Third-party logistics industry continues to feel the effects of the economic downturn

The global recession may be over, but its lingering effects on shippers continue to create business challenges for third-party logistics service providers (3PLs) worldwide. Most respondents to the 2013 edition of an annual survey of 3PL chief executive officers (CEOs) in North America, Europe, and Asia-Pacific cited some variant of "economic instability," "economic uncertainty," or "customers' cost cutting" among the industry dynamics and challenges they expect to face over the next three years. Undoubtedly related was respondents' forecast of more industry consolidation in all three regions during that same period. The research was conducted by Dr. Robert C. Lieb, professor of supply chain management at Northeastern University, and Dr. Kristin Lieb, associate professor of marketing at Emerson College, and was sponsored by Penske Logistics.

Of the 34 CEOS who completed the survey, the majority (23) said their companies were profitable in 2012, two broke even, and only five said they were unprofitable. North American and European respondents were most upbeat; their predictions regarding growth rates for their own companies and for the 3PL industry in their regions were up by one or two percentage points over forecasts they made in 2012.

But predictions by CEOs in the Asia-Pacific (APAC) region were down by a similar amount or were flat. That pessimism probably relates to the shift of manufacturing from China to lower-cost countries in Southeast Asia and the fact that China's GDP growth has slowed, Robert Lieb said in an interview at the 2013 Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference. Three of the nine Asia-Pacific CEOs said their customers had moved manufacturing from Asia to North America, and seven reported customers shifting manufacturing within Asia, mostly to Vietnam, he noted.

Respondents' lists of the most important industry dynamics differed among the regions. North American CEOs noted the movement toward nearshoring, continuing economic uncertainty, driver shortages, and significant changes in customers' requirements. European CEOs, not surprisingly, cited the continuing instability of the European economy and a growing customer focus on the cost of solutions, as well as declining growth in economies outside of but linked to Europe, and the growth of Internet shopping. APAC-based respondents focused on China, naming compliance with increased regulation there, the growth of demand in China for high-quality products, and the shift of manufacturing from China to lower-cost countries.

The CEOs' take on industry problems covered some of the same ground. In North America, finding and keeping management talent was a top worry, as were coping with increasing regulation and adjusting to a "slow growth" economy. European CEOs said they worry about a shrinking customer base, customers' growing emphasis on low-cost solutions, and potential changes in how customers handle outsourcing decisions. APAC respondents identified finding and keeping management talent, the lack of good infrastructure, and coping with increased price competition as their biggest concerns. (For more on 3PLs' human resources issues, see Robert Lieb's article, "How to fix the 3PL talent problem", in the Q3/2013 issue of CSCMP's Supply Chain Quarterly.)

Despite those worries, 3PL CEOs also see new opportunities; in fact, 25 said their companies had introduced new services in 2012. Some in North America and Europe focused on selling more services to existing accounts, while e-commerce struck a chord with respondents in all three regions. E-commerce, especially omnichannel fulfillment, does represent a big growth opportunity for 3PLs, but it also requires them to make significant investments in technology in order to achieve seamless order fulfillment across different channels from a single inventory pool or facility, said Joe Carlier, senior vice president, sales, for Penske, in the same interview.

As for big developments in the 3PL market in the next three years, respondents in all three regions forecast further consolidation. Interestingly, the North Americans characterized mergers and acquisitions as an opportunity to gain more business, while Asia-Pacific executives cast them in a more negative light, anticipating business failures among small and medium-size 3PLs.

North American CEOs also expect continued growth in online retail, more reverse logistics opportunities, and greater emphasis on regulatory compliance. European respondents think competition will become more intense as customers sharpen their focus on cost reduction, with some customers returning to insourcing. APAC CEOs expect to contend with a continued customer focus on lower-cost solutions and to handle more domestic consumption and distribution.

"Most 3PLs went into China to support importing and exporting activities," Lieb said. Just five years ago, 90 percent of their business in China was international and only about 10 percent was domestic, he said. "Now 60 percent is international and 40 percent is domestic."