Not Just Another Man’s Broker: The Merit of Third Party Logistics Services Versus Brokerage Services
By George Abernathy, President & Chief Commercial Officer, Transplace
As the old saying goes, “One man’s 3PL is another man’s broker.” A couple of years ago, I spoke on a CSCMP panel led and moderated by Tom Escott that “debated” the merits, differences and advantages of a shipper’s relationship with a 3PL versus a broker. It was a lively and enjoyable session, and I felt that both service types described well their value propositions. Both 3PLs and brokers serve as an intermediary between shippers and carriers – and depending on the service being provided – 3PLs can look like brokers and brokers can look like 3PLs. This is why “broker” and “3PL” are often used interchangeably. But just because they can provide a similar service, doesn’t mean they are the same, or that the provider you have is delivering the type of service your company really needs.
Transportation brokers play an important role in a shipper’s overall transportation strategy. The broker’s ability to reach a broad network of thousands of smaller carriers to secure capacity with high quality service at a competitive cost is essential, especially as shippers attempt to defend themselves against capacity crunches by adding one or two high-quality brokers to their manageable stable of asset-based carriers. In the same way, a 3PL engages its carrier network on behalf of a shipper to secure truckload, less than truckload or intermodal capacity. 3PLs will also utilize one or two high-quality brokers to supplement the asset-based carriers it contracts for a particular customer. Yet despite the similarities, there are distinct differences between the two.
For brokers, the primary objective is to cover freight with costs being at or below target, and service being at or better than target. Consequently, they invest heavily in enhancing very broad carrier connectivity and fostering carrier relationships as these are the means that will ultimately enable them to move the freight offered to them each day by the shipper.
Carrier connectivity and strong relationships are also important objectives for a 3PL, but the 3PL handles 100% of the shipper’s freight – typically in a transaction or management fee model – and is not one of numerous providers, including brokers, handling a portion of the freight in a margin pricing environment. 3PLs offer a broad range of services and solutions that demand significant investment in human capital (i.e., recruitment, training, development and retention), sophisticated technology, and process improvement infrastructure and structure that drive automation and optimization at every level of a shipper’s transportation operations. It’s through this on-going investment in developing and enhancing comprehensive logistics solutions in procurement, strategy and execution that allow a 3PL and its customers to unlock efficiencies and savings. They can look beyond simply trying to execute an immediate need, and have procurement be tied into larger network optimization and cost savings initiatives.
For 3PLs the investment goes far beyond technology and a transportation management system (TMS). It includes the time and resources spent to fully understand a customer’s business, challenges and supply chain requirements; then leveraging its human capital and technology to identify areas of opportunity and having the capabilities to strategically plan and effectively execute on those opportunities. This investment takes the process beyond simply a transaction-oriented interaction to a true strategic partnership, and opens the door for broader efficiencies and cost-savings opportunities – such as co-loading freight with other shippers.
Although “broker” and “3PL” are often used interchangeably, they’re not the same. There are fundamental differences that are shaped by where they invest their time, money and training. Shippers should be thoughtful in their selection process and be open to strategically utilizing one or the other or both services. The decision should be made based on the types of services and solutions the provider(s) offer, and how they address the organization’s transportation needs and support its overall business goals. In the end, the question of broker and/or 3PL boils down to “what does the shipper need?” and “which type of provider can provide it?”
Note: Originally posted by Logistics Viewpoints on February 13, 2014.