When folks first start looking into transportation logistics, they sometimes wonder whether third party logistics firms are capable of running their own fleets. After all, there is a lot of overlap between motor carriers and transit brokers, so it is expected that there would be a similar overlap between motor carriers and third-party logistics.
So do 3PLs own trucks? The answer is it depends on whether the third-party logistics firm is an asset-based or non-asset-based operation. Having assets completely changes how a 3PL operates in the transport cycle.
Read on to find out more about the difference between asset-based 3PLs and non-asset-based 3PLs, and the advantages and disadvantages of each.
What Is a 3PL?
3PL is a common abbreviation for third-party logistics. Companies that focus on facilitating third party logistics are the ones that direct and manage the transport of freight from its starting point to its point of delivery, sometimes controlling this process from the factory floor of the manufacturer to the retail outlet the product will eventually be sold to or through.
Third party logistics built into a supply chain allows business managers to outsource those aspects of freight and shipping that they find either tedious or difficult to deal with firsthand. It is often simpler to employ subject matter experts to manage cargo due to the intricacies of properly labeling and shipping freight under federal regulations.
3PLs can be broken into two major categories: asset-based 3PLs and non-asset-based 3PLs. Asset-based 3PLs can own a variety of their own transport assets, including trucks, distribution centers, and warehouses. These logistic companies are dedicated to being able to handle an entire freight route in-house, without having to go to outside sources.
Non-asset-based 3PLs, on the other hand, must outsource all of the various pieces of freight logistics such as carriers, trucks, distribution centers, etc.… because it does not own any of these assets for itself. Rather, these companies act as a liaison to work as a go-between with larger companies.
Asset-Based 3PLs vs. Non-Asset-Based 3PLs
Asset-Based 3PLs and Non-asset-based 3PLs both have their own advantages and disadvantages. One major advantage of an asset-based 3PL is that they are usually set up as a “one stop shop” to solve freight issues, and it allows the shipper to simply drop the cargo with a 3PL, select a destination, and let the 3PL handle things from there.
Asset-based 3PLs can be efficient in business because they have many resources at their direct disposal, rather than having to outsource everything to subcontractors. However, a disadvantage of asset-based 3PLs is that they are more expensive to run. Assets like trucks and warehouses require constant upkeep, and the cost of upkeeping assets and facilities is then passed along to the shipper.
Non-asset-based 3PLs are on the rise in the trucking industry and can be an effective business model since they keep overhead costs low, but because they are typically just managing a bunch of subcontractors to facilitate the freight delivery, non-asset-based 3PLs tend to be less stable delivery systems than asset-based systems.
One advantage of non-asset-based systems over asset-based systems is that because non-asset-based logistics companies do not have to incur the costs of maintaining truck fleets, distribution centers, and other assets, their services tend to be cheaper than asset-based companies.
Advantages of Using a 3PL for Freight Logistics
It can be tempting for small operations and businesses to try and attempt to manage all outgoing freight themselves, but this can be a mistake when a business is young, and every staff member’s efforts counts. Business owners and managers don’t want to have to dedicate their own office clerks to handling delivery and acquisitions when there are third parties who specialize in these work tasks.
Along with the benefits of experience, 3PLs also offer businesses the following advantages in freight logistics:
- Discounted backhaul rates: 3PL freight brokers can often secure discounted shipping rates for backhauls, taking advantage of pre-existing delivery routes and networked resources in order to create the most efficient freight system possible.
- Volume negotiation: Because 3PLs move large volumes of freight and cargo at a time, these companies are often able to negotiate for better rates in shipping contracts than a business that did not specialize in logistics would be able to negotiate for itself
- Advocate for the shipper: 3PLs, particularly non-asseted-3PLs, are not focused on any aspect of the freight process but making sure that the supply chain operates as smoothly and painlessly as possible. This is their main professional objective. This means that of all components in the supply chain, the 3PL is most likely to be looking out for the shipper’s interests above all others.
Freight is one aspect of business that is ferociously regulated by most world governments, and as a result, it almost requires a separate degree of education in order to understand how transport logistics really works most effectively on this level. This is why it is often advisable for large corporations to outsource this effort to subject matter experts like 3PLs.
