This article reflects a white paper written with the support of Adelante, a sharing site for 3PLs.
No kidding, transportation and especially 3PL contracts are the essential principal-agent problem form economics. There is plenty of moral hazard to spread around. We see it all in transport, from shippers laying last minute conditions on truckers at the dock to 3PLs booking passage on unreliable lower cost carriers in fulfillment of a long term contract.
What’s unusual about large shippers offering contracts that ask for the 3PL to assume liabilities (risks) of certain kinds? Nothing! The same thing is true about manufacturers dealing with their suppliers of components, especially in the lean world of today. It’s basic supplier relations.
The key to successful principal-agent arrangements is sharing the total surplus fairly and keeping monitoring costs low. 3PLs with great transparency to their shippers should be able to negotiate better rates. Their role as information hubs reduces transaction costs for the shipper. In fact some 3PLs are nothing but information hubs.
To succeed in this environment, 3PLs need to excel and offer better results for their shippers than their competitors for the business. It’s very true that the relationship will ideally be cooperative so both shippers and their 3PLs can win. And it’s hard to get to.