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3PL CEOs say they're tackling disruptive changes in their industry

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E-commerce, mergers, and new sources of competition are top concerns for third-party logistics providers according to Northeastern University's 22nd annual survey.

What's on the minds of third-party logistics (3PL) chief executives right now? The results of an annual survey of 3PL CEOs in Europe, North America, and Asia-Pacific reveal that no matter where in the world they're based, they're thinking about how to confront an array of challenges that threaten to disrupt both their own companies' business and the 3PL industry as a whole.

The study asked 3PL CEOs about industry challenges, opportunities, and market dynamics, as well as profitability and revenue growth for individual 3PLs and for the regional industry. The research was conducted by Dr. Robert C. Lieb, professor of supply chain management at Northeastern University, and was sponsored by Penske Logistics.

Some of the developments and problems the 30 respondents said they consider most significant were specific to their regions. Examples include the truck driver shortage, West Coast port problems, and the continued expansion of nearshoring (North America); Russian economic sanctions, more emphasis on 3PL alliances in developing countries, and an inflexible workforce (Europe); and the steady growth of intra-Asia trade, infrastructure problems in developing countries, and economic developments in China (Asia-Pacific). Others were universal: mergers and acquisitions, the rapid growth of e-commerce and the need for associated technology upgrades, a shortage of management talent, and increasing demand for end-to-end services, to name a few.

Of the many issues and opportunities cited by the respondents, three seemed to carry the most weight: e-commerce, mergers, and new sources of competition.

E-commerce. E-commerce-related services are a rapidly growing source of business for 3PLs. In North America, e-commerce accounts for about 12 percent of revenues on average, and respondents forecast that will grow to 21 percent in three years. European respondents generate some 5 percent of their revenues from e-commerce clients, which they expect to grow to 9 percent in three years. In Asia-Pacific, e-commerce revenues now account for 10 percent of the revenue base, and the CEOs forecast that will more than double, to an average of 24 percent three years from now.

Accordingly, the 3PLs are taking steps to boost their ability to serve e-commerce clients. Respondents in all regions said they are upgrading their information technology to support this business segment. Many are investing in physical infrastructure, such as heavily automated distribution centers. North American respondents also mentioned that they are developing dedicated e-commerce operations and linked technology as well as expanded e-commerce consulting. Europeans are establishing new locations for consumers to pick up packages and are expanding international operations and value-added warehousing for e-commerce clients. Those in Asia-Pacific also are focusing on integrating domestic and international warehousing services and adding rapid delivery, parcel, and high-volume returns services to their portfolios.

Mergers and acquisitions. The wave of mergers and acquisitions (M/A) among third-party logistics companies in the past two years was a hot topic. Some of these transactions have involved European, U.S., or Asian 3PLs buying companies in other parts of the world. That makes sense, given that many of the CEOs said a desire to increase scale and to offer global execution to customers were among the reasons for the industry consolidation. Other reasons included the ability to broaden service offerings, the availability of inexpensive capital, the ability to offer end-to-end solutions, and the desire to drive scale into specific market segments.

Customer demand is the primary motivation for broadening scope, capabilities, and geographic coverage, said Joseph Carlier, senior vice president of global sales for Penske Logistics, in an interview. "More customers are asking for 'one-stop' service beginning from design and production to delivery and reverse logistics," he said. "This is not just a matter of scale. The question for us is: How do we extend our product offerings on a strategic level?"

Only three of the Europeans reported having seen any impact on their businesses from the recent mergers and acquisitions yet, although a few said that the acquisition of Norbert Dentressangle by XPO Logistics is likely to have a significant impact on the European marketplace. This was the first time in the 22-year history of the study that mergers and acquisitions made the short list of most significant issues for 3PLs in Europe, Lieb said in an interview. Most of the CEOs in North America, meanwhile, predicted that the recent mergers would lead to defensive acquisitions, and a few said their companies might be acquisition targets. In the APAC region, respondents said they expect little or no impact from M/A activity. (For more on 3PL mergers and acquisitions, see Lieb's article in CSCMP's Supply Chain Quarterly, "Consolidation in the 3PL industry: Why is it happening, and what does it mean?")

New sources of competition. E-commerce is bringing 3PLs into direct competition with the likes of Amazon, Alibaba, and Uber. Uber is in talks with major retailers to provide delivery services, Lieb noted, adding that six of the North American CEOs and four of the Europeans said they believe the car service poses a potential threat because it could enter the "last mile" service segment. A big question is whether Uber would be subject to the kinds of regulatory requirements that currently apply to 3PL, parcel companies, and motor carriers, Carlier said.

Respondents also identified Amazon as a competitive threat. When asked about Amazon's impact on the e-commerce marketplace, North American respondents mentioned an increased focus on same-day delivery, many companies' expanded use of multiple distribution channels, domination of small last-mile competitors, and Amazon generating so much volume in peak season that it can be difficult for others to get the services they need during those periods. European respondents said that Amazon is increasingly emphasizing same-day delivery, driving transportation costs down, and pressuring carriers to reduce cross-border premiums. At the same time, it is developing more relationships with European 3PLs for last-mile delivery.

In Asia-Pacific, Alibaba is the big concern. Asked to identify Alibaba's impact on supply chain management in the region, respondents said that the e-commerce behemoth provides customers with alternative methods of distribution for their products, offers consolidation services for small and medium-size businesses, and uses its market power to get lower rates from carriers, 3PLs, and government-owned warehouses. On the plus side, its last-mile delivery services have facilitated the rapid growth of e-commerce in the region, they said. None of the 3PLs involved in the survey, however, provides any services to Alibaba.

Overall, respondents were optimistic about the future, although not quite as bullish as they were last year, Lieb said. North American CEOs said the most important opportunities for 3PLs in their region are supporting the growth of nearshoring, expanding services for e-commerce businesses, retaining truck drivers, becoming more selective about markets served, going upstream in supply chains, and placing greater focus on intermodal services. In Europe, respondents said that 3PLs could bundle services for existing customers, support e-commerce sales, expand their global reach, focus on expanding into more profitable markets and trade lanes, provide data management services to customers, and offer more services to small/medium customers. And in Asia-Pacific, respondents mentioned the expansion of services in emerging markets, opportunities in health care, the provision of lead logistics provider (LLP) services, assisting customers with network design, and bundling services for existing customers.

Click here, to watch an interview with Lieb and Carlier about the survey results.

Toby Gooley is Editor of CSCMP's Supply Chain Quarterly.

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