LAL BAHADUR SHASTRI INSTITUE OF

MANAGEMENT

SUMMER INTERNSHIP PROJECT

Submitted to: Dr. Rajkumari Mittal Submitted by: Esha 504/2019

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 TABLE OF CONTENT

1. Letter of certification from the industry mentor

2. Letter of certification from institute mentor
3. Objective of the project
4. Introduction to the logistics industry
5. What is third-party logistics?
6. Origin of third-party logistics
7. Why such a huge growth in third party logistics providers?
8. Types of Third- party logistics providers?
9. Introduction to Delhivery
10. Business and working model of Delhivery ( express delivery )
11. The process flow of goods from HUBS-IPC-DC
12. Competitor analysis
13. Project Details (Approach to improving the service level for B2B clients)
14. Working of various USL’s and their mathematical formulas
15. Optimization of in-house fleet vehicles, manpower and CFS used for sorting of shipments.
Daily task allotments
16. POD (Proof of delivery) tracking of the shipments
17. Resolving issues faced by the B2B clients of Delhivery, mainly FLIPKART, VOLTAS AND
AMAZON.
18. Collection of Breach Data mainly (Delay at DC, IPC Failure & Short shipment)
19. Maintaining and improving the Service level of the DC’s (Distribution Center)
20. Maintaining and improving the service level of the IPC’s (Intermediate Processing Center)
21. Data analysis of the various service levels
22. Results
23. Managerial implications
24. Suggestions provided by me and applied by the company
25. Impact of COVID19 on the internship
26. Conclusion
27. Reference

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LETTER OF CERTIFICATION FROM THE INDUSTRY MENTOR

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LETTER OF CERTIFICATION FROM INSTITUTE MENTOR

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 ACKNOWLEDGEMENT

It was a great experience to be attached with such a reputed organization. I express

my deep sense of gratitude to DELHIVERY, Gurgaon for providing me with an
opportunity to work as a supply chain intern.

I am very thankful to my project guide Mr. Varun Sen, for his direction, suggestion
and information provided which were of utmost importance for the successful
completion of the project.

I express my deep sense of gratitude and sincere thanks to Dr. Rajkumari Mittal,
Faculty Guide for her continuous support, encouragement, and guidance throughout
the duration of project.

I am sincerely thankful to Mr. Utkarsh Pathak (Senior Manager) under whose

guidance I have successfully completed this project and the time spent with him has
been a great learning experience. I thank him for his constant encouragement, warm
response and for filling every gap with valuable ideas that has made this project
successful.

I would also give special thanks to all the outlet holders to whom I visited for
their support, information, co-operation, advice to complete my project details,
would also give my sincere thanks to all the staff and the member of Delhivery,
Gurgaon.

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OBJECTIVE OF THE PROJECT

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 INTRODUCTION TO THE LOGISTICS INDUSTRY

Wars have been won or lost on the strength of logistics capability or lack of it. Although quite an old
concept, logistics has been becoming efficient only since the globalization wave of the early 1990s
and hence, the businesses supported by it, worldwide, have been pushed for competitive balance-
sheets, providing consumers a better product/service and yet adding value to its investors.

Triggering intense competition, globalization, coupled with liberalization, forced both private and
public firms to commit themselves to making available to their customers the right material of right
condition, at the right time and place at the lowest cost — be it a product or a service.

The World Bank, in a recent survey Connecting to Compete: Trade Logistics in the Global Economy,
has developed a Logistics Performance Index (LPI) that can serve as a benchmarking tool for
measuring performance of businesses along a country’s logistics supply chain. The Bank study
asserts that countries that are able to connect to the global logistics web would not only have access
to vast new markets but also remain a part of the global trade growth. The report avers that it is not
the income of nations but their undergoing trade expansion that determines their logistics efficiency,
as the survey shows that nations with increasing trade (imports and exports) to GDP emerged as the
out-performers on the LPI scale relative to their income levels. It also warns that those countries
whose links with the global logistics chain are weak are bound to face large and growing costs of
exclusion from international trade. India trails behind China on important indices such as customs
procedures, overall infrastructure quality, international shipment, logistics competence and tracking
of shipments, but is ahead of the latter on the domestic logistics efficiency front.

