The global third-party logistics (3PL) industry is now estimated at $390 billion—and there's no visible sign of it slowing down. The reason is simple: As the supply chain becomes more global and complex, shippers are turning to their 3PLs more than ever to stretch operations into unfamiliar regions of the world.

We put five of the top 3PL analysts in a virtual room and asked them to define the current global 3PL market and help shippers better navigate the increasingly complicated and global landscape.

We found it impossible to keep the answers brief, so you'll only get a taste of this insightful conversation. For more details, join our panel for a live webcast on July 25.

The aggressive growth and expansion of the global 3PL industry continues. What are the key drivers?

Lieb: The drivers really haven't changed significantly in the past several years. There continue to be financial pressures to reduce costs, while there's increased emphasis on core competencies, globalization, and growing acceptance of the concept of outsourcing and off-shoring.

However, the growth is being augmented by the emergence of major domestic markets in China, India, and certain Eastern European countries which require expanded 3PL support. The economic resurgence of Russia would seem to provide real growth opportunities for 3PL companies with a significant tolerance for risk.

Bentz: Bob is right on, and this bodes well for 3PLs—and there's no real trend going the other way. The rampant growth in globalization coupled with a dearth of equivalent skills in supply chain management will continue to drive the market. Today, the tendency is to look outside and rent talent rather than own it.

How long can we except this growth to continue? Do you see anything in the future that could send it into a tailspin?

Bentz: I see this growth continuing at a sustained rate for the foreseeable future. Off-shoring will slow down, and it will shift around as companies move their business from places like China to other competitors, such as India and perhaps even Africa.

The one, single significant thing that could alter this is the rapid rise in the cost of transportation and distribution, largely occasioned by spiking fuel costs, capacity shortages, and infrastructure problems

Saynor: Consider this: When mistakes are made by 3PLs or when cost savings do not materialize to the extent that shippers hoped for, then there may be a backlash against outsourcing logistics; however, to reverse a well-established logistics outsourcing policy is not easy or cheap.

Lieb: In the longer term, there are certain scenarios that could threaten growth. These would include factors such as a global economic recession, the emergence of an economic crisis in China, military conflicts affecting key provider markets, or widespread deterioration of 3PL service quality triggered by diseconomies of scale, as Chris mentions.

What impact will continued consolidation have on the service shippers can expect from their global 3PLs?

Lieb: It depends on what shippers we're talking about. Larger customers may get better and more extensive service as a result of this consolidation movement. They may also be able to reduce the number of 3PLs they use, and leverage their volume through aggressive contract negotiations. In contrast, smaller shippers may no longer reach the “threshold” of interest to the larger, consolidated providers.

CEVA (a subsidiary of private equity firm Apollo Management Ltd. that bought TNT Logistics last year) just acquired EGL. Is private equity interest a good thing for shippers?

Armstrong: The prices being paid by private equity firms reflect the overall potential for 3PL market growth. Complementary acquisitions such as CEVA/EGL will only result in a broader, stronger service offering for customers. Their ability to efficiently combine operations and develop a consistent marketing strategy will dictate future competitiveness and profitability.

Langley: Private equity involvement is okay, as long as the new owners do not become too “trigger-happy” with reducing costs. Granted, most companies can benefit from shedding a few costs, but sometimes new private equity owners expect too much in this area.

Lieb: Actually, I believe the jury is still out on the impact that private equity is playing and will play in the evolution of the 3PL industry. On one hand, it provides capital to finance large-scale acquisitions that support the continuing globalization of the industry. On the other, there is a question about the commitment of private equity companies to the 3PL industry.

Bentz: That's true. The real challenge with private equity investment in this space is that there can be conflicting interests. Private equity firms typically want to buy at a good price and take actions to improve the marketability of the company. But then they want to get their money back out—at a premium.

Is there such a thing as a “one-stop-shop” for global logistics?

Lieb: The one-stop-shop concept is the “holy grail.” Despite the increasing scale of many of the consolidated companies, no one company has that global capability. I believe it's unrealistic to think that one company can provide truly consistent global coverage—it's a big world, and even if acquisitions position the resulting companies in all major markets, digesting those acquisitions and getting all operating units on the same page is a very difficult and time consuming thing to accomplish.

