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Dan Silva

Customer Care

Four Ways Third-Party Logistics Providers Improve Customer Experience

Let 3PLs take on the risk and expense of international shipments

Published: Wednesday, November 16, 2016 - 13:21

In today’s global supply chain, shipping a product across the world isn’t as simple as loading it onto a truck, train, or boat and signing a few papers. International shipments often involve coordination between counterparts in the countries of origin and destination, complete and accurate paperwork required for those nations and any in between, physical locations chosen strategically, and capital to create a solid supply chain with redundancies.

Many problems can happen that will delay or reroute shipments, such as natural disasters, an improper code on a document, or a product shortage. Beyond a delay is an even worse outcome: One mistake could cost you tens of thousands of dollars in fines. To efficiently move goods from one side of the globe to the other requires knowledgeable and experienced staff, and reliable tools and software. This is where a third-party logistics (3PL) company steps in to help businesses provide a seamless and positive customer experience.

1. Reduce logistics costs and increase revenues

In 2013, more than 80 percent of domestic Fortune 500 companies relied on 3PL partners for logistics and supply chain functions. These are companies with the resources to handle those functions in-house, but they choose to outsource because of the cost savings, tools, and expertise 3PLs bring to the table.

Globally-focused 3PL providers have the software tools and knowledge necessary to design a lean and responsive logistics network. For instance, they can help the customer reduce costs by designing a stocking network with the fewest number of locations required to meet the service level agreements of the end customers. There’s no need to retain expensive consultants or experiment with several models: it’s provided by the 3PL at no extra cost.

Small and medium-size companies can also achieve significant cost savings by using 3PL partners. The specialized software tools and knowledge needed to run an in-house global logistics department can easily cost half a million dollars. Third-party logistics providers include these tools in their standard logistics services pricing and can easily expand the network to scale as the customer’s business grows.

With a reliable 3PL in place, an original equipment manufacturer (OEM) can focus on its core mission: create, build, and sell products without the added costs and hassle of managing shipping, distribution, inventory management, or overseas repair and replacement services. Products get to market more quickly and reliably, increasing inventory turns for the OEM and offering customers high-quality products in a timely fashion.

Customers benefit as well. According to the 2016 3PL Logistics study, 95 percent of 3PL OEM clients said that “use of 3PLs has led to improved customer service.”

2. Spend money growing the business, not managing a supply chain

In 2015, U.S. business logistics costs rose to $1.45 billion, or 8.4 percent of gross domestic product (GDP). Global logistics are far more complicated—and expensive. Building a sustainable global logistics organization and acquiring the brick and mortar to support it often exceeds $1 million in start-up costs—and then the system must be maintained and upgraded as necessary.

This is a complex task where cutting corners can result in expensive mistakes. Requirements include:

• Hiring seasoned global logistics professionals.
• Establishing physical locations to store inventory in the United States and export locations.
• Creating inventory and order-management systems.
• Complying with ever-changing international trade regulations.

Third-party logistics suppliers already have the staff, locations, knowledge, and experience necessary to operate the logistics network—often for less than half the cost of building and managing an internal logistics system. They can also scale quickly as orders increase due to production volume or opening new export markets.

The key to a successful partnership is the choice of a 3PL that offers the most value, not just the lowest cost. The right partner lifts the burden and cost of logistics, allowing the shipper to focus on customers and shift the savings into expansion, R&D, and other priorities.

3. Move products smoothly through customs

Any OEM managing its own global supply chain must have expert knowledge of everything from transportation to international law and trade regulations. It also needs the financial resources to set up legal operations in every country where it sells products and services—and pay the employees in that country to manage the logistics and compliance functions.

The “importer of record” (IOR) and “exporter of record” (EOR) requirement is a case in point. When moving goods across borders, a party must be assigned to the IOR, EOR, or both. The basic requirement is that the party must have a presence: a legal entity established in the country.

Start-up costs for that include:

• In-country fees: On average, there is a fee of $80,000 to $100,000 per country to establish a legal entity.
• Staffing costs: That legal entity must be staffed by employees with specialized knowledge about imports/exports and logistics. Those people must be familiar with the requirements of all countries that the legal entity trades with. That annual expense can easily cost $100,000 or more per year, and the liability for trade compliance regulations are the responsibility of the legal entity.

Third-party logistics providers, however, typically have low or no start-up costs per country and offer rates per shipment of less than $500. They also maintain all the records needed when imported goods are subsequently exported.

4. Comply with global trade regulations

We’ve seen that global logistics and trade compliance can be expensive, but trade non-compliance costs even more.

Global trade compliance requirements are a complex web of laws and regulations that must be followed exactly. Failure to do so has many serious implications: a shipment could be rejected or incur extra duties and fees. In extreme cases, the company could even be prohibited from doing business in that country. Imagine that happening after an OEM has invested the money to set up a legal entity and staffed the office.

In the United States, we have our own regulations that govern imports and exports. For instance, the civil penalty for breaking export regulations is $250,000 or twice the value of the transaction, whichever is greater. Even global giants like Hewlett-Packard have run afoul of U.S. trade regulations and paid high fines.

Global 3PLs have trade compliance organizations that understand current regulations and monitor legal and regulatory changes. These departments have the specialized knowledge necessary to ensure that supply chains aren’t interrupted due to customs delays or denials. They also protect the shipper from extra taxes, duties, and fines imposed if the shipments are mislabeled.

The biggest benefit for an OEM’s end customers is speed. Global 3PLs focus on their area of expertise: moving goods smoothly across borders with a minimum of cost and inconvenience. Every country has a different business culture and expectations—as well as specific import/export regulations and duty/tariff calculations. Even a simple typo can delay a shipment in customs by days—or even weeks.

Try explaining that to a customer who’s anxiously waiting on the goods so he can stock his shelves for the Christmas season.


About The Author

Dan Silva’s picture

Dan Silva

Dan Silva is vice president of client operations at Flash Global. He has more than 20 years of experience in operations management, strategic planning, global business operations, and supply chain service operations/logistics.