Disadvantages of Using a 3PL for Freight Logistics
While there are many benefits of using a 3PL to handle freight logistics in supply chain management, there are also some drawbacks of using a 3PL depending on whether you use an asset-based 3PL or a non-asset-based 3PL.
- Because non-asset-based 3PLs are essentially depending on their own fourth-party resources to account for motor carriers, warehouses, distribution centers, trucks, and other matters of freight logistics, they are operating at the mercy of outside forces. This can lead to a breakdown of both communications and resources that can delay shipping and cause lost revenue.
- Non-asset-based 3PLs are considered not as stable as asset-based 3PLs because theoretically, asset-based 3PLs are better able to control resources, but in practice, this isn’t necessarily the case. An asset-based 3PL can have just as many truck shortages for a particular freight route as a non-asset-based one, depending on the networks and assets involved.
- Most asset-based 3PLs are going to be naturally biased towards using their own carriers and assets versus using outside assets, and this may lead to a 3PL choosing a less efficient method of delivery than what might otherwise be available through the network of a non-asset-based 3PL. For good asset-based 3PLs, this shouldn’t be an issue, but the assets have to be quality.
Why Third-Party Logistics are Important in Trucking
Third-party logistics companies are important in trucking for several reasons, but the most important one is that they streamline the process of transporting goods and freight. Without 3PLs, companies would struggle to maintain supply chains for their businesses in an economical way.
Trucking involves crossing state or national lines with heavily regulated cargo, and anyone looking to move that cargo needs to be well-versed in the various laws and rules involved with doing it legally. For this kind of long-haul transport work, it helps a corporation that doesn’t specialize in these minutiae to outsource the details to a third party who does.
3PLs also handle brokerage work and load assignments so that owner-operators can focus on getting the freight where it needs to go rather than dealing with all the paperwork or regulations.
Here are some of the other major benefits of using 3PLs to help streamline a company’s supply chain:
- Focus on expansion. By outsourcing unnecessary processes, companies are able to dedicate their resources on expansion and marketing in order to grow business, rather than work to try and sustain it more efficiently.
- Reduce the cost of business. 3PLs often have refined resource systems that companies can take advantage of to get products and services both cheaper and faster, giving them a leg-up on their competition with the right third party.
- Promote green industry. 3PLs can be a good way for companies to strive for greener business practices by utilizing more mass transportation, carbon credits, and other methods designed to minimize the output of carbon emissions and increase recycling measures.
- Strengthen security measures. Especially when dealing with valuable forms of freight, security while in transit is crucial. 3PLs can make sure a company has the right security measures and training in place to make sure the cargo is secure at every step of the supply chain.
- Improve operational efficiency. 3PLs can improve both the quality of drivers selected for shipping as well as the end result of transport. 3PLs often operate with layers of built-in security that helps protect the shipper from logistics failures that the business would be hard-pressed to resolve itself without the requisite resources and networks in place.
- Implement system overhauls. When changing the processes of a trucking business very quickly, it can be difficult to maintain proper assignment of loads manually. Outsourcing this duty to a third party helps keep the ball rolling while major changes to workplace procedures or staffing are made.
Using a third-party logistics system does involve some upfront cost for trucking businesses, but it tends to make up for this cost in the long-term with improved operational systems and increased effectiveness of the business overall.
For fleets, using a 3PL to help manage brokered loads can take a lot of clerical responsibility off the fleet owner, allowing them to focus on truck and driver deployment as well as asset maintenance. Whether you’re the shipper or the trucker, however, 3PLs can be a huge help in keeping the ball rolling with a complicated long-haul delivery.
Should 3PLs Own Trucks?
The decision to be asset-based or non-asset-based as a 3PL is a huge one to make since it shapes pretty much every aspect of how a 3PL does business. Those that do own trucks operate under an entirely different set of regulations than those that don’t have to, and they also have to handle issues such as the following:
- Staffing drivers: Handling truck operators doesn’t just involve managing their cargo logistics while they’re on the road; it also means handling their personal insurance health policies, employee taxes, and other liabilities.
