Call it what you will a surge in demand, an increased open-mindedness about partnering with vendors or a byproduct of todays increasingly complex supply chains. But business is clearly booming in the third-party logistics industry.

Since 1991, the number of large manufacturers who use 3PLs has more than doubled, according to surveys conducted by Northwestern University and Accenture. And theres even more growth predicted in the year ahead. APL Logistics Brett Harper explains how and why in this exclusive interview with Parcel Shipping & Distribution.

Discuss the outlook for outsourced logistics services good, bad or somewhere in between?

Its good to be a 3PL these days. According to a recent survey by Northwestern University and Accenture, at least 80% of manufacturers use 3PLs extensively and thats a figure thats closely mirrored in other studies on the same subject.

Just as significant, the percentage of logistics dollars spent on 3PL services is rising. Some studies such as one conducted by Capgemini, Georgia Institute of Technology and FedEx say that approximately two-thirds of North American logistics expenditures will be allocated to outsourced logistics services by 2007. Others, such as the Northwestern/Accenture research, put the number at closer to 46%. But either way, these are the highest 3PL industry expenditures ever.

What factors are conspiring to make outsourced logistics so much more prevalent?

I think most people would agree that the globalization of business has accelerated the growth of companies using 3PLs. Most companies are smart enough to know that moving and managing goods within and from a place like China or India isnt the same as moving them within the United States. And they know that a lot can happen to products in the supply chain when theyre moving across the globe. As a result, it makes sense to a lot of businesses to work with someone whos already been there and done that for other companies. Its the whole knowing the territory thing.

Speaking of globalization, whats your definition of a global 3PL?

Some people would say that any 3PL that operates in two or more countries is a global 3PL. And semantically speaking thats correct. However, its not just the number of countries that defines whether or not a 3PL lives up to the global moniker. Its whether or not a 3PL has a presence in the countries where the world is doing most of its manufacturing or consuming.

So what would that mean today?

Right now, a truly global 3PL needs a strong footprint and expertise in Asia, particularly China, as well as the destination countries where most of the worlds consumption takes place countries such as the United States, · Brazil and several within Europe. Otherwise its not going to be able to meet most global companies needs.

Theres been a lot of discussion as to whether or not global companies can confidently outsource to a single 3PL. Whats your take on that?

Exclusive relationships between a shipper and 3PL are rare, although there are clearly cases where companies have one 3PL that serves a good majority of their business. I think that whether or not a company elects to single source comes down to many highly individual factors. There are a lot of 3PLs with robust, reliable and diverse service offerings. But there has to be a very precise fit between an individual shippers needs and a 3PLs capabilities (both from a service and a geographic standpoint) before there can even be the possibility of an exclusive relationship throughout the world.

When it comes to 3PLs, size isnt always an issue. However, looking at the trends in the supply chain industry, can you touch on a couple of areas where working with a 3PL might give shippers more of a competitive advantage and, therefore, drive more 3PL industry growth?

RFID is a big one. Companies that can find a way to employ RFID further up the supply chain at the origin market will yield considerably more value from this technology than companies who dont. Many global 3PLs are addressing this opportunity head-on by establishing test centers in origin markets, so their clients should be able to yield RFID advantages sooner.

End-to-end supply chain management is another. The typical international shipment employs a number of modes and a potentially staggering number of hand-offs. A global 3PL can help a shipper keep its hands around that whole process more easily than a 3PL or shipper who only has expertise in one corner of the world.

Awhile back, your company wrote a piece that talked about several problems or challenges companies cant expect their 3PLs to solve. Assuming you were writing that same story today, what kinds of caveats would you give companies to help them right-size their 3PL expectations?

Dont expect us to be able to heal all inland transportation challenges. The quality of transportation infrastructure in many countries isnt where it needs to be in order to accommodate the logistical demand. And no matter how brilliant your logistics strategy and 3PL are, you will be limited by the realities of things such as paved roadway, reliability of water service and availability of rail space and by how fast each individual government is working to improve them.

I also think you have to be realistic about how much a 3PL can help you reduce the kinds of costs over which theres little control fuel, for instance. Certainly, we can help you optimize your transportation and maximize your fuel efficiency. But we cant reduce the market price per barrel any more than you can.

Lets talk about something many 3PL articles dont address: contracts.  What expertise do shippers need to have to understand these complex documents?

A shipper signing any 3PL contract should have at least three things: expertise in logistics, legal expertise from qualified contract attorneys and expertise regarding any applicable laws and regulations in the countries where the proposed 3PL services will be performed.

As we wind down, lets talk a bit about the evolution of 3PL relationships. I think its widely assumed that many of these relationships are more strategic than they once were. But what about the most strategic outsourced logistics relationship of all what some people call fourth-party logistics. Are you seeing more of a demand for 4PL services these days? And do you see that changing in the near future?

The answer to that depends on how you define 4PL. If you define 4PL as it originally was defined by its creator, Andersen Consulting (as the use of a high-level, objective consultant and the consultants information technology skills to integrate all of the players in a supply chain, including third-party logistics providers), then Id say there hasnt been a substantial increase in the use of 4PLs because most companies dont have consultants driving their supply chains.

However, if you define 4PL the way the term has evolved (as any form of strategically integrated logistics, regardless of whether its being integrated by a consulting firm, 3PL or transportation company), then Id say the need for 4PL services is stronger than ever and many global 3PLs are performing the 4PL function for many of their clients and more will probably do so in the future.