Healthy economic growth in India is increasingly supported by robust industrial growth. One of the
relatively lesser known but significant sectors that support almost all industrial activity - the logistics
sector - is also witnessing this growth as a follow through. However, not withstanding its importance

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and size (INR 4 trillion), it has traditionally not been accorded the attention it deserves as a separate
sector in itself.

Country LPI Score

USA 3.85
UK 3.84
Singapore 4.19
India 3.07
China 3.64
Mexico 2.64

The level of inefficiency in logistics activities in the country has been very high across all modes.
With the evolving business environment creating a strong demand pull for quality and efficient
logistics services, core issues around enabling infrastructure, regulatory environment and the
fragmented nature of the industry are being overcome gradually.

The required pace of efficiency and quality improvement will demand rapid development of
capabilities of logistics service providers. And with logistics being a service oriented sector, skill
development will emerge as a key capability while skill issues exist in varying degrees in all
segments of logistics; those segments where the gaps are not only wide but also widening at a
relatively fast pace. The most severe and immediate requirement for skill development is found to be
in the road freight and warehousing segments.

India’s spend on logistics activities - equivalent to 13 percent of its GDP is higher than that of the
developed nations. The key reason for this is the relatively higher level of inefficiencies in the
system, with lower average trucking speeds, higher turnaround time at ports and high cost of
administrative delays being just a few of the examples.

These inefficiencies have arisen over the years from a combination of a non-conducive policy
environment, extensive industry fragmentation and lack of good basic infrastructure. India's indirect
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tax regime discouraged large centralized warehouses and led, over time, to fragmentation in the
warehousing sector. At the same time, the absence of a single logistics 'champion' (whether in form
of a ministry or otherwise) in the government (or industry) led to a disintegrated approach to
development of the sector.

Country Logistics Cost/GDP

India 13%
U.S. 9.9%
Europe 10%
Japan 11.4%

Extensive fragmentation meant the incapacity of industry players to develop the industry as a whole
and poor support infrastructure, such as roads, ports and telecom, led to a situation where the
opportunity to create value is limited.

However, much of this is changing with the government now demonstrating a strong commitment
towards providing an enabling infrastructure and creating conducive regulations. There is significant
current and planned investment in infrastructure to the tune of (INR 15 trillion) over the next few
years and an increased emphasis on public-private partnership. At the same time, regulations around
rationalization of tax structures and prevention of overloading for example are creating an
environment of positive change. Players now have the opportunity to leverage economies of scale,
complemented with better infrastructure, to provide integrated logistics solutions which are cost
effective.

In addition, the evolving business landscape and increasing competition across industries, is creating
the need for more efficient and reliable logistics services than what exist today For example, rapid
growth of organized retail and the need to reach out to the large untapped rural markets in India are
necessitating development of strong back end and front end supply networks.

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Fundamentally, a fragmented industry with low average scale - and consequent limited investment
and market development capability - is worst placed to serve these needs. It is not surprising
therefore that there is a frantic pace of consolidation and organic growth that the industry is
witnessing (refer box and figure 4). While logistics service providers are struggling to keep pace with
the growth, logistics service users with limited or no outsourcing are finding it increasingly difficult
and / or undesirable to manage this non-core activity in-house. The result is a wide need gap that is
seemingly widening much faster than it is being filled.

Increasing
trade
Greater
Greater outsourcing
economic of
activity manufactur
--ing
Growth in
Outsourcing
logistics
Greater
Prosprensity
Entry of
to
MNCs outsourcing
logistics

Better
enbling
environment

It is in this context that capability development of logistics service providers assumes critical
importance. While rapid development across all dimensions of organizational capability will be
required to achieve and sustain demand growth, logistics being a service industry, manpower

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capabilities assume utmost 5 importances. The sector currently employs about 40 million people, a
number that will rise rapidly with exponential growth expectations in the sector. 6 A look at the
financials of a set of 80 logistics companies in India across sectors reveals that manpower spends
comprise 8-10 percent of overall sales of the sector.

This roughly translates to about an INR 500 billion spend on logistics manpower in the country
annually. Only about 13 -14 percent of the overall manpower costs are spent on non-salary,
manpower development items (welfare, training etc.). This share for the unorganized companies
would expectedly be much less.

