In April 2017 World’s Finest Chocolates (WFC), a Chicago manufacturer, hired Redwood Logistics, a third-party logistics (3PL) company also based in Chicago, to build a transportation management system (TMS) connecting its warehouses with core business operations. The project was completed successfully on a tight timeline. So in 2018, when a trucking crunch hit the market, raising spot rates for WFC by as much as 20 percent and causing capacity challenges out of Chicago, the chocolate maker once again turned to Redwood for assistance.
The 3PL came through. By tapping into its customer network and leveraging backhaul capacity, Redwood’s multimodal division was able to procure consistent capacity in many lanes while bringing WFC’s truckload rates down by around 10 percent. WFC responded by moving more of its carrier business over to Redwood, and the logistics provider now handles $1 million of WFC’s carrier expenditures.
“It makes us not worry about having to be trucking experts in moving our product,” said Todd Peterson, director of logistics for WFC. The company is now working with Redwood on another project, a bid for less-than-truckload freight. “Redwood has been able to step into many of the challenges we face,” Peterson said.
That WFC is looking to a 3PL to help address a variety of logistics issues is not so surprising.
Just a few years ago, manufacturers and retailers were riding a wave of low transportation rates, and didn’t feel the need for outside logistics assistance. But in 2018, the market shifted and transportation costs started eating into shippers’ bottom lines. Even now, as capacity starts to loosen up, shippers are looking to 3PLs to help them make more proactive business decisions, said Erin Breen, Redwood’s senior vice president for strategic sales.
“They’re saying, ‘hey, I don’t want to be caught where I was in 2018 when we were scrambling,’” Breen explained. As automation, driver shortages and e-commerce trends continue to upend the supply chain, 3PLs can assist shippers with everything from implementing new software platforms like a TMS to providing industry insights and macroeconomic analysis. “It’s less about selling an individual service and more about figuring out and solving specific customer problems,” said Breen.
Basically, 3PLs and (many) shippers are now looking to build relationships that are less transactional and more strategic. That requires a shift in thinking on the part of everyone involved, as both parties have to pay attention to a broader set of concerns than spot and contract rates.
Providers, for example, need to know as much as possible about the industry sectors in which their customers operate. Redwood accomplishes this in part by leveraging insights from third parties – e.g., Morgan Stanley indexes, purchasing FreightWaves SONAR licenses for customers – as well as its diverse client base of retailers, food businesses and manufacturers.
Technology solutions require a similar holistic approach. Automation alone isn’t going to provide insights into what a given business requires, Breen said. Whether it’s a TMS or another software platform, “you need to understand the customer’s data and the customer’s network.”
Shippers are looking for “continuous engagement,” he added. “If we’ve implemented a technology solution, we don’t want them to come back in two years and say it’s outdated. It’s about staying ahead of the curve.”
For their part, shippers need to be willing to share data about their business operations – everything from production schedules to promotional strategies, said John Langley, a professor at Penn State University and a co-author of the 2019 22nd Annual Third-Party Logistics Study.
“The more 3PLs know about their customers, the more successful the relationship is going to be, and the more they can trust each other if there are problems to be resolved,” Langley said. (A simple non-disclosure agreement can alleviate customer unease about sharing proprietary information with a 3PL.) Langley echoed Breen’s comment about 3PLs drawing on their rich client base to solve problems – if one customer has a problem, the 3PL can probably expect a similar problem with another client.
Another big factor in the success of shipper-3PL relationships is related to the development of clear objectives, Langley said. “When the customer puts the business out to bid, the customer needs to say ‘here’s what we want.”
That’s exactly what WFC did. The chocolate maker decided to keep growing its relationship with Redwood, Peterson said, because the logistics company was willing to start off with one small project, and then slowly find additional ways of adding value.
“We found that Redwood and its approach was strikingly different than other logistics companies that wanted to immediate try and bundle other projects together,” Peterson said. “The Redwood team was the only one that said ‘Let’s focus on the TMS, and as we grow together, we’ll find other opportunities.’”
“That has been very prophetic,” Peterson said.