Learning Block 4: Transportation Service Markets

Private transportation

A mode in which shippers own or lease equipment to move their own freight, typically used to further their own business and not leased to others.

Private fleets

Transportation assets (like trucks or trailers) owned or leased by companies not in the transportation industry, used primarily for road transport.

Industries using private fleets

Companies outside the transportation sector, such as retailers or service providers (e.g., Walmart, AT&T), that use private fleets for freight or service delivery.

Road transport

The primary mode used in private fleets, as few companies operate private fleets for air or ocean transport.

Pipelines

Often privately held and used for transporting liquids or gases to specific company facilities; rarely shared across companies.

Walmart’s private fleet

One of the largest private fleets in the U.S., with over 6,000 tractors and 55,000 trailers, illustrating the scale of private transportation use.

U.S. private fleet statistics

Over 33,000 U.S. companies own private fleets with 10 or more vehicles.

Private fleet services

In addition to freight, private fleets are used for services such as cable installation, phone services, and home security (e.g., AT&T trucks).

Advantages of private fleets

Include cost control, convenience, and leverage in negotiating better quotes from outside transportation vendors.

Vendor pricing impact

Companies with in-house transport capabilities receive more competitive rates from external vendors compared to companies that rely solely on external transport.

Outsourcing freight movement

When companies that can't or don't want to move their own freight hire specialized freight companies instead.

Asset-based carriers

Freight carriers that own their own equipment, such as trucks and tractors, and typically work directly with large shippers.

Owner-operators

Small freight carriers where the truck owners also operate their vehicles, usually owning only a few trucks.

Direct freight relationships

Large companies with high freight volumes typically work directly with asset-based carriers rather than through intermediaries.

Freight intermediaries

Third-party services used by companies that choose not to work directly with freight carriers.

3PLs (Third-Party Logistics Providers)

External suppliers or vendors that perform all or part of a company's logistics functions.

Reason for using 3PLs

Large companies procure materials globally, making it impractical to be physically present for logistics—3PLs handle freight personally on their behalf.

3PL responsibilities

Finding transportation carriers, locating storage warehouses, and sourcing support equipment.

Popularity of 3PLs

Over 85% of U.S. Fortune 500 companies partner with 3PLs due to the value-added services they provide.

Asset-based 3PLs

3PLs that use their own trucks and warehouses to move and store freight.

Non-asset-based 3PLs

3PLs that do not own any trucks or warehouses but use open market options for transportation and storage.

Freight forwarder

An individual or entity that provides transportation of property (excluding pipelines, rails, or water) for compensation.

Freight forwarder responsibilities

Assemble and consolidate shipments, perform break-bulk operations, and distribute shipments.

Freight forwarder liability

Assumes responsibility for transportation from the place of receipt to the destination.

Additional services by freight forwarders

Store, package, handle goods, book cargo with transportation companies, and issue their own bills of lading.

How freight forwarders save money

Consolidate shipments from smaller companies to get volume discounts from carriers.

How freight forwarders make profit

Add inflation factors to carrier prices while still offering lower costs than what small shippers would pay directly.

Freight forwarders vs. 3PLs

Both are intermediaries with overlapping functions, but freight forwarders focus more on transportation, while 3PLs have broader logistics functions including warehousing and repacking.

Branding confusion in the industry

Many freight forwarders brand themselves as 3PLs, making it harder to distinguish between the two.

Key difference between freight forwarders and 3PLs

Freight forwarders focus on transportation only; 3PLs offer broader logistics services including warehousing and inventory management.

Freight broker

An intermediary who connects freight carriers with shippers to facilitate freight movement.

Main role of freight brokers

Serve as a conduit between shippers and carriers, similar to how travel websites connect users with airline options.

Freight brokers’ level of responsibility

Assume the least amount of responsibility among freight intermediaries; they are not typically involved in claims, insurance, or documentation.

Freight brokers vs. 3PLs and freight forwarders

They provide fewer services and carry less liability than 3PLs and freight forwarders.

Bills of lading

Freight brokers do not issue their own; carriers handle this documentation directly.

Order of service/responsibility among intermediaries

3PLs > Freight forwarders > Freight brokers.

Analogy for freight brokers

Similar to third-party travel websites like Priceline or Expedia for freight services.