KEY POINTS

  • The rise of e-commerce is making retail supply chains more complex, as a higher volume of goods needs to reach more dispersed locations, all on a faster timeline than ever before. As more consumers order online, products are being shipped directly to their homes instead of to brick-and-mortar stores alone. And consumers expect to receive their orders quickly, as Amazon Prime has normalized two-day shipping.
  • These newly complex supply chains require significant coordination, and that's disrupting the traditional relationship between retailers and third-party logistics (3PL) providers. 3PL providers have historically specialized in transporting goods with the logistics assets they own, like trucks, planes, and warehouses — not in managing logistics networks. With simpler, brick-and-mortar-oriented supply chains, moving goods was enough in itself, but the needs of retailers are changing as delivery networks fragment.
  • Retailers are typically opting for one of two approaches to manage this complexity: partnering with fourth-party logistics (4PL) providers or managing their 3PL networks in-house. Approaches may vary company-to-company, but what remains the same is the goal: Directly manage handoffs between 3PLs to ensure on-time delivery of goods. 
    • 4PL providers are an increasingly popular option, with the global 4PL market projected to grow in size from $38 billion in 2018 to $53 billion in 2021. 4PL providers coordinate and manage shipments as they change hands between multiple 3PL providers to ensure timely arrival at their end locations. 4PL services are typically offered by management consulting firms or by legacy 3PL providers as stand-alone businesses.
    • In-house supply chain management is common among extremely large retailers, like Amazon, Alibaba, and JD.com. In-house supply chain management practices route and manage the delivery of one's own products, either through a supply chain division or through a subsidiary or affiliate. 
  • Legacy 3PL providers need to adapt to the world of managed supply chains, either by building supply chain management divisions themselves, learning how to better collaborate with competitors, or both. Many leading 3PL providers in the US now offer 4PL services, including UPS, C.H. Robinson, Penske Logistics, XPO Logistics, and DHL. But not every legacy 3PL provider needs to do so; for some, learning to become strong collaborators with other 3PL providers will be enough. Regardless, facilitating coordination between parties within delivery networks is the way forward.

Introduction

Third-party logistics (3PL) providers [...]