Today I want to explain this through an example which highlights the risks of letting your 3PL buy the transportation and then charge a "mark up" over the rate to you (with no transparency this is a disaster with some transparency it is just not good). We can see this in the "Capacity Crisis" issue.
The 3Pl / brokerage company has an incentive to report to you the capacity crisis is bad and getting worse. In fact, they can even blame their own poor performance in tender discipline, carrier management and routing guide compliance to this nebulous issue called the "coming capacity crisis". They can point to a few reports and tell you if you only would pay more you would be a preferred customer of the underlying transportation companies.
They convince you and you pony up. All the while this is going on they are negotiating with the carriers and their story is something completely different. Why? Because your goals are not aligned! The 3PL in this situation has a goal to expand the spread between what they pay for the transportation and what they resell it to you for. While it appears they are giving "advice" to you what they are actually doing is working to improve this spread. What are you to do about this as a shipper. A few things:
- As I have said before, I highly recommend you do not get into this situation in the first place; keep procurement in house and let the 3PL execute.
- If you have already outsourced procurement, work hard to insource it!
- If those two do not work then become extremely smart in what is happening in the transportation market. The 3PL cannot be your trusted advisor because they have another set of incentives. You need to build that expertise in house. For example, when they talk about "capacity shortfall" ask them:
- In what lanes is this shortfall prevalent? Do I ship in those lanes
- What about mode conversion?
- What are you doing to reduce my fuel costs and make my fuel costs more aligned to what you are actually paying for fuel?
- What is your carrier base? Have you looked at regional carriers?
- What are you doing to leverage your spend to keep my rates down? (if you are hiring this expertise you expect they will not just perform at market but below market - remember, market price is what you get without even trying)
Again, unless you do not believe in the basic tenants of capitalism you have to see where this relationship is fraught with misalignment and conflict. In this case, the 3PL will use a market event (or non event) not to better your business but to better theirs at the expense of yours.