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Large Managed Transportation Providers Leverage Network Effects

Jeff McDermott, the Sr. Vice President of Transportation at GEODIS, made the point in a conversation with me that there have been several new entrants providing managed transportation services. “Cloud-based transportation management systems (TMS) have lowered the barriers of entry in this field.  But small players don’t have the economies of scale.” By economies of scale, Mr. McDermott is referring to network effects; being able to leverage visibility to large numbers of transportation moves and contracts to provide better service for their shipper customers. Jordan Kass, the President of Managed Services at C.H. Robinson TMC, added that this is also an advantage of managed transportation over TMS. Several other large 3PLs providing managed transportation services (MTS) made similar points to me in recent weeks.

Network visibility partially reflects the freight under management (FUM), the dollar amount of freight managed by an MTS provider on behalf of their shipper clients. But asset-based and brokerage-based MTS providers also have network visibility that includes their asset-based shipments or the transportation spend that flows through their brokerage network. For example, in an annual financial report submitted to the SEC, Ryder mentions $4.7 billion in “purchased and/or executed freight moves on our customers’ behalf.”

Read more here.

June 21, 2017