six key value-added warehouse 3PLs - Ryder and Exel, for example - yielded an average RPE of $104,000, and for dedicated contract carriers the average was $134,000. International transportation managers, represented by Expeditors and PBB, had an average RPE of $82,000, and for transportation network managers, in this case Schneider Logistics and Transplace, it was $83,000.
When graphed against net income percent, the 3PLs fell into business groupings. The transportation management and brokerage group scored the best on both RPE and net income. Dedicated contract carriers, value-added warehouse 3PLs and transportation network managers all scored relatively low on net income percent. The carriers - Cardinal, J.B. Hunt, Penske, Ryder and Schneider - did well on RPE. The network managers scored comparatively low on both scales.
Not surprisingly, earning power is related to the sales incentives available to employees. "If you go to a C.H. Robinson facility, everybody is called a salesman," said Armstrong, even where the individual is more involved in operations. That is "a model where you have got a lot of individual motivation," he said, reinforced by generous bonus systems. On the other hand, transportation network management is a software-driven business where logistics managers are effectively "superclerks" who are not highly paid, Armstrong said.
International transportation managers Expeditors and PBB had high net incomes but low RPE. Armstrong gave two explanations for this. The first is location: "Outside Europe and the United States, wage scales are significantly less for those that do the same job," he said. Both these operators do a lot of business in Asia where there is a tendency to employ more low-wage workers and this "dilutes the revenue per employee." Secondly, margins are added on top of these lower-level labor costs, hence "you effectively do the service for less," he said.