Saynor: It's still a long way off. It's not just operating in every country of the world that's important, it's offering the same level of service and same value throughout each country that's important.

Armstrong: While I agree with Bob and Chris to some extent, we are getting closer with DHL Logistics, Schneker/Bax, and Kuehne & Nagel who are tier-one global supply chain managers. For many shippers, these 3PLs have the necessary network. It just requires a shift from using 3PLs tactically to allowing them to play a more strategic role in managing their supply chains.

Bentz: It's important for shippers to remember that no one is flawless at everything. The market's just too big, too diverse and too complicated. I think some of these guys can be the “one-stop shop” for the right client, but not for all clients. That said, I think there are 3PLs that can offer complete global coverage. They just can't do it for everyone across all lines of business.

Last year we predicted that 3PLs would eventually turn into pure tech companies. How important is technology to providers today?

Lieb: While IT support is a very important component of the service packages offered by 3PLs, I don't consider them leading-edge technology companies, and most shippers share that view. It's true that 3PL users want increasingly sophisticated IT support from the providers, and often want it customized, but generally they don't want to pay the full costs of those systems and the related customization. That continues to be a very significant problem for 3PLs.

Saynor: Our research tells us that many shippers are now considering 3PLs as IT service providers. It is fairly obvious that to exploit this new avenue, 3PLs need to upgrade their own standards of technology to follow the latest trends and needs.

Langley: At this stage, 3PLs are not technology companies; but this area is greatly in need of improvement for most 3PLs. I do not believe that 3PLs are evolving into technology companies, but I do believe that 3PLs need IT capability to be competitive.

Armstrong: At the end of the day a non-asset based 3PL is only as strong as its people, processes, and supporting IT. Our surveys show 3PL IT capabilities as a major reason for outsourcing and the importance of a solid systems backbone is only growing. This is reflected in 3PLs average IT spending of approximately 9 percent of total net revenues. Some 3PLs have tried to sell IT as a stand alone solution, but most have been unsuccessful.

In what regions are service levels in need of the greatest improvement?

Lieb: Shippers must be aware that the service levels that can be accomplished in any region are not just a function of the internal capabilities of the 3PLs. In many cases, national and local transportation, warehousing, and communications infrastructure limit what is possible. Now, that is certainly true in China, India, and parts of Eastern Europe. Over time, it will be true of Asia, Russia, Latin America, and Africa.

Langley: That's very true. Infrastructure problems in India make short-term improvement quite difficult; while it's important for shippers to remember that legacy operating practices and infrastructure inefficiencies are still making China a challenge as well.

Armstrong: That being said, shippers should be aware that services will improve in these markets as roads, rail lines, ports, and warehouses are developed and improved.

Many shippers are looking to establish logistics services in new regions. How do they find the best partners?

Bentz: This sounds overly basic, but you really need an advance team of key constituents that's got a balanced composition for conducting the proper due diligence.

Lieb: Do your own independent research on the market dynamics of those regions, competitive market conditions, infrastructure issues, and government regulations and policies. With an understanding of those factors, customers should know what they can reasonably expect from their 3PL service providers. Then, those expectations need to be clearly communicated in terms of performance metrics.

Langley: There's no magic bullet here. Sound due diligence and research will produce good results.

Any “golden rule” for shippers looking develop or improve their relationship with a global 3PL?

Saynor: The most important part of the shipper-3PL relationship is what happens before the first shipment/pallet is moved. You must have ultra-clear service specifications, well-documented and mutually agreed upon expectations of roles, rewards, performance indicators, and shared goals.

Langley: Do your homework as well as you can and develop technologies and processes to help guide the relationship.

Lieb: I would suggest that shippers take their time, talk with users, consultants, and others with experience in the geographies involved, and commit their business gradually. With respect to improving an existing relationship, I would suggest that they continue to work with clearly identified performance metrics, communicate regularly with their 3PL, and strive toward developing a collaborative business relationship.

Bentz: I would also look in the mirror and ask if I were doing everything I could to make the relationship work the way it should, and if not, I'd vigorously take it on. And, I'd ask my 3PL to do the same.