Any business contemplating a partnership with a third-party logistics (3PL) provider faces an immediate choice: asset based or non-asset based? The difference, broadly, is that asset based 3PL providers own their own trucks, warehouses, etc., while non-asset based providers contract those services out to other companies. (Red Arrow Logistics, for the record, is a non-asset based firm.) While each model offers its own advantages and disadvantages, the rapidly changing geopolitical landscape is altering the governing dynamics of logistics in ways that non-asset based firms are often better equipped to handle.
Change is a constant in any industry, but it’s difficult to overstate the upheavals currently rocking every aspect of the logistics world. Globally, a tide of economic nationalism is poised to dramatically restructure supply chains, from China shuttering thousands of factories to the US contemplating an exit from NAFTA. Domestically, trucking companies are grappling with an increasingly dire driver shortage and the coming Electronic Logging Device (ELD) mandate, both of which are already cutting capacity and increasing rates. In the warehouse sector, space in urban hubs is both expensive and scarce, as e-commerce drastically reshapes how goods are stored and delivered.
In this chaotic world, asset based 3PL firms claim to offer stability and simplicity, and they may indeed be the right choice for businesses with a relatively small market, simple supply chain, and predictable needs. Most businesses, though, depend on their 3PL provider for flexibility and expertise, and it’s here that non-asset based providers have distinct advantages. While an asset based 3PL firm can offer shippers a fleet of, say, 500 trucks, a non-asset based firm can contract with multiple fleets, with thousands of trucks. Moreover, an asset based firm has obvious incentives to make use of those assets, whereas non-asset based firms have no agenda beyond keeping a shipper’s costs low and their deliveries timely, so they’re free to negotiate for the best rates, explore intermodal shipping options, and respond to rapidly changing market conditions. Non-asset based providers are better able to offer services tailored to an individual client’s needs, while asset based firms tend to make every customer fit into their pre-existing networks. And in the event of lost, stolen, or damaged cargo, non-asset based firms can help file claims on behalf of the client, without creating any conflicts of interest within their own business.
In recent years, legal and technological advances have propelled the non-asset based model further. In 2013, Congress passed legislation demanding that transportation brokers put up an annual surety bond of $75,000, which helped weed out fraudulent “brokers” who once hid behind the non-asset definition, thus making the market much safer for shippers. Additionally, the increasing ubiquity of tracking technologies means that non-asset 3PL firms can provide the kind of seamless cargo visibility once only available to asset based firms. And the global expertise offered by non-asset based logistics professionals has never been more valuable, as they are attuned to market shifts around the world and can identify potential disruptions before they become crises.
Of course, not all non-asset based firms are created equal, and entering into such a partnership requires some due diligence. Before partnering with any logistics provider, shippers should ask if they have the connections and buying power to deliver savings based on economies of scale, and a proven track record for improving their clients’ bottom lines. Investigate what sort of cargo insurance they offer and their procedures for settling claims. Be sure that their market presence aligns with yours. Most importantly, be clear about your business’s needs, and how much of the shipping process you expect a 3PL firm to handle; the non-asset based model typically works best when it is fully integrated, rather than used as a back-up during a capacity crunch. Most businesses choose to partner with 3PL providers because outsourcing logistics allows them to focus on their core competencies. This need has never been more pronounced than in the present moment, in which a smoothly functioning supply chain demands constant flexibility on every level: locally, nationally, and globally.