CSCMP 2009: 16th annual 3PL study looks at various industry issues and trends
Impacts of recession and shortening supply chains are top of mind for 3PL CEOs
Jeff Berman, Group News Editor -- Logistics Management, 10/2/2009
CHICAGO—As in past years, trends and issues impacting third-party logistics (3PL) were outlined in the results of the recently released 2009 3PL Provider CEO Perspective study.
Findings of this study—now in its 16th year—were based on polling 35 3PL chief executive officers in North America, Europe, and Asia-Pacific regions. The survey was conducted by Dr. Robert Lieb, professor of Supply Chain Management, College of Business Administration at Northeastern University and sponsored by Penske Logistics. Findings of the study were made public at the Council of Supply Chain Management Professionals Annual Conference in Chicago last week.
Like a year ago, when global financial markets were on the verge of collapsing, economic and financial conditions were a major component of the study’s findings. This was made evident with 16 of the 35 companies polled in the study indicating they failed to meet their revenue growth projections in 2008. But even though nearly half of the companies came up short on the revenue side, 33 CEOs said their companies were still “moderately profitable in 2008.
“The recession causes 3PLs to re-think their strategy,” said Lieb, “and when things are going well and money is coming in, networks almost build themselves. But now they are forced to more closely evaluate how expenses are allocated. Coming out the recession, there may be new opportunities for business for 3PLs, with some new customers coming in that may have not used a 3PL in the past.”
And Penske Logistics Vice President of Sales Joe Gallick said that whenever a cyclical economic movement occurs, there is often a “heightened interest” among shippers in terms of 3PL outsourcing.
“In this case, what is different is the degree of this recession,” said Gallick. “Even with more interest of RFI’s, the selling cycle [for 3PL services] has been painfully long. [Shippers] are looking at ways to reduce costs, and 3PLs can help them do that…and some shippers have expiring contracts for basic services like transportation and warehousing and they may be looking now to bid them out and reduce their costs. We are a little bit unsure if this is a pricing phenomenon or whether it is a real interest in helping the business going forward.”
The effects of the recession were particularly telling in the one-year revenue growth projections for 3PLs in different regions, with North America at 6.9 percent (12.6 percent in 2008), -3.3 percent in Europe (10.8 percent in 2008), and 12.9 percent in the Asia-Pacific region (21.4 percent in 2008).
The ‘Green’ Scene: Even though the recession and economic conditions are largely top of mind for 3PLs and shippers, the study found that 3PLs “continued to pay substantial attention to ‘green’ and environmental sustainability issues.
“Most of the 3PLs we talked to said they are focused on green not because it is the right thing to do, but also to save money,” said Lieb. “When the recession hit, we thought green may fall to the wayside, but it appears that the majority of 3PLs launched new initiatives and/or expanded their existing ones, with a much higher percentage of customers wanting to talk about green endeavors.”
This was supported by the study, which stated that 25 of the 35 participating 3PLs said their companies had launched new sustainability initiatives in the last year, 23 had expanded existing ones, and none were scaling back on sustainability efforts.
Gallick added that when the government and public and private sectors put firm regulations in place that will impact transportation and logistics operations—like the pending climate change legislation—it is likely to create an environment where all 3PLs and shippers take a long view at sustainability, whether it is to reduce empty miles or capacity, as well as other measures in the future.
Taking a short cut: A notable finding of the study focused on how customers of 3PLs in the study took steps to shorten their supply chains, with North America and Europe-based CEOs stating that, on average, about one quarter of their clients had taken measures to do this, with another 9 percent doing so in the Asia-Pacific region.
A major facet of shortening supply chains is shifting manufacturing activities—also known as “near shoring”—from Asia to North or Central America or Eastern Europe, according to the study. It added while it is currently occurring at a gradual pace, it is likely to increase in the future as companies look to shorten supply chains.
“Reverse globalization is still occurring,” said Gallick, “but manufacturing decisions are more likely to be made closer to home than further away. The costs to get goods to market and carry inventory halfway around the world are contingent on oil prices. When oil prices rise, you lose all the gains you made by sourcing far away. It is the antithesis of lean.”
Other focus areas for this year’s study included: employee staffing and layoffs, price compression issues, the impact of the recession on business relationships, and branding efforts, among others.
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