Shippers increase use of 3PL providers: study


Majority of shippers worldwide increasing use of third-party logistics services, with 64 percent of respondents to a new global survey reporting a rise

October 4, 2011

The majority of shippers worldwide are increasing their use of third-party logistics (3PL) services, with 64 percent of respondents to a new global survey reporting a rise.

At the same time, the 16th annual Third-Party Logistics
Study
report – produced by Capgemini Consulting in co-operation with Penn State University, leadership advisory firm Heidrick & Struggles and global logistics provider Panalpina – indicates an average of 42 percent of logistics expenditures are being spent on outsourcing, the same as last year’s study.

However, 24 percent of shipper respondents reported some return to insourcing 3PL services and 58 percent report they are reducing or consolidating the number of 3PLs they use, indicating uncertainty about how the global economy continues to impact 3PLs.

The 2012 Third-Party Logistics Study is based on
more than
2,250 responses from both shippers and logistics service providers in North America, Europe, Asia-Pacific and Latin America, as well as other locations throughout the world such as the Middle East and Australia.

In addition to documenting the evolution of the 3PL market, this year’s report also provides an in-depth analysis of logistics operations in emerging markets and the electronics industry as well as talent management to address the skills shortage in the logistics industry.

According to the report, today’s 3PL marketