Chemical industry turns to 4PLs for supply-chain management.

Fourth-party logistics providers (4PLs) that oversee component entities in a supply chain are finding their place in the chemical industry.

That’s the perspective of BDP International, a Philadelphia-based global freight forwarding and logistics company that has long focused on the needs and problems of chemical shippers.

In the last year, a number of clients have asked BDP for counsel about shaping the contours of their supply chains and for help assessing data from multiple vendors.

Those demands from shippers are changing the face of logistics in the chemical industry, said Mike Andaloro, chief operating officer for BDP International.

“Essentially, we have seen an evolving role for lead logistics providers, where a ranking service provider becomes a kind of master contractor, serving more as a 4PL, overseeing trucking, warehousing and the subcontracting of other transportation-related providers for customers,” Andaloro told American Shipper.

There is a need for logistics providers such as 4PLs who won’t actually “touch” the freight, but who will “generate intellectual capital in the sense of data accrual and interpretation from measuring all aspects of the logistics process,” he said.

Decisions by chemical shippers as to which logistics providers to use have traditionally been made at a local or regional level. “This is now being done on a more global level. For a multinational chemical company, that means more sharing of data between its 3PLs,” Andaloro said. In BDP’s view, an overseeing 4PL is the best means of collecting and aggregating that information.

Contract Management.
Increasingly, large chemical shippers will contract directly with ocean carriers and warehouse providers. Then the same shippers ask a company like BDP to manage those contracts on their behalf.

“More of our customers are requesting that service. After they sign the initial contracts, they want BDP to pull all of the network components together,” Andaloro said.

Once a 4PL “aggregates the lead logistics services, it can provide
visibility for a shipper about the status of a particular shipment,” he explained. “Customers want to flag those shipments that are having problems in transit, so that they know what may be late.”

To acquire the data for aggregation, a 4PL has to do spadework. “Lead logistics providers may have 75 percent of the data, but you have to go out and get the remaining 25 percent,” Andaloro said.

Asked how much leeway a 4PL has to nip at the heels of a client’s 3PL or network of 3PLs, Andaloro noted. “we try to structure key performance indicators (KPIs) that all parties of the supply chain will adhere to.”

BDP considers a 4PL to be a logistics company that manages other logistics transportation providers in a supply chain.

“The role of a 4PL is really to take the emotion out of any discussion,” Andaloro emphasized.

A 4PL can provider a shipper “with report cards on the underlying service providers the 4PL is overseeing,” he explained.

Outright firing of incompetent or recalcitrant 3PL personnel is usually not done by 4PLs. “The party with the beneficial interest in the cargo tends to retain the contracting edge to manage its 3PLs,” he said.

A client may say, “tell us what’s gone wrong,” but that’s a long way from telling a 4PL to “clean up our mess for us.”

Proactive, But Tactful.
In BDP’s view, Andaloro said a 4PL ideally “enforces expectations with 3PLs by providing measurements to show ”you didn’t hit the mark here and here. We prefer to be involved on the proactive intervention side as opposed to a passive, after-the-fact process,” he explained.

For example, problems occur when a certain trade lane is oversold, which occurred recently in the Australian-New Zealand lane where demand far exceeded capacity.

BDP’s challenge “came down to how could we work with our exporting customers to better manage their transportation needs in that lane,” he said.

That could mean BDP would give them more detailed reports as to what projected volume was coming through, working with carriers to secure the right amount of equipment, or obtaining a minimal commitment to handle a certain number of containers, and then managing that commitment afterwards.

As of early July Andaloro told American Shipper, “we are getting into peak season, which has some unique requirements that need to be managed.”

“For example, we have customers asking, ‘in regard to my imports from Asia-Pacific, what is the West Coast going to be like?’ We have teams assessing data from the West Coast ports so that updated information can be passed on immediately,” he said.

Providing such data has become as important as traditional hands-on freight forwarding. “Everything depends on the quality of information, and the velocity with which that information is available,” Andaloro said.

Rates are not a dominant issue in the chemical industry, having gone as low as they are probably going to get.

“Shippers have enjoyed rate reductions over the years. Now, those rate reductions are few and far between, so shippers have to take costs out of their supply chains,” he noted.

“Obtaining the lowest rates is not the sole measure of success for today’s logistics managers. You get more points from proper management of a supply chain,” he said.

“For example, you don’t want hazardous cargoes handled by multiple carriers through multiple transshipment points.

“You want to have that kind of shipment on a preferred direct service, and you’ll pay what it costs.

“You also want visibility around certain hazmat goods and high-value chemicals, particularly in the agricultural sector,” he explained.

Shipment analytics dictate that chemical shippers prefer to have BDP work with shipper-contracted carriers to get hazmat or high-value cargo to its destination on time rather than have it delayed or misrouted.

“They’ll spend the extra money willingly. If such cargoes get to their destination three days early, it’s well worth it in the shippers’ view,” he said.

A 4PL overseeing the logistics activities of a network of 3PLs has to allow for process variability over time.

“If you have 50 shipments and the range of delivery is 21 days to 41 days, the mean average should be 28 days. The tricky part of the equation is to bring shipments in line with the mean average,” Andaloro said.

“If you have too wide a variability in supply chain cycle time, it causes your inventory and planning to go awry,” he said.

A supervising 4PL should ideally speed “the accrual of aggregate information to plan a supply chain cycle-time going forward,” he said.

Supervising 4PLs should have enough experience on their own to be intimately aware of problems encountered by the 3PLs they are reporting on. “This is not a role for a consultant jumping in from the sidelines. Tangential insights have their place, but not here,” Andaloro said.

BDP serves four of the five top U.S. chemical companies. The chemical industry is the source for 60 percent of the company’s revenues. That percentage is expected to climb to nearly 65 percent, a BDP spokesman said, after BDP’s acquisition in June of the Elite Group Inc., a Houston-based transportation services company.

“This was a strategic move to increase our footprint,” the spokesman said, “a steppingstone to a larger market share.”

Elite will continue to operate under its present name and management as an independent subsidiary of BDP

“Elite will increase BDP’s size by approximately 25 percent,” this source explained. However, “our business growth strategy isn’t predicated on hanging a BDP shingle outside as many operations as we might be in a position to acquire. Acquisitions alone are not a true measure of growth or success.”