- Cost of maintenance: Running a single commercial motor carrier truck can cost over $200,000 over the course of a single year. For a logistics company to be competitive, they have to be able to manage dozens of trucks over hundreds of thousands of miles of territory. Very few businesses are able to put forth the financial investment necessary for truck assets.
- Assets mean responsibility: When a 3PL owns their own assets like trucks, they often have higher expectations placed on them than non-asset-based 3PLs do with regards to making sure freight is handled as efficiently as possible. While businesses will sometimes give non-asset-based 3PLs a break when it comes to shipping delays, asset-based 3PLs have no buck to pass.
- Assets mean liability: 3PLs that focus on logistics management rather than directly manipulating assets like trucks means that those 3PLs also don’t have to deal with the ramifications of having those trucks on the road, which can vary from shipping fines and penalties to wrongful death lawsuits if a truck kills another driver.
- Assets mean control: While it can be a disadvantage to have to babysit assets like trucks for a 3PL, having direct control over those assets means it is easier to directly address any logistics problems that might crop up during the course of freight transit.
- Owning trucks means owning facilities: To be an effective asset-based 3PL, you can’t stop at just owning trucks. You also must own everything that comes with them. That means truck storage facilities and the means to repair them, as well as warehouse centers, to avoid any security gaps in transit. It isn’t as simple as owning a fleet of trucks alone. You need all the assets of a 3PL supply chain combined into one entity.
Advantages of Running a Non-Asset-Based 3PL
When it comes to running freight brokerage, there are several major advantages to running a non-asset-based 3PL versus buying assets like trucks and warehouses. For one thing, a non-asset-based 3PL can literally be created from the ground up with no assets at all but a robust networking system.
Using networking skills, a non-asset-based freight broker can organize freight shipping and process paperwork from the comfort of a home office, reducing the need for not only assets like trucks, but also overhead costs such as
For entrepreneurs looking to break into the freight brokering business, getting involved on the ground floor at a non-asset-based 3PL can be a good starting point for learning the basic concepts involved in setting up an efficient transport chain.
Advantages of Running an Asset-Based 3PL
Asset-based 3PLs require a larger financial investment than their non-asset-based competitors, but this investment can pay off over the long run if the owner of the 3PL is meticulous about streamlining and refining every aspect of the freight delivery from load assignment to drop-off.
This requires 3PL business managers to not only focus on maintaining their own assets but also watching ambient shipping rates and managing other logistics issues outside of the asset pool too.
However, this level of dedication is rewarded by allowing a company to act as a single liaison figure to potential shippers and handle freight at every step of the process. This gives the customer the most confidence possible that the freight will be transported securely and that there is someone being held responsible for its safe passage.
Because they offer more services than a non-asset-based 3PL, asset-based 3PLs are also able to charge far for more logistics management than those 3PLs who mostly act as an aggregated broker for other transport services.
Advantages for the Customer in Using 3PL Trucking
Shipping customers can enjoy a lot of benefits from using a 3PL that manages their own trucking fleet. There is a good deal of security in knowing you can drop off your freight with one company that will handle the entire process of shipping it from one end of the supply chain to the other.
While how advantageous owning trucks is for a 3PL will depend largely on how experienced they are in maintaining a fleet and the associated costs of doing so, using a 3PL with its own trucks almost always end up advantageous for the shipper.
By taking advantage of these third-party services, shipping customers are able to delegate many of the more tedious clerical tasks involved in shipping freight to those with a lot more experience dealing with them, making the entire process more efficient, effective, and ultimately profitable.
Owning Trucks Is A Big Responsibility for 3PLs
Owning your own trucks sounds like a great investment if you want to operate a 3PL, but it’s important to remember that with assets come associated upkeep costs, and those business owners who are unprepared to take these costs on along with their new trucks could swiftly end up over their head.
Before adding trucks to your 3PL operation, make sure you know exactly what’s involved with regards to regulating and maintaining those trucks before promising asset-based services to your customers. Being prepared ahead of time can save you a lot of heartache (and possibly shipping fines) in the long run.