3PL News: 15th annual survey presented at CSCMP examines 3PL CEO takes on industry issues and trends

Jeff Berman, Group News Editor -- Logistics Management, 10/14/2008

DENVER—The current state of the global financial markets—and its subsequent impact on third-party logistics (3PL) service providers worldwide was apparent in the results of the recently-released 2008 3PL Provider CEO Perspective survey.

Data for the survey—in its 15^th year—were based on polling 39 3PL chief executive officers in the North American (20 CEOs), European (10 CEOs), and Asia-Pacific (9 CEOs) regions. It was conducted by Dr. Robert Lieb, Professor of Supply Chain Management, College of Business Administration, at Northeastern University, and sponsored by Penske Logistics.

With financial markets having a severe impact on global commerce, it was not a huge surprise that the survey revealed one-year revenue growth projections for 3PLs in North America, Europe, and Asia-Pacific were 12.6 (12.9 percent in 2007) percent, 10.8 percent (12.5 percent in 2007), and 21.4 (28.8 percent in 2007) percent, respectively. 

A major theme in this year’s survey is the concept of near-shoring—or reverse globalization—the process of shippers bringing manufacturing and sourcing operations closer to home in an effort to drive down costs. These costs, according to survey feedback, include: rising labor wages, the impact of fuel prices on freight transportation and logistics expenses, and issues pertaining to government regulations in Asia.

To put this into better perspective, 11 of the 20 North America-based 3PL CEOs polled said that they are seeing a shift in shippers moving manufacturing operations from Asia into North or Central America. And in Europe, 20 percent of CEO respondents noted that some customers have moved manufacturing operations from Asia to Eastern Europe, along with one-third of the Asia-Pacific CEOs saying that customers have re-located, too.

“Near-shoring is definitely happening, but the question is if it is a long-term trend,” said Joe Gallick, Penske Logistics vice president of sales. “And if it is a long-term trend it leads to the question of how 3PLs can help shippers and also deal with the rising labor costs in these third-world countries.”

Other focus areas for this year’s survey were: expansion into global markets, which is akin to near-shoring, in that 3PLs and shippers are expanding into nearby emerging markets with lower labor, shipping, and land costs; “green” supply chains; and downward pricing pressure, among others.

Green, green, green: With green supply chains getting a lot of attention these days, it was interesting to see that there was somewhat of a “mixed review” when it comes to the benefits of 3PLs going green. While many of the surveyed CEOs have formal sustainability programs, a formal sustainability statement, and other related initiatives, it appears green-related endeavors have not had a meaningful impact for 3PL CEOs when it comes to getting new business or retaining existing clients, according to the survey. But the CEOs indicated green issues will gain in importance over the next three years. 

Like in past years, the survey found that as commoditization-related pressures increase, procurement’s role in contract negotiations also rises. And on a related note, price compression is viewed as one of the biggest problems faced by 3PL executives in all three regions in the survey, as identified by 12 CEOs in North America, six in Europe, and five in Asia-Pacific.

“A lot of 3PLs I have talked to have said that early on in a customer contract it can be easy to find that 'low-hanging fruit-type' of cost-savings,” said Lieb in a previous interview. “It then becomes harder to do that, unless you are increasingly proactive. What happens is a customer will want services to cost five percent less for the next year, and it is hard for a 3PL to do that, because they get squeezed on the margins. The question becomes do they walk away from contracts or do they rewrite terms and conditions of contracts?”

One constant among the respondents—and echoed by Gallick and Lieb at the Council of Supply Chain Management Professionals Annual Conference in Denver last week—is that the 3PL industry is continuously changing.

“Change will continue to occur,” said Gallick in his opening comments. “It is driven by critical socioeconomic and environmental issues that create change. A couple of years ago all we heard about was how RFID was going to revolutionize the industry, along with the driver shortage issue. There is not a lot we can do about change from a 3PL service provider perspective. It is incumbent upon us to recognize those contributors to change and understand, anticipate, adapt to, and influence change within the industry.”

The main agents for 3PLs to flourish in the future, said Gallick, are to identify new sources of growth, new geographies, new products, and new customers, as well as being able to differentiate themselves in an era of commoditization.