The Rise of Outsourced Logistics What It Means for LSPs

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The Rise of Outsourced Logistics: What It Means for LSPs

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Driven by omni-channel growth and multinational expansion, the global logistics industry is booming — and it’s expected to reach $18 trillion in value by 2030. While market growth is exciting, it’s typically accompanied by growing pains.

As the size and scale of their worldwide supply chains increase, many manufacturers, retailers and distributors are finding themselves constrained by shortfalls in resources, capacity and specialized knowledge. 

Shippers need more labor to keep their transportation and distribution activities moving, but employees are becoming harder to find and more expensive to retain. They need new trucks, new warehousing space, new micro-fulfillment facilities — but high interest rates and rising real estate prices make them reluctant to invest. Nearshoring, cross-border customs, new tariffs and emerging emissions requirements are fueling the need for specialized expertise. Given today’s demand volatility and economic uncertainty, companies are wise to approach any internal logistics expansion plans with extreme caution.

At the same time, logistics service providers (LSPs) are also feeling pressure. As freight carrier rates and fuel prices rise, and competition for customers heats up, their margins are shrinking. Both carriers and LSPs are exiting the U.S. market at record rates during what experts are calling a freight recession. The logical move for growth-oriented LSPs? Expand their services to capture new revenue.

More and more LSPs are adopting the fourth-party logistics (4PL) business model, in which they offer complete, turnkey management of customer supply chains. In addition to storing and moving freight, they’re designing networks, managing and fulfilling orders, allocating and optimizing inventory, tracking and tracing shipments, measuring and reporting emissions, assuming ownership for supplier relationships, and handling billing and other administrative tasks — in other words, assuming full responsibility for the entire supply chain.

Logistics outsourcing makes good business sense for both parties in today’s fast-paced, complex logistics landscape. After all, why not match the urgent need of shippers to manage growing logistics size, scale and complexity with the specialized expertise and resources of 4PLs — who are seeking revenue growth? It’s no surprise that the global market for logistics outsourcing is expected to increase from $1.043 trillion in 2023 to $1.642 trillion by 2032. According to a recent study, 87% of shippers expect to increase their outsourced activities in the next year.

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Expansion of managed services brings new challenges for LSPs

The scope of managed service is expanding from transportation to other supply chain services including inventory management, demand forecasting, supplier management, raw material sourcing, robotics, and supply chain and transportation modeling. There are some larger LSPs out there who can easily manage end-to-end supply chains and seamlessly onboard new customers. But, for most LSPs — especially third-party logistics providers (3PLs) who aspire to become 4PLs — today’s expanding list of managed services offerings presents some big challenges.

Acting as a single point of contact for supply chain management means LSPs must establish near real-time visibility, connectivity and tracking. Of course, the ultimate customer needs transparency — but so do the customer’s customers, the supplier network, external trading partners, every internal function and other supply chain stakeholders.

LSPs also need advanced technology that enables them to identify and resolve disruptions quickly, from port closures and bridge collapses to extreme weather and geopolitical conflicts. In the study cited earlier, the most requested digital capability from shippers is a control tower. Nearly two thirds of shippers, or 68%, expect their outsourced logistics partner to leverage a control tower for asset management, visibility and tracking.

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Capitalizing on the growing managed services opportunity might also require LSPs to expand their physical facilities, their fleets and their services. They might need to add warehouse robotics, e-commerce transaction capabilities, order management or parcel shipping execution at enormous scale. They may choose to add specialized expertise and associated resources in cold chain, project logistics or cross-border transportation. As they expand their capabilities, LSPs need to consider both the physical supply chain and the digital backbone that supports it. Blue Yonder helps LSP customers transform their supply chain execution by modernizing their warehousing, transportation and commerce capabilities.

Again, there are some large managed service providers that are already well-established in terms of advanced technology, physical infrastructure and managed services breadth. But for most LSPs, the shift to turnkey managed services is not an easy transition. After all, LSPs are experts in day-to-day logistics operations, but maybe not in digitalization, process innovation and real-time visibility.

New time-to-value challenges require a new approach

Turnkey supply chain management isn’t for the faint of heart. In transforming into full-scale managed service providers, LSPs need to ensure flawless execution, no matter what surprises come their way. Their customers’ critical relationships, brand reputations and financial results are at stake — but their own relationships, reputation and performance are also at stake. They can achieve enormous benefits from capturing the expanded managed services opportunity, but they can also falter, with high-profile and long-lasting consequences.

Their customers will be counting on them for world-class artificial intelligence (AI), machine learning (ML), predictive analytics, and data management. Shippers expect a 4PL to automate not just processes and workflows, but also the hundreds of day-to-day decisions that keep the supply chain on track to meet cost, service, sustainability and other goals. Blue Yonder Platform provides the robust foundation to drive innovation, capturing every element of the supply chain while enabling seamless integration across transportation, commerce, warehousing and returns modules. 

With Blue Yonder’s multi-enterprise and multi-tier digital supply chain network, command and control center, and end-to-end planning and execution solutions, LSPs can optimize operations, enhance visibility and respond proactively to disruptions. AI delivers actionable insights at scale, increasing agility and decreasing operational risks.

In redefining traditional managed services, LSPs must have a new approach to meet the expectations of today. Offering new or even next-generation services at scale means LSPs’ technology architectures should be scalable, end-to-end and interoperable. Blue Yonder microservices decrease time to value for establishing this architecture, and subsequent new services or business models, from months to weeks. Blue Yonder’s rapid, customizable implementations increase return on investment, enabling LSPs to scale technology and evolve the business model according to their changing needs.

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How can LSPs minimize risk and maximize reward?

If you’re thinking the rewards associated with expanded managed services isn’t worth the risk exposure, think again.

Based on its work with the world’s leading 4PLs, 3PLs and other logistics service providers, Blue Yonder knows exactly how to get managed logistics services up and running — and driven by the most advanced digital capabilities. We’ve developed scalable, adaptable, cloud-native and interoperable solutions that capitalize on the most advanced AI, ML and other innovations to optimize and automate even the most complex operations — while also featuring user-friendly interfaces that are easy for logistics teams to master. Learn more by checking out our full range of services and solutions for logistics service providers.