Expanding scope of operation of 3PL service providers

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Expanding scope of operation of 3PL service providers M S Siddiqui | July 18, 2018

Transportation, warehousing and distribution are critical components of the entire supply chain. Traditionally, there existed only pure transport or warehousing service providers of the in -house nature that was called the supply chain management of any business house. In the complete logistics value chain, warehousing forms a very important link, accounting for 20 per cent of the total logistics market. Traditionally, this function included godowns that stored goods from the time of production till the time of consumption. Over time and with the changing role of the sector, traditi onal warehouses have transformed to collection and storage points, where raw materials, intermediate and manufactured goods are collected, assorted, stored and distributed to the point of consumption and/or sale.

In many economies, with rapid expansion of local and overseas investment and improved market demands, efficient supply chain to meet the demands of market is the major driver of the logistics market. Various industries have taken up initiatives to cut down on direct material and administrative cost s and have tried to streamline internal production processes.

The supply chain is a vital component, efficient planning of which can bring down costs to a great extent. In addition, the entry of global organised players in the retail sector has been anothe r driver for the development of organised players in the country.

With manufacturing activity increasing over the last few years, logistics has gained equal importance in order to provide better goods at lesser cost.

Increasing market sophistication, chang ing customer choices and global competition are pressurising manufacturers to provide better goods and services to customers at lower costs.

International business has also been undergoing a period of rapid transformation. Trends towards globalisation, int egrated logistics and the development of Information and Communication Technology (ICT) are all reshaping the world's trading patterns and consequently physical trade flows.

Third Party Logistics (3PL) came into existence during the deregulation of

freight transport industry in the 1980s and progressed in the 1990s along with the development of information technologies.

The principle of 3PL involves the outsourcing of logistics services including transportation and warehousing to outside firms, which are no t consignors or consignees. It has grown into a very important and a well -functioning logistics concept, mainly due to outsourcing trends in transport business.

According to the Council of Supply Chain Management Professionals (CSCMP), a 3PL "provides mult iple logistics services for use by customers.

Preferably, these services are integrated, or bundled together, by the provider. Among the services that 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding." 3PL (or 3PL service providers) have following features: (1) integrated (or multi-modal) logistics services, (2) contract -based services,(3) consulting services and (4) other value added services. Providers of 3PL services complement the effectiveness of logistics supply chain management by extending the performance of haulers and forwarders.

The 2016 20th Annual Third Party Logistics Study showed that continued collaborative and positive relationships between shippers and 3PL providers have significantly helped businesses. The survey suggested that 3PLs and their customers are becoming more proficient at what they do, individually as well as together, which is improving the quality of their relationships. Both parties-93 per cent of 3PL users and 94 per cent of 3PL providers-reported that their relationships were successful and that their work was yielding positive results. The same study also showed that 70 per cent of those who use logistics services (shippers) and 85 per cent of 3PL providers said the use of 3PL services has contributed to overall logistics cost reductions. Also 83 per cent of shippers and 94 per cent of 3PL providers said that the use of 3PLs has contributed to improved customer service. Moreover, the majority of both groups-75 per cent of shippers and 88 per cent of 3PL providers -said that 3PLs offer new and innovative ways to improve logistics effectiveness.

That year, the transportation transportation brokerage (45

most frequently outsourced activities were domestic (80 per cent), warehousing (66 per c ent), international (60 per cent), freight forwarding (48 per cent) and customs per cent).

In order to be internationally competitive, businesses are organising strategic worldwide networks that can deliver an efficient and hig h-quality response to demand from any segment of the world market. The efficient and integrated organisation of such activities is often referred to as global logistics or Supply Chain Management (SCM), which has become the core of global competitive power.

Some 3PL companies also focus on specific segments, like product sourcing or freight shipping. Others fill multiple needs, like warehousing and distribution to end users.

According to the results of survey intended to investigate European 3PL market, in total, 42 per cent of the survey respondents outsourced their logistics operations to 3PLs. 3PL performs duties such as quoting, booking, routing, and auditing, but doesn't need to own warehousing facilities, vehicles, or aircrafts. These are often leased on terms equalling those of the 3PL contract while minimising liability to capital expenditure. 3PL also allows saving time as outsourcing the logistics functions frees up resources that can focus on core competencies of the company instead of secondary on es.

Being an expert of logistics business, 3PL companies can provide better services because of their position in the supply chain, supply chain expertise and economies of scale. 3PL companies can share responsibility for managing global supply chains, keeping customers satisfied and stores properly stocked, and delivering the perfect order every time. They are also advantageous as logistics outsourcing can be a quick way to re -engineer distribution networks that can meet global market demands and help gain a competitive advantage.

The most significant driver for this is the increasing number and complexity of demands by customers. This trend continues to validate the role of the 3PLs in all aspects of logistics. As businesses diversify and their supply chains become increasingly complex and fragile, more and more of them are outsourcing their logistics in order to ensure economic, reliable and efficient deliveries from their suppliers and to their markets.

The Logistic Performance Index (LPI) of W orld Bank a nalyses 160 countries across six components: efficiency of the clearance process by border control agencies, quality of trade and transport -related infrastructure, ease of arranging competitively priced shipments, quality of logistics services, ability to track consignments and timeliness of shipments. In W B's biennial Logistics Performance Index (LPI), Bangladesh was ranked at 87 in 2016.

India's rank was 35, while Pakistan ranked 68. The report said that countries characterised by low logistics performanc e face high costs, not merely because of transportation costs but also because of unreliable supply chains -- a major handicap in integrating and competing in global value chains.

There are some buyers who signed long term agreements with 3PL companies to deliver their garments to different destinations. Our ready made garments sector also needs efficient delivery with competitive prices.

Bangladesh needs 3PL services due to rapid development in the economy and transportation of various machineries and equi pment in huge volumes.

At the moment, a few international 3PL companies are operating in Bangladesh. They are active in bulk supply of food grain and others. Their scope of service is very limited to certain government jobs. They are supplying heavy equipment for some mega projects like Padma Bridge and Rooppur nuclear plant as special cases. Transporting these machineries and equipment require special type of vessels and vehicles.

But, Bangladesh customs and other laws do not permit RMG companies and other businesses to take service from 3PL companies for import and export of goods, services, raw materials and equipment. It is possible if a Free Trade and W arehousing Zones (FTWZ), which is a special category of Special Economic Zone and is governed by the p rovisions of the SEZ Act and the Rules, are set up here.

Free Trade W arehousing Zones (FTW Z) are fostering growth of the logistics market in India. It has also been identified as an independent sector by the government. This has also led to the development of improved international trade activities. FTWZ are deemed as foreign territory and are envisaged as international trading hubs. Bangladesh can incorporate such provision in Economic Zones Act 2015 allowing the service with scope of investment.

M S Siddiqui is a legal economist mssiddiqui2035@gmail.com