Orlando, September 26, 2016 – Today, the findings of the 23rd Annual Surveys of Third Party Logistics (3PL) Provider CEOs in North America and Europe were presented at the Annual Meeting of the Council of Supply Chain Management Professionals by Dr. Robert Lieb, Professor of Supply Chain Management at the D’Amore-McKim School of Business at Northeastern University.
The surveys, which involved CEOs of 22 of the largest global third party logistics companies, addressed a broad variety of topics including 3PL industry dynamics, the growth of their E-commerce business, the impact of recent consolidations on the industry, the importance of technology in the industry, and Amazon’s continued movement into 3PL-like activities.
North American Survey Results
Profitability and Revenue Growth Projections
This year’s North American survey included the CEOs of 14 of the world’s largest 3PLs. All reported their companies had been profitable in 2015 and all believed the regional 3PL industry had also been profitable for the year. They were asked to forecast revenue growth for their companies and the regional 3PL industry for the one and three year time frames. The average one-year company projection was 7.8% with the three-year projection averaging 8.6%. Their regional industry projections were 3.6% and 5.5% for the one and three year periods respectively.
North American E-Commerce Marketplace
The E-commerce marketplace in North America continues to grow and evolve. It has become an increasingly important revenue source for 3PLs. On average, it comprises approximately 14% of the revenue base of the 14 companies involved in the North American survey, and their E-commerce revenues grew by an average of 18.46% in the past year. According to the CEOs there were a number of significant changes in that marketplace in the past year. These changes included: steadily increasing customer demands for shorter delivery cycles, delivery trips becoming shorter as retailers were pressured to market position inventory, the growth of E-commerce of heavier goods outpaced the growth of package goods, returns became a bigger problem/3PL opportunity, and massive investments by Amazon and Walmart exerted real pressure on other retailers to change their strategies to compete.
Lieb noted, “While the growth of E-commerce presents real opportunities for North American 3PLs, they are also faced with challenges to deliver the required speed and visibility technology while being pressured by the larger E-commerce companies to continuously reduce rates.”
Aftermath of West Coast Port Problems
Employee slowdowns during 2014-2015 at West Coast ports caused major problems for shippers moving products through those ports including long-delays, shipments stuck in ports, long transit times and lost sales due to late deliveries. The slowdown ended when a new five-year contract with the unions was signed and in the 2015 survey few 3PL CEOs believed that their key customers would significantly change their reliance upon those ports as a result of those problems. However, in the 2016 North American survey eleven 3PL CEOs reported that some key customers had changed their port strategies. Those changes included specifying use of East Coast ports, increased use of the expanded Panama Canal, moving freight through Houston, shipping to the West Coast of Mexico and Canada, shifting more souring and manufacturing to Mexico, and working with 3PLs to develop port contingency strategies.
Most Important North American 3PL Industry Dynamics/Problems
The CEOs involved in the North American survey identified the most important industry dynamics as rapidly changing technology, a continuing industry talent shortage, uncertain economic conditions, and the rapid growth of E-commerce. Those dynamics also drive their most pressing problems that were identified as finding and keeping talented employees, keeping pace with rapidly changing technology, coping with increasing customer service level expectations, and dealing with unpredictable economic conditions.
European Survey Results
European 3PL Profitability and Revenue Growth Projections
This year’s European survey included the CEOs of five of the world’s largest 3PLs. Four companies met or exceeded their revenue growth projections in 2015, and four also reported profitability for the year. All five believed the regional 3PL industry had been profitable for the years. They were asked to forecast revenue growth for their companies and the regional 3PL industry for the one and three-year time frames. The average one-year company projection was 5.2% with the three-year projection averaging 7.6%. Their regional industry projections were 3.4% and 4.0% for the one and three-year periods respectively.
European E-commerce Marketplace
While the European E-commerce marketplace continues to grow, on average E-commerce revenues comprise only 5.4% of the revenue base of the companies involved in this survey. Those revenues grew at an average of 5.0% last year, and that growth rate was disappointing to those companies that anticipated a much more substantial growth rate. They noted significant changes in the E-commerce marketplace in Europe in the past year, with those changes including continued growth despite a stagnant European economy, Amazon becoming much more aggressive in promoting more rapid deliveries, many retailers developing omni-channel strategies to remain competitive and having difficulties financing those strategies. The margins of those retailers are quite thin, their costs are steadily increasing as returns become more of a problem. While the 3PLs serving Europe certainly want to participate in the growth of E-commerce they find it increasingly difficult to do so while also generating profits. Amazon and others are driving transport and storage rates down to levels that aren’t sustainable. Also, much E-commerce volume comes on weekends and that poses staffing issues to 3PLs.
