Transportation Outsourcing: Providing Opportunities or Causing Problems

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Transportation Outsourcing Providing
Opportunities or Causing Problems?
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Dr. Robert J. Eger III Assistant
Professor University of Wisconsin-Milwaukee Mar
ch 6, 2002
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Outsourcing is Not New

• Al Capone, in an effort to keep his associates
  out of harms way, outsourced smuggling of liquor
  from Canada to Chicago. Since most shipments were
  subject to hijacking and other unpleasantness,
  Capone minimized risk through strategic alliances
  with fledgling ambitious and aggressive service
  providers

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Trucking Industry Facts

• Overall Trucking 450 Billion
• Private Fleets est. 230 Billion
• LTL Bulk est. 110 Billion
• TL estimated 110 Billion
• Over 300,000 Trucking Companies
• 20,000 carriers with 9 or more trucks
• 10,500 carriers with 20 or more trucks
• Top 1,600 Carriers Generate 60 Billion in
  Revenue
• 50 largest TL carriers 18 Billion
• 500,000 For-Hire Truckloads per day
• Spot-Market is comprised of 100,000 loads per day

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The Average Truckload

• 30,000 lbs.
• 850 per load
• 500 miles

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Why Outsource?

• Return On Assets
• Personnel Productivity
• Flexibility
• Labor Considerations
• Cost
• Management Considerations

• Political Considerations
• Customer Service
• Specialized Services
• JIT
• Order Consolidation
• Packaging
• E Commerce
• Information Technology

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Outsourcing - Industry Trends
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3PL Contract Logistics Market
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Outsource Growth By Segment28 Key Providers
Domestic, Non-Asset Based
6,000
International, Non-Asset Based
5,000
Transportation, Asset-based (DCC)
4,000
M
Value-Added Whse/Distribution., Asset-based
3,000
2,000
Ryder restated its financials for 1999, creating
an artificial
increase in Domestic, Non-Asset Based from 1998
to
1,000
1999. About half of the increase for Ryder was
intrinsic.
0
1995
1996
1997
1998
1999
2000
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Outsourcing is approximately 545 billion
annually and growing at 15 per year.
Source PwC and US Department of Commerce.
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Services Provided By 3PLs
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Top Providers Est. Rev. (M)

• Ryder 1,728
• Excel 1,550
• Schneider 1,240
• Penske 1,130
• northAmerican 845
• Eagle 735
• Tibbett Britten 694
• Fritz 619
• CTI/TNT 602
• UPS Logistics 558

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Evaluation of Transportation Organization
Outsourcing Decision Making Criteria for
Outsourcing Opportunities

• Ford Motor Company
• Harley Davidson
• Briggs and Stratton
• Whirlpool
• Wisconsin Paper Group
• Ryder Logistics
• Northeast Asphalt Inc

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Outsourcing - Industry Trends
Contract Logistics Savings Potential
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Lessons Learned

• The infrastructure and processes were there but
  were not being optimized.
• Functional Expertise increased with 3PL provider.
• Relationship must be win-win.
• Allowed the company to more focus on core
  competence.
• Set-up costs are high contract term must
  reflect the learning curve.

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The Grader Story

• The County leases a grader from a major equipment
  manufacturer. Every three years they trade the
  equipment in for a new one.
• The contractor never buys a new grader. He buys
  the traded-in graders with 1500 total hours on
  them and puts 3000 hours a year on the machine.

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10 Commandments of Outsourcing

• Develop a strategy for outsourcing
• Establish a rigorous provider selection process
• Clearly define expectations
• Develop a good contract
• Establish sound policies and procedures
• Identify and avoid potential points of friction
• Communicate effectively with your partner
• Measure performance and communicate results
• Motivate and reward provider
• Be a good Partner

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There is one thing stronger than all the
armies in the world, and that is an idea whose
time has come. - Victor Hugo
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