As against this leading global logistics companies spend around 20 percent of their employee
expenditure on non-salary items. This lack of focus on developing manpower and skills for the
logistics sector has resulted in a significant gap in the numbers and quality of manpower in the sector.
This gap, unless addressed urgently, is likely to be a key impediment in the growth of the logistics
sector in India, and in consequence, could impact growth in industry and manufacturing sectors as
well.

This underscores the need for identifying areas where such manpower and skill gaps are critical, and
developing focused action plans to improve the situation. In the next section, we analyze each
segment of the Logistics sector in India to identify the skill gaps that exist in each. These gaps are
then prioritized to identify key focus areas, and the action that needs to be taken to bridge the gaps.

SIZE OF THE LOGISTICS MARKET IN INDIA:

Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size and is the backbone
of Indian Economy. Our industry is growing at a rate of 8-10% annually and has been a crucial
contributor in the growth and development of the Indian economy. In the near future, Traditional
Logistics services like Transportation and Warehousing would continue to growth at a good rate.

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However, the big ticket growth would come from the Value Added Logistics services in the near
future.

At present, Outsourced Logistics accounts for only one-third of the total Logistics market in India,
which is a significantly lower proportion vis-à-vis the developed markets. Growth in this industry is
currently being driven in India by over USD 300 billion worth of infrastructure investments, the
phased introduction of VAT, the development of organized Retail and Agro-processing industries,
along with a strong manufacturing growth. In addition, we expect strong Foreign Direct Investment
inflows in the Indian markets, which would lead to increased market opportunities for providers of
Third-Party Logistics in India.

Therefore, India possesses substantial opportunities for growth in the Supply Chain & Logistics
industry in the coming years, notwithstanding the temporary jolt due to the economic slowdown.

LOGISTICS ON A HIGH GROWTH TRAJECTORY

The Indian logistics sector grew by 8 to 10 per cent annually between 2002 and 2007. Several factors
have favourably impacted the growth of the logistics industry, like the country's changing tax regime,
growth across major industry segments such as automobile, pharmaceutical, fast moving consumer
goods (FMCG) and the emergence of organised retail. With escalating competition and cost
pressures, companies are increasingly focusing on their core competencies by outsourcing their
logistics requirements to third party logistics (3PL) players.

The future of the Indian logistics and warehousing industry is currently governed by three key factors

a) BURGEONING DOMESTIC DEMAND

Emergence of organised retail:

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Globally, retail has been a key growth driver for the logistics industry and India is no exception to
this phenomenon. Organised retail in India has been growing at over 30 per cent year-on-year. The
total retail industry in India is expected to 1 grow from US$ 320 billion in 2006 to US$ 421 billion
by 2010. The growth of organised retail has created demand for specialised logistics services,
wherein every retailer relies on strong logistics and warehousing infrastructure for the success of its
business. This changing business environment should give further impetus to the logistics sector by
generating increased demand for high-quality and efficient logistics and warehousing services.

Increase in foreign trade:

In 2007, the Indian economy witnessed a growth of 13 per cent in exports and 17 per cent in imports.
India's current share in global trade is around 0.8 per cent and is expected to increase to 1.6 per cent
by 2012. Robust growth in foreign trade will increase the demand for good quality and timely
logistics and warehouse services.

India becoming a manufacturing hub:

The world over, India is being recognised as a destination for outsourcing of custom-based, high-
technology manufacturing activities. According to Confederation of Indian Industries (CII), India
will emerge as one of the global 'manufactured product' outsourcing hubs and reach revenues of
approximately US$ 50 billion by 2015. In order to remain cost-competitive, contract manufacturers
will be required to provide integrated logistics solutions that will bolster the cost savings potential of
the outsourcing initiative. The increasing trend of outsourcing will, in turn, drive strong demand for
logistics solutions in the country.

b) Reducing logistics costs

The logistics cost in India – which includes inventory holding, transportation, warehousing,
packaging, losses and related administration costs – is estimated at approximately 13 per cent of GDP
and is high when compared to the corresponding figures for major economies India's multi-layered

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tax regime, infrastructure bottlenecks and other inefficiencies have been the primary reasons in
keeping logistics costs high in India.