Most important European 3PL Industry Dynamics/Problems
According to the European survey respondents there was no significant rebound in the market for 3PL services in the past year. That coupled with the continued weakness of the global economy, uncertainties related to Brexit, and the continued restructuring of the European 3PL industry related to mergers and acquisitions is of major concern to these companies. 3PL competition has intensified and security costs have risen. This is leading many 3PLs in the European marketplace to give more emphasis to pursuing opportunities in emerging markets unpredictable economic conditions..
Additional 3PL Industry Trends and Insights
Mergers and Acquisitions
Between 2014 and 2015 there was an unprecedented wave of mergers and acquisitions in the 3PL industry. In the 2016 survey the CEOs were asked to address the potential long-term impact of those mergers and acquisitions on the 3PL industry. They suggested that the larger companies will emerge as stronger brands and that they will displace many 3PLs that lack scale. Their purchasing power will lower their costs and they will reflect that by lowering prices in the marketplace. They will invest heavily in technology and use technology as a differentiation factor. Other 3PLs will aggressively seek new partnerships/alliances to be able to compete effectively. However, the larger consolidated companies will also have to manage a broad-range of post-acquisition problems to realize the potential value of those consolidations.
The CEOs were asked to identify the three most significant technology developments in the 3PL industry in the past three years. The most frequently cited developments improvements in visibility software, the expansion of mobile apps, customer acceptance of cloud based solutions, and more extensive use of warehouse automation and robotics. Potential was also noted in the use of driverless vehicles, drones, and 3D printing.
Big Data and Data Analytics
Twelve CEOs reported use of Big Data/data analytics in their companies and seventeen said they planned to use them in the future. They reported current applications in a wide variety of areas including measuring operating performance, network modeling, demand management, matching freight to capacity, understanding customer attributes/attractiveness, and assisting customers in process improvements.
Amazon’s Impact on the 3PL Marketplace
For the past several years these annual surveys have tracked Amazon’s impact on the 3PL marketplace. Its volume is a significant source of revenues to many 3PLs, and its recent actions also pose potential competitive threats to 3PLs. These dynamics were noted once again in the responses to this year’s survey. Among the developments in the past year noted by the CEOs were Amazon’s moves into selling heavier goods, its constant focus on faster deliveries, its pressure on 3PLs to reduce rates, and its recent moves to expand its internal transportation capabilities. The surveys have tracked Amazon’s evolution into 3PL-Like operations in the past several years, and fourteen of the twenty-one CEOs said that Amazon is already a 3PL!
Lieb said, “There is no question that Amazon poses a long-term threat to 3PLs. As it continues to expand its transportation and storage capabilities it also increases its ability to leverage those assets in the 3PL marketplace. At the same time, it increases Amazon’s financial vulnerability during downturns in the global economy.”
The last several annual surveys have addressed Uber’s potential in providing last-mile delivery services to support E-commerce activities, and this year seven CEOs reported that Uber now provides some last-mile delivery services in their markets.
As the worldwide threat of terrorism has expanded, that threat has been acknowledged and addressed by many 3PLs. Eight CEOs categorized the threat of terrorism as being very significant or significant in their planning process and fifteen of the companies involved in this year’s surveys now address terrorism in formal business continuity plans. Those companies have taken a wide variety of steps to reduce the threats to their companies and five reported being asked by some customers for assistance in addressing terrorist concerns in their organizations.
Twenty-one CEOs of large third-party logistics companies across North America, Europe and Asia-Pacific completed surveys via an Internet-based questionnaire during the summer of 2016. Companies participating in the annual survey included: Agility Logistics, CEVA Logistics, Cardinal Logistics, Coyote Logistics, DHL Excel Supply Chain, DSC Logistics, Kuehne + Nagel Logistics, Inc., MIQ Logistics, Nippon Express, Panalpina, Rhenus Contract Logistics, Transplace, UPS Supply Chain Solutions, Werner Logistics, XPO Logistics and Yusen Logistics.
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