As more and more companies extend their presence around the world, business supply chains—the point-to-point journeys that take a product from components to customers—have become increasingly entangled, especially as trade barriers are removed and companies rush to enter new markets. And although firms that export or open operations in another country are expanding their global presence, opportunity has its costs.

The 2007 First Tuesday luncheon series hosted by the University of Minnesota’s Carlson School of Management kicked off in January with a talk on third-party logistics and transportation management in global supply chains. John Wiehoff, CEO of C. H. Robinson Worldwide, a freight-management company in Eden Prairie, spoke about his company’s multibillion-dollar operations and Fortune 500 ranking, which make the firm a heavyweight in the third-party logistics field, though Robinson commands just a slice of this double-digit growth market.



New Era in Transportation

The third-party logistics industry—which provides contract shipping, warehousing, and export and import support for customers—has exploded in the wake of United States transportation deregulation in the 1980s, with new rules such as the Motor Carrier Act, which made it easier for semitrailers to travel across state lines; and trade treaties such as the North American Free Trade Agreement, which expanded globalization. As outsourcing has grown and companies compete for inexpensive labor and materials, the logistics of getting products from point A to point B has become more complicated. Third-party logistics firms like C. H. Robinson have become specialists in negotiating shipping, port fees, security, and warehousing on behalf of their clients.

“If third-party logistics make the investment, we can help hundreds of customers buy in and share on that investment,” Wiehoff says. “Whereas if they create their own processes and systems, it could be more complicated and costly.”

Each step in the supply chain is constantly in flux: all of the transportation angles (i.e., roads and ports); the regulations for goods or services exiting one country and again when entering another; additional stopping points, such as packaging; and warehousing issues such as distribution and sales.

“Underneath all of it are core supply and demand issues,” Wiehoff says. “How much capacity is there? How many trucks are there? What is the state of the demand side with the shippers? The customers? The freight? Those have their own fluctuations of supply and demand, too.”

According to Wisconsin-based market-tracking company Armstrong & Associates, Inc., third-party logistics is now a $100 billion industry. Over the past 10 years, it’s seen roughly a 14 percent compounded annual growth rate, and it isn’t slowing.



A Two-Way Street

In 2002, Robinson opened an office in Budapest on the heels of Hungary’s European Union admission. “There were a lot of really small and fragmented Hungarian and Eastern European truckers who were now free to transport goods anywhere in Europe,” Wiehoff says. “But they didn’t have a sales force. They didn’t have a history of connecting.”

Robinson, like other third-party logistics companies, applied its knowledge and pre-established networks from other parts of Europe to expedite the flow of goods to and from this new market. Hungary is now part of Europe’s interconnected transportation and shipping system.

But can a third-party logistics company really improve efficiencies for a customer that is new to a market? Most often, Wiehoff says, the answer is yes.

“We have several hundred agents,” he says. “We are working transportation or freight programs and sharing freight opportunities and customers with them. So not only can we learn about their reputation from the local marketplace, but we can do business with them for a period of time before we would partner [with] or acquire them in a formal way.”

What does the future hold? Security and product-tagging issues (such as quickly tracing the origin of all spinach in the event of a recall) offer opportunity as world markets open and transportation infrastructures advance. Wiehoff says, “Logistics are going to matter more.”