Under the existing tax structure, 2 per cent Central Sales Tax (CST) is levied on inter-state sales. As
a result, companies have had to maintain small warehouses and depots in every state in order to avoid
paying CST on Inter-state sales. These multiple warehouses have resulted in high inventory costs,
increased working capital and other overheads. A simplified tax regime will help logistics players
service multiple markets and offer end-to-end solutions far more efficiently and at much lower costs.

As per the World Bank's report on the Logistics Performance Index, a 0.5 per cent decrease in
logistics cost leads to 2 per cent growth in trade and a 40 per cent increase in the range of products
that get exported out of the country.

From multiple taxes to a simplified tax regime:

Union Budget 2008-09 has proposed the phasing out of Central Sales Tax (CST) 2010-11. Once
implemented, this measure will promote outsourcing of logistics operations and encourage the
creation of large warehouses at key strategic locations that could operate on the 'hub-and-spoke'
model. The implementation of Value Added Tax (VAT) in 2006 has played a role in reducing
logistics costs. The proposed implementation of Goods and Service Tax (GST) could lower logistics
costs further. According to the Confederation of Indian Industry (CII), improvement of logistics and
warehousing industry can make Indian industries more cost-competitive, thereby enabling a GDP
growth of 11 to 12 per cent, from the existing 7 to 8 per cent.

c) Improvement in infrastructure

Transportation in India accounts for nearly 40 per cent of the total cost of production. One of
the major barriers faced by the Indian logistics industry has been the lack of quality physical
infrastructure. However, India's core sectors are witnessing a significant change. The country is
expected to increase its infrastructure development spend from 4.7 per cent of GDP in 2007 to 8 per

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cent of GDP by 2012. This increased spend will help boost the logistics industry. However, delays in
critical projects may lead to a failure of this measure to provide the much needed impetus to the
growth of this sector.

Better connectivity to small towns and cities is another area planners need to work upon. Road
transportation is currently the most dominant form of transportation with more than half of the goods
in the country being moved by road. Almost every mode of transportation in India is fraught with
inefficiencies.

For instance, ports – that are vital for foreign trade—have very high turnaround times when
compared with statistics for other countries. Similarly, the railways, which were a popular mode for
freight transportation (especially the movement of bulk goods), have lost ground to road
transportation due to limited access to smaller towns. Air, on the other hand, is a costly mode and its
use is restricted to courier shipments. It is rarely used for bulk transportation.

Competitive dynamics and other issues

The following problems existing in the Indian logistics industry make it unattractive for investments
and also create entry barriers.
 Logistics is a high-cost, low-margin business. The problem of organized players is
compounded by unfair competition with unorganized players, who can get away without
paying taxes and following operating norms stipulated in the Motor Vehicles Act such as
quality of drivers and vehicles, volume and weight restrictions, etc.
 Economies of scale are absent in the Indian logistics industry. Even the organized sector that
contributes slightly more than 1% of the logistics cost, is highly fragmented. Existence of the
differential sales tax structure also brought in diseconomies of scale. Though VAT (Value
Added Tax) has been implemented since April 1, 2005, failure in implementation of a
uniform VAT structure across different states has let the problem persist even today.

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 Apart from the non-uniform tax structure, Indian LSPs have to pay numerous other taxes,
octrois, and face multiple check posts and police harassment. High costs of operation and
delays involved in compliance with varying documentation requirements of different states
make the business unattractive. On an average, a vehicle on Indian roads loses 24-48 hours in
complying with paperwork and formalities at different check posts en route to a destination.
Fuel worth USD 2.5 billion is spent on waiting at check posts annually. A vehicle that costs
USD 30,000 pays USD 7,500 per annum in the form of various taxes, which include the
excise duty on fuel. This is why freight cost is a major component of the cost of a product in
India.
 There is lack of trust and awareness among Indian shippers with regard to outsourcing
logistics. The volume of outsourcing by Indian shippers is presently very low (~ 10%)
compared to the same for the developed countries (> 50%, sometimes as high as 80%). The
unwillingness to outsource logistics on part of Indian shippers may be attributed to skepticism
about the possible benefits, perceived risk, and losing control, of sensitive organizational
information, and vested interests in keeping logistics activities in-house.
 Indian shippers expect LSPs to own quality assets, provide more value-added services and act
as an integrated service provider, and institute world-class information systems for more
visibility and real-time tracking of shipments. However, they are unwilling to match the same
with increased billings; even pay little attention to timely payments that leave LSPs short of
adequate working capital.
 Indian freight forwarders face stiff competition from multi-national freight forwarders for
international freight movement. MNCs, because of their size and operations in many
countries, are able to offer low freight rates and extend credit for long periods. Indian freight
forwarders, on the other hand, because of their smaller size and lack of access to cheap
capital, are not able to match the same. Moreover, clients of MNCs often want to deal with a
single service provider and especially for FOB (Free on Board) shipments specify the freight
forwarders, which most of the time happen to be the multi-national freight forwarders. This is
sort of a non-tariff barrier imposed on Indian freight forwarders.
 Poor physical and communications infrastructure is another deterrent to attracting investments
in the logistics sector. Road transportation accounts for more than 60% of inland

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 transportation of goods, and highways that constitute 1.4% of the total road network, carry
40% of the freight movement by roadways. Slow movement of cargo due to bad road
conditions, multiple check posts and documentation requirements, congestion at seaports due
to inadequate infrastructure, bureaucracy, red-tapeism and delay in government clearances,
coupled with unreliable power supply and slow banking transactions, make it difficult for
exporters to meet the deadlines for their international customers. To expedite shipments, they
have to book as airfreight, rather than seafreight, which adds to the costs of shipments making
them uncompetitive in international markets. Moreover, many large shipping liners avoid
Indian ports for long turnaround times due to delays in loading/unloading and hence Indian
exporters have to resort to transshipments at ports such as Singapore, Dubai and Colombo,
which adds to the costs of shipments and also delays delivery.
 Low penetration of IT and lack of proper communications infrastructure also result in delays,
and lack of visibility and real-time tracking ability. Unavailability and absence of a seamless
flow of information among the constituents of LSPs creates a lot of uncertainty, unnecessary
paperwork and delays, and lack of transparency in terms of cost structures and service
delivery. For example, a shipper has to pay a higher freight rate if it cannot ensure return load.
At present, there is no real time process by which a shipper may know about the availability
of trucks and going rates at the destination market. Therefore, it has to pay more. Had the
market information been available to both the shipper and the service provider, the service
provider’s cost structure would have been transparent to the shipper and it would have ended
paying the actual market rate. Another example would be that LTL (Less than Truckload)
shipments cost more than FTL (Full Truckload) shipments. Now, when a shipper books a
LTL shipment, it has no idea about the status of its shipment after it leaves the warehouse at
the origin and before it reaches the warehouse at the destination. The service provider may
still convert this LTL shipment into a FTL shipment at its own warehouse before delivering at
the destination. So, the shipper ends up paying LTL rates for a FTL shipment. Had there been
visibility during delivery, this problem would not have occurred.
 Since most of the LSPs are of relatively small size, they cannot provide the entire range of
services. However, shippers would like service providers to offer more value-added services
and a single-stop solution to all their logistical problems. The inability of service providers to

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 go beyond basic services and provide value-added services such as small repair work,
kitting/dekitting, packaging/labeling, order processing, distribution, customer support, etc.
has not been able to motivate shippers to go for outsourcing in a big way.
 Service tax levied on logistics service fees (currently 12.36% with educational cess) may
make outsourcing costly and outweigh the possible benefits.
 There is lack of skilled and knowledgeable manpower in the logistics sector. Management
graduates do not consider logistics as a prime job. To improve the status of the industry,
service providers have to move beyond the level of brokers and truckers to attract and retain
talent.

FUTURE PROSPECTS

Despite problems, The Indian logistics industry is growing at 20% vis-à-vis the average world
logistics industry growth of 10%. Since the organized sector accounts for merely 1% of the annual
logistics cost, there is immense potential for growth of the sector. The major opportunities are
highlighted below.
 Many large Indian corporates such as Tata and Reliance Industries have been attracted by the
potential of this sector and have established logistics divisions. They started providing in-
house logistics services, and soon sensing the growth of the market, have started providing
services to other corporates as well.
 Large express cargo and courier companies such as Transport Corporation of India (TCI) and
Blue Dart have also started logistics operations. These companies enjoy the advantage of
already having a large asset base and an all-India distribution network. Some large
distributors have also forayed into the logistics business for their clients.
 Since logistics service can be provided without assets, there is growing interest among
entrepreneurs to venture into this business.
 Indian shippers are gradually becoming more aware of the benefits of logistics outsourcing.
They are now realizing that customer service and delivery performance are equally important
as cost to remain competitive in this global economy.

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 The Indian economy is growing at over 9% for the last couple of years (compared to the
world GDP growth rate of 3%), which implies more outputs and more demand for
specialized logistics services.
 The Indian government has focused on infrastructure development. Examples include the
golden quadrilateral project, east-west and north-south corridors (connecting four major
metros), Free Trade and Warehousing Zones (FTWZ) in line with Special Economic Zones
(SEZ) with 100% Foreign Direct Investment (FDI) limit and public-private partnerships
(PPP) in infrastructure development. It is expected that infrastructure development would
boost investments in the logistics sector.
 In India, 100% FDI is allowed in logistics whereas in China, until recently, foreign
investment was not allowed in domestic logistics. Almost all large global logistics companies
have their presence in India, mainly involved in freight forwarding. For domestic
transportation and warehousing, they have tie-ups with Indian companies. As the Indian
logistics scenario looks promising, these MNCs are expected to play a bigger role, probably
forming wholly-owned subsidiaries or taking the acquisition route. The latter may be the
preferred route of investment since the target company is readily acquired with its asset base
and distribution network, and the need for building everything from scratch can thus be
avoided. The benefits for the acquired company include the patronage of an MNC and access
to the MNC’s global network. As an example, DHL Danzas, the biggest logistics company in
the world, has taken over Blue Dart.

THIRD PARTY LOGISTICS

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What is Third Party Logistics1 ?
3rd Party Logistics (3PL) is the supply chain practice where one or more logistics functions of a firm
are outsourced to a 3PL provider.

Typically, the logistics function consists of following:

 Inbound Freight
 Customers and freight consolidation
 Public Warehousing
 Contract Warehousing
 Order Fulfillment
 Distribution
 Management of outbound freight to the client’s customers

Besides that, Value Added Services can be provided. 3PL consists of

1. Repackaging
2. Assembling
3. and Return logistics

The 3PL provider manages and executes these particular logistics functions using its own assets and
resources, on behalf of the client company. The thoughts and rational behind these are to keep the
firm competitive by keeping it lean without owning many assets and allowing the 3PL companies to
focus on niche area and to reduce operational costs. 3PL is also referred as Contract Logistics.

3PL companies are evolving from predominately transactional-based to more strategic in nature. At
the same time, 3PL is gradually evolving into 4PL (Fourth Party Logistics Provider). 4PL is a supply
chain services provider that searches the best logistical solutions for its client, typically without using
own assets and resources.

Relatively new is the term 5PL or even 7PL, indicating Total Supply Chain Management
Outsourcing.

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 Supply Chain having 3PL Service Provider

ORIGIN OF 3RD PARTY LOGISTICS (3PL)

During 80s, there was an increase in global transactions, hence “globalization” coupled with an
influx use of information technology. These trends resulted in an increased demand on firms and
raised the competitiveness among companies and industries. The role of logistics have become (one
of the) pivotal role in determining the success of the companies. 3PL has gradually increased in
demand and its performance has determined the effectiveness of the logistics company. More
logistics companies have emerged and competitiveness has increased. Some of the successful
companies that emerged during these periods include:

 DHL
 Exel
 Schenker
 UPS
 Panalpina
 C.H. Robinson
 TNT Logistics
 Schneider
 NYK Logistics

WHY SUCH A HUGE GROWTH IN 3 PARTY LOGISTICS PROVIDERS?

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A significant reason for the growth in 3 party Logistics is that companies are moving from
transaction strategies to relationship based alliances such as partnerships. All types and sizes of
companies from small firms to multi-nationals are becoming increasingly aware that they can gain a
competitive and economic advantage by outsourcing their supply chain and logistics requirements to
specialist companies that offer the resources and expertise to provide a faster, more efficient and cost
effective service.

3PL frees up resources – companies now understand that they are not in the business of managing
supply chains but in marketing and selling their products. Using a 3PL to manage complex
distribution requirements frees up resources to focus on core competencies rather than being tied
down with day-to-day operational uncertainty.

In addition to saving time, a well run 3PL partnership reduces expensive distribution processes and
the need for costly buffer inventories. Despite the growing trend towards outsourcing, some
companies still baulk at the prospect of contracting out such a critical aspect of their business,
believing that relinquishing control to a logistics provider will result in complex arrangements with
inadequate service levels and higher costs. However, those companies now benefiting from using a
reputable 3PL provider have stated that they can attribute their increased contribution directly to a
solid logistics network.

Reduce Costs During Economic Recession- The trend towards adopting a 3PL is even greater
during periods of economic downturn as companies turn to it as a way of reducing their logistics
costs. Passing on costs savings – the notion that all 3PL organizations have complicated management
structures and impersonal call centres has also been attributed as a reason why companies have
sometimes been reluctant to contract out their logistics requirements.

Some organizations however, such as LinQ Alliance, operate a local management team and are able
to pass on cost savings from reduced administration overheads as well as providing efficient decision
making in an appropriate reaction time. This approach also allows for synergies between multiple
fleets and services to be identified, offering a single, integrated solution.

In the last ten years, the logistics industry has undergone a great many changes. These have been
especially significant in such areas as company size and makeup, services offered, geographical
reach, and IT support. 3PL services have broadened dramatically in response to the users’ desire for
one-stop shopping. Now a 3PL can provide a variety of distribution and logistics services including
freight forwarding, home delivery and pallet distribution as well as providing a wide range of
warehouse and value added services.

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Service expansion has been accomplished in several ways. A 3PL may initiate new services or
develop operating alliances with other companies to enable it to provide customers with greater
geographical cover, specialist warehousing or additional value added services. By integrating
competencies successfully, 3PL companies are producing a unique and holistic approach to supply
chain management that provides their customers with many key benefits.

Foray into Overseas markets – more and more organizations worldwide are developing products
for global markets. At the same time they need to source material globally to be competitive.
Therefore, it is not surprising that one of the top challenges facing companies is how to handle a
progressively more complex global supply chain. As companies look to source and sell in new
markets, their supply chains are extending overseas, most commonly China, but also into India and
Eastern Europe. In China alone the potential market for such services is ‘mind-boggling’ with
reported increases estimated at 25%. Looking to capture a slice of this market for UK importers and
Chinese exporters, many 3PL companies have begun to increase the scope of their services to include
IT applications (for ex freight billing), transportation planning and optimization applications.
Companies that can provide a diverse range of services to include export shipping, documentation
requirements, packaging and labeling considerations, warehousing and inland transit options, legal
and governmental restrictions and compliance management, are now sought after for these specialist
trade routes.

Firms with wide and/or complex distribution network, for whom outsourcing their logistics
function is a more feasible and viable option (Example IBM)

Firms that do not focus on logistics as their core competency such as Chevron and BP

3rd Party logistics is useful and significant in the case of the creation of a new product group or when
a company is integrating activities of a takeover.

Any business that refuses to consider outsourcing is at risk of losing its’ competitive advantage or the
opportunity to create a new competitive differential.

TYPES OF THIRD-PARTY LOGISTICS PROVIDERS:

 Transportation based: In this type, the third-party logistics provider goes on to provide the
transportation services. They also provide a comprehensive set of other services such as
tracking and tracing of consignments, cross-docking, specific packaging, or providing a
unique security system. They are of two types. Leveraged or non-leveraged. Leveraged 3PLs
use the assets of other firms. Non-Leveraged 3PLs use the assets belonging solely to the
parent firm. Examples of this would be Ryder, Schneider Logistics, FedEx Logistics, UPS
Logistics etc.
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  Warehouse/Distribution based: In this type, the 3PL provides warehousing facilities along
with its distribution facilities. Not all firms have former warehousing and distribution
experience. Thus the transition to integrated logistics has been less complex than for the
transportation based providers. Examples of this type would be DSC Logistics, USCO, Exel,
Caterpillar Logistics, and IBM.

 Forwarder based: They are essentially middlemen who extend their roles to provide
logistics services. They are Non-asset owners that capably provide a wide range of logistics
services such as warehousing and distribution (to an extent). Examples of this type are AEI,
Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the Hub Group.

 Financial based: They Provide freight payment and auditing, cost accounting and control,
and tools for monitoring, booking, tracking, tracing, and managing inventory. Examples of
this type are Cass Information Systems, CTC, GE Information Services, and FleetBoston.

 Information based: This is logistics based on Information usage. It is a fast developing

method of providing 3PL services. They are usually Internet-based, business-to-business and
electronic markets used for transportation and logistics services. Example sof this type are
Transplace and Nistevo.

 Non Asset Based Service Providers: This class of 3PL performs functions such as
consultation on packaging and transportation, freight quoting, financial settlement, auditing,
tracking, customer service and issue resolution. However, they don’t employ any truck drivers
or warehouse personnel, and they don’t own any physical freight distribution assets of their
own – no trucks, no storage trailers, no pallets, and no warehousing. A non-assets based
provider consists of a team of domain experts with accumulated freight industry expertise and
information technology assets. They fill a role similar to freight agents or brokers, but
maintain a significantly greater degree of “hands on” involvement in the transportation of
products.

What is the express industry?

The core business of the express industry is the provision of value-added, door-to-door
transport and deliveries of next-day or time-definite shipments, including documents,
parcels and merchandise goods. (Time-definite shipments normally incur a transit time of
between 2 and 3 days.)

Four companies – DHL, FedEx, TNT and UPS, also referred to as ‘integrators’ – are the
leaders of the global express industry, but there are many others in this highly competitive
sector. The term ‘integrator’ refers to the ability of these companies to offer door-to-door,
time-definite integrated services, where the company maintains control over all aspects of the
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transportation process – for instance, by offering the possibility of

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changing the destination and addressee in transit – and with each item being
tracked at every step throughout its journey.
The key stages of a typical express delivery

Characteristics of the express industry

The express industry simplifies and speeds the process of transporting goods. It organises
collection, usually at the end of the business day, allows the sender access to information
on the progress of shipments from pick-up to delivery, and provides proof of delivery.
Where shipments cross international borders, the express industry handles customs
clearance as well as the payment of duties and taxes as required. Figure 1.1 illustrates the
key stages involved in a typical express delivery.

Other transport operators on their own cannot respond to the needs of business as
effectively as the express industry. In particular, they are not able to offer the same level
of rapid, guaranteed delivery to as wide a range of destinations.

To meet the requirements of business, the express industry relies on overnight transport
to use the ‘dead time’ from when a company hands over its shipment late in the working
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day to delivery to the recipient early the following day. Express transportation is
achieved by using a variety of different transport modes; lorries, vans, trains, and
passenger aircraft and freight aircraft as well as on-foot delivery. Where possible, though,
the express industry uses surface transport modes. Air express services are only used
where there are no other options available to meet same day and next-day delivery
requirements.

For some companies, members of the express industry organise all aspects of their
distribution process and so provide a complete supply chain management system.

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Development of express services

The express industry originated in the US in the late 1960s and flourished following
the deregulation of air cargo in the US in the late 1970s. The express delivery
companies met the increasing need of companies for time-definite, guaranteed
delivery that could not be met by either postal services or freight forwarders. As a
result, the industry has grown quickly and in the 1980s moved beyond the US
domestic market to become a global business.

The express industry has developed from the delivery of documents and parcels to
specialist items such as high-tech products, semiconductors, and general airfreight
commodities. Typically, the types of goods transported by express services are high-
value / low-weight items such as electronic components, designer fashions, and
pharmaceutical products; however, express delivery is frequently called on to delivery
urgent shipments of large, urgently-needed articles such as parts for aircraft and
equipment for mining, construction, and manufacturing operations. The Air Transport
Action Group (ATAG) estimate that the value of goods transported by air represents
about 35% of all international trade. However, by weight, the share is estimated to be
is much lower, at around 1%, reflecting the high unit value of goods transported by
air. Express services represent a substantial proportion of this international trade: it
constitutes almost half of the intra- European air cargo market.1

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