3PL use in Mexico grows but untapped market is huge

MEXICONOW Staff Report

The use of 3PL – or Third Party Logistics – has almost doubled in Mexico over the past year, according to a logistics expert.
Manuel del Moral Davila, of Iberoamericano University in Mexico City and a consultant in logistics welcomed the increase in the use of the strategy and urged even more Mexican companies with an interest in logistics to embrace 3PL.

Many members of the general public may think that 3PL could well be a robotic refugee from a galaxy far, far away. But to those in the business of hauling freight and moving materials through the supply chains of manufacturing and distribution, it is a valuable method of saving money and encouraging growth.
In Mexico, the 3PL market is still in a developing stage. In the U.S., about 30% of logistics services are outsourced to third parties while in Mexico is lagging behind.

Moral Davila said: “Outsourcing logistics to a 3PL provider is a cost-effective way to expand business. Using a third party logistics company reduces expenses relating to transportation and labor. Additionally, it eliminates the need to invest in warehouse space. Using a third party company with strategically placed local warehouses and a built-in infrastructure also allows companies to participate in the market with minimum fiscal risk.”

“Another advantage of using third party logistics companies is the great deal of flexibility they provide for companies in terms of shipping and warehousing. Also, 3PL companies provide warehouses and fulfillment centers that offer value-added services such as pick-and-pack and fulfillment-on-demand. Such services allow businesses to remain flexible with what inventory they keep in stock. In-demand-products can be stocked year-round, while less-valued or seasonal products can be sent to the warehouse as needed, reducing the overall inventory cost.”

Moral Davila emphasized that logistics was the core competence of third party logistics providers and they possess better know-how and a greater expertise than any producing or selling company. That know-how enables a higher time and cost efficiency. Another point he underlined was that the equipment and the IT systems of 3PL providers are constantly updated and adapted to new requirement of their customers so that they are able to meet the requirements of their customer’s suppliers.

“Producing or selling companies often do not have the time, resources or expertise to adapt their equipment and systems as quickly as necessary. So a 3PL provider can meet the technical requirements in a faster and more cost efficient way than a company could do itself,” he said.
“The fact that most or all operative functions are outsourced to a 3PL provider means there is no need for the client to own its own warehouse, transport facilities or software, lowering the amount of capital required for the client's business.”

“The outsourcing of logistics departments allows the company to focus even more on its core business. Often only the core competency is really adding value to your product. So it is immensely important to be best in class or one of the market leaders to generate profits because normally the quality of the core product is the main reason for the consumer to buy it.”

Moral Davila also pointed out that a third party logistics provider can provide much higher flexibility in geographic aspects and can offer a much larger variety of services than the clients could provide for themselves. In addition to that, the client gets flexibility in resources and workforce size and logistics.
Summing up, he said: “In a nutshell, 3PL is a third-party company that takes charge of logistics for the company. It is important because it helps companies to diminish their fixed cost and the service level will improve. It is also important as it lessens necessary working capital, the key point of the company to develop strategies to lessen capital costs.”

“According to the latest figures I have seen, almost 20 per cent of Mexican companies are now using 3PL – the market is growing because companies are looking for better practices in logistics.”

Security is an important matter in Mexico and on that subject Moral Davila said: “One of the main reasons for the growth of 3PL is security. Mexico has a real security problem in some states – for example, in Tamaulipas, Guerrero and Michoacan.

“3PL is an extra security protocol for management of freight which starts with the selection of the driver. It helps select a better driver, a driver that has been vetted by the third party company and one that can be trusted.”

“So 3PL offers the opportunity for management to focus on the core business of the company while allowing a third party company to look after logistics and the supply chain. There is no doubt 3PL has become a trend for logistics practice and it is growing at a rate of two digits per month. Mexican companies with an interest in logistics have come to realize how important it is.

“I would say that the 3PL market in Mexico is growing and that it is very important for companies to study the possibility to implement this activity because it can undoubtedly help company growth.”

His conclusions seem to be backed by a recent survey of 3PL providers in Mexico in comparison with counterparts in Europe and the USA carried out by the Instituto Tecnologico de Estudios Superiores de Monterrey.

That study found that 3PL seems to be growing in use in Mexico but was still relatively “low profile.” The use of third party logistic providers was much more common in Europe and the USA.
Only one third of Mexican companies outsourced more than three functions, mostly supportive and operational, while their counterparts in Europe and the USA focus more on tactical functions leading to cost reduction. Mexican companies seemed more interested in customer service and concentrating on core activities.
The study concluded: “Mexican companies can use 3PL successfully to achieve different goals than European and USA companies and Mexico’s large SME market offers opportunities for providers of 3PL services.”