THE INDUSTRY OF LOGISTICS OPERATORS ABROAD

The market for providing logistics services has been growing very quickly all over the world. There are several evidences of this phenomenon. In the North American chemical industry, the average number of outsourced logistics activities per company increased from 1,5 to 5,5 in the period between 1989 and 1995, indicating a strong tendency towards an increase in the scope of outsourced logistics services. At the same time, a report by Fortune magazine indicated that 60% of the 500 largest companies listed by it outsourced at least one of the activities that make up their logistics process, evidence of the level of diffusion of the practice of logistics outsourcing. In another survey involving the European and North American markets, it was found that 78% of the European managers, and 46% of the Americans interviewed, stated that they were committed to outsourcing their logistics activities, and that the tendency was to increase the number of activities outsourced.

The result of all this has been the rapid growth of the logistics service provider industry – PSLs, as shown by Armstrong & Associates surveys (1). Between 1996 and 1998, the operating income of the 56 largest North American PSLs increased from US$ 28,5 billion to US$ 39,6 billion, which corresponds to an average growth rate of approximately 18% per year.

In Brazil, despite the fact that the outsourcing process of logistics activities is still relatively recent, and that there are no statistics available, the market potential seems to be high. A study by the World Bank estimates that spending on transport in the country alone is equivalent to 10% of GDP, which would correspond to approximately R$ 100 billion. The big global PSLs seem to have realized this potential. From 1996 onwards, companies such as Ryder, Danzas, Penske Logistics – in a joint venture with Cotia Trading, McLane, Mark VII, Emery Worldwide, and Hellmann Logistics – began to arrive in the country, joining a growing number of Brazilian companies, such as Columbia , Cometa, Metropolitan, Delara, Marbo, Mercúrio, Hércules and Delta, which were already experiencing substantial growth in this market.

One of the consequences of this evolution has been the emergence of various formats of action, which has led to difficulties in categorizing logistics service providers. Little is known about the main barriers and opportunities for these companies to operate.

There are countless possibilities for outsourcing logistics activities. For this reason, in countries where LSP activities are more developed, market segmentation has been increasing, ranging from simply outsourcing transport activities to hiring third parties to operate the entire logistics process.

Due to the increasing importance and complexity of outsourcing logistics, the concern with a better understanding of these activities has increased. However, most known studies have examined the sector from the perspective of contracting companies. In general, these studies encompass the necessary steps to outsource these activities, the situations in which outsourcing should be done and what can be expected from it.

The literature dealing with PSL problems and characteristics, however, is fairly sparse. Issues such as necessary prerequisites to be considered a provider of integrated logistics services (the so-called logistics operators), the different existing formats, industry perspectives and trends in adding value to the customer are very little discussed. This work seeks to contribute to a better understanding of this industry, based on a detailed analysis of the international bibliography. In a second work, based on field research with a group of the main Brazilian logistics operators, an analysis will be made of the stage of evolution of this industry in Brazil.

DIFFERENT DENOMINATIONS AND FORMATS OF ACTION OF PSLS

There are several names found in the international literature for providers of logistics services. Here we will highlight some of these denominations and their most common meanings.

Expressions such as third-party logistics providers (3PL), integrated logistics providers, contract logistics companies, and logistics operators are some of the terms commonly used in international literature to name companies providing logistics services. Internationally, the first denomination, ie 3PL, is clearly the most used. In Brazil, there is a strong tendency to use the term “logistics operator”.

According to Gardner (1994), the term third-party logistics (3PL) began to be used in the 80s as a synonym for “subcontracting elements of the logistics process”. Although the term 3PL means, for a large number of authors, nothing more than a company that provides any type of logistical service to third parties, some associate this name only with companies capable of performing a broader set of logistical services.

In the 80s, the tendency towards the integration of logistics activities – two or more activities carried out in a coordinated manner – became more frequent, leading some authors to associate the expression 3PL with companies capable of providing more than one type of logistics service in an integrated manner. . Berglund (1999), for example, associates the expression 3PL to the company that offers, through a contract, at least, transport and storage management and operation services. According to him, a 3PL contract with a client must be for at least one year and must also provide for management, analysis and project activities. It also emphasizes the possibility of adding activities such as inventory management, information - such as tracking and tracing orders - and offering activities that add value such as a 2nd packaging or product installation, or even supply chain management .

For Lieb (1996), the name 3PL applies both to companies that provide all services related to the logistics process, and to those that provide only a specific activity in this process. Despite agreeing with the above definition, Sink (1997) believes that all activities must be conducted in a coordinated and integrated manner and that, as indicated by Berglund (1999), 3PLs, to be designated as such, must offer at least , two types of services. It is important to remember that there are countless types of services that can be provided by 3PLs. Lieb (1996), for example, identified 13 different types of services as being most commonly performed by 3PLs: warehouse management; load consolidation; information systems; fleet operation or management; freight negotiation; carrier selection; issuance of order; importation exportation; return of products; order processing; assembly or installation of products; deconsolidation of products for customers; stock replenishment.

In Brazil, a recent study on PSLs, carried out jointly by the Associação Brasileira de Logística, Fundação Getúlio Vargas and Associação Brasileira de Movimentação e Logística, and published in Tecnologística (February/1999) defines a logistics operator as being “the supplier of logistics services, specialized in manage and execute all or part of the logistical activities in the various stages of the supply chain of its customers (...) and that has the competence to, at least, simultaneously provide services in the three basic activities of inventory control, warehousing and transport management. The other services, which may be offered, work as differentials for each operator”. This definition is quite similar to the one used for 3PLs, except that the latter mentions the integration of activities as an element present in its concept.

Therefore, it appears that different authors use different criteria to characterize 3PLs. Some are more rigorous, requiring that to be classified as a 3PL, a logistics service provider should carry out a wide range of activities, in an integrated manner, have analysis, operation and management capacity, and have long-term contracts with its customers. Others are less rigorous and consider that any company that performs some logistics activity, under contract, for third parties, with planning, operation and management capacity, should be considered a 3PL.

3PLS SEGMENTATION DIMENSIONS

The broad outsourcing movement, sponsored by industrial and commercial companies from the 80s onwards, the growing importance of customer service, new relationship standards in supply chains, combined with the greater availability of information technology for logistics applications, have contributed strongly to the growth of the 3PL industry. The increase in the complexity of the supply chain has made investments in logistics increasingly necessary, an area that is often not part of the core business of companies. In these cases, several of them preferred to outsource all or some of these activities and concentrate on their core business. Therefore, ample opportunities were opened for logistics service providers, resulting in the emergence of a large number of providers

The growth in the number of 3PLs and the countless possibilities for action resulted in an industry segmentation. Research carried out by Sink (1996) with representatives of several North American industrial sectors allowed the identification of several dimensions of segmentation of logistics service providers. In general, 3PLs can be segmented based on at least five basic dimensions, as shown in Table 1 below:

From the point of view of the types of services provided, 3PLs can be classified, in a first phase, into two large basic groups: operational specialists and integrators. The first group corresponds to companies that offer specific services such as, for example, transport, storage, consolidation or labeling. In this case, despite performing only a basic activity, there is the possibility of adding value to the customer by incorporating extra services such as order processing, repair and inventory control. The core competency of this group is operational excellence. In the second case, the company is able to provide a complete logistics solution, since it covers a wide range of services planned and managed in an integrated manner. Also in this case, it is possible to offer extra activities, outside the set of basic services, as some consulting companies do when developing complex logistical projects for specific clients.

Berglund (1999) found that there are significant differences between the two groups in some performance dimensions, as shown in the table below:

The great difference in performance between the two groups of 3PLs contributes to the understanding of the integrators' growth motives. This comparison also highlights what represents one of the characteristics of most integrators; the high degree of subcontracting. For Berglund (1999), this characteristic is the result of this segment's focus on conceptual aspects, such as supply chain analysis and knowledge of innovative logistical concepts (such as cross-docking and merge-in-transit) for the preparation and management of projects. These two basic groups can be subdivided into sub-groups based on other segmentation dimensions such as geographic scope, industries served and asset ownership.

With regard to geographic scope, PSLs can be classified as regional, national, or global. Currently, there is a strong tendency for the main providers to expand their geographical area of ​​operation as a way to achieve greater use of their assets and to avoid the loss of domestic accounts of customers with national or international operations.

The policy of specialization in certain types of customers is another clear trend. A first dimension of customer segmentation is its type of industry, aiming at greater sectoral specialization and customization. In more developed countries, typical examples of priority industries for specialization are automotive, high technology (informatics, telecommunications), food and paper. It is also noticeable, both in the USA and in Europe, a tendency towards specialization based on the size of the client. In the USA, this type of segmentation is well defined, in a way that the big providers serve, almost exclusively, the big accounts. Although small customers are increasingly outsourcing their logistics activities, they do so to specialists such as transporters or warehouses. It appears, however, that in Europe some large providers are already responsible for the logistics of smaller companies, and that this may become a good market niche for large providers.

According to Africk (1994), the most general of all segmentation dimensions is the one that divides operators based on asset characteristics. A first characteristic concerns their ownership, that is, the one that divides PSLs between asset-based and non-asset-based. The former own or operate transport or storage assets, and the latter subcontract the assets and their operation to third parties. According to Africk (1994), there are also hybrid LSPs, that is, those that, despite having physical assets, also contract assets from third parties. According to him, these companies are, in general, parts of a group where the “parent companies” have the logistical assets, and the “daughter companies” have the qualified human resources and information systems.

Asset-based provider contracts can be structured based on dedicated capacity or dedicated assets. In the first case, the provider undertakes to meet a certain volume and service levels specified by the contracting party, but will use the same asset for several customers. In the second case, the provider makes certain assets available exclusively to a given customer, thus increasing the guarantee of compliance or exceeding specifications (Afrik, 1994).

A final segmentation dimension of PSLs has to do with their origin. A historical analysis indicates that there are several origins: Exel Logistics, for example, originated in the warehousing activity, Cartepillar Logistics as the logistics department of Caterpillar, a manufacturer of heavy equipment, and FedEx, as an express delivery company.

Muller (1993), draws attention to the fact that there is not, in principle, one type of LSP better than the other; there are types of PSLs best suited to the needs of specific companies. Hence the importance of classifying the PSLs in the various identified dimensions.

PROBLEMS AND OPPORTUNITIES FOR PSLS

One of the main obstacles to the growth of PSLs is potential customers' fear of losing control of their logistics and, consequently, of the level of service provided. However, Kao (1993) points out that these insecurities, or even those related to product damage, can be overcome by establishing performance standards that take these points into account.

According to Lieb (1998), there are a number of other problems faced by the industry, including the complex and expensive process of selling services, the difficulties in obtaining qualified personnel, the cost associated with the development of information systems (despite being in the process of cheaper, it is still one of the biggest sources of costs in the sector) and the intense pressure for price reductions.

The costs incurred in the preparation and negotiation of proposals and in the development of customized solutions, mainly those planned in advance of the big bids, end up resulting in expenses in the order of millions of dollars, according to CEOs of companies in the sector.

The issue of recruiting and selecting qualified personnel becomes critical due to the need for quick hiring for the execution of newly closed contracts. One CEO described the situation this way: “These people are not just sitting around our offices waiting for bids to be won. When we get one, we have to add staff quickly, and that's a problem.” A solution used to get around the problem is to hire staff from the client company that, in general, downsizes its staff when outsourcing. Other practices are: the hiring of recent graduates or employees of competing companies. One consequence of these difficulties is that, in one year, the presidents of nine out of the twenty-five largest North American logistics service providers changed jobs. In an industry where partnership contracts tend to get longer and longer, this can be a source of problems.

The issue of training is seen as another major problem generator. Due to the need for a quick entry into operation when signing a new contract, there is not much time left for the employee to receive adequate training. So, despite not even being familiar with the organization of the provider, he is already working with the customer. This contracting policy generates communication, coordination and integration problems.

Regardless of the chosen industry, Lieb (1998) draws attention to the transformations that have taken place in relation to information systems, which are no longer differentiating factors, to become a prerequisite or basic need. Even companies that do not intend to be leaders in this area have massively invested in information technology. As a way of minimizing the impact of this trend on providers' costs, several of these companies have entered into partnerships with IT (Information Technology) companies. An example of this is Ryder's partnership with IBM and Andersen Consulting.

Considering the relatively recent experience of logistics operators in Brazil, the variety of names and definitions regarding PSLs, as well as the countless possibilities of action, it is clear the need to study the market of logistics service providers in Brazil, with the objective of guide companies in the process of selecting and hiring operators. This was the motivation for a field survey with a group composed of eight of the best known logistics operators in Brazil, the result of which will be presented in an upcoming edition of Tecnologística.

NOTES

1. As cited in NEW STUDY SAYS 3PL SERVICES KEEP GROWING. Purchasing. June, p.89-90. 1999.

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Authors: Paulo Fleury and Aline Ribeiro