What's in a name?

What's in a name?

After 30 years in the transportation business, I am still waiting for a clear, simple explanation regarding the differences between a 3PL and a forwarder.

Is a third-party logistics provider just a fancy name for a forwarder, or does a 3PL actually provide a number of services that the "old-fashioned" consolidator does not?

Yes, there are differences. Most 3PL executives muddy the waters, however, by spouting rhetoric that almost no one understands. For ex-ample, one 3PL executive recently said his company provides "business process platforms" to customers. Another offers "enterprise applications" to shippers. Can anyone explain what these phrases mean? What has happened to clear, simple English in describing a service to a shipper?

Rather than clouds of verbiage emanating from 3PL executives, let me attempt a simple explanation regarding the different functions of a forwarder and a 3PL.

Basically, forwarders move cargo from one point to another. 3PLs move, store and process inventory. In doing so, they may provide traditional forwarder services. An important question arises in this overlapping of services. Does the shipper obtain genuine value for the transportation segment of the 3PL service? The answer often is ambiguous. To make this point clearer, I believe the shipper should ask the 3PL some hard and straight questions about the transportation part of his services.

For example:

?? Are your transportation charges any cheaper than those of forwarders?

?? Will a shipment under your supervision arrive at its destination any faster than it would by using a forwarder?

?? Once a shipment arrives, will it clear Customs any faster than when utilizing a forwarder?

?? Because you are non-asset-based and must rely on air carriers and shipping lines to move your customer's freight, can you obtain lower rates and more assured service from your service provider than a forwarder can?

The forwarder is a specialist who focuses on the cost and logistics of transportation. The 3PL is usually a generalist who expects to be compensated for providing an overall service. This compensation may or may not be cost-effective.

How many people will the customer eliminate from his staff by turning over to a 3PL the complete management of his logistics process? Ironically, the 3PL may use a forwarder to move his customer's freight. How effective is he in negotiating rates with the forwarder so that the total cost to the shipper is no greater than the direct utilization of a consolidator? The shipper must balance the "one-stop" convenience of a 3PL who claims to handle every aspect of the logistics process against the generally higher costs the 3PL will request.

Interestingly, the business of a number of companies calling themselves 3PLs has slowed considerably, with many of the smaller entities looking to merge or be acquired. But many forwarders, whose primary business is transporting goods from Point A to Point B, with ancillary 3PL services, are thriving.

Traditional forwarders continue to play a dominant role in international trade, controlling 90 percent of all heavyweight international shipments by air. This percentage has remained remarkably constant during the past 30 years despite all the technical and operational changes during that time. For ocean shipping, traditional forwarders control 75 percent of less-than-container load revenue.

Air carriers and ship lines, which in the not-too-distant past employed huge numbers of salespeople to market their services, have cut these staffs to the bone. The direct carriers increasingly rely on the forwarder's ability to sell their transportation services instead of direct marketing to end customers.

Yes, there are differences between 3PLs and forwarders. Increasingly, however, these services are blending. To remain successful in today's fiercely competitive logistics market, both the forwarder and the 3PL must never forget that despite all the technical advances and innovations, logistics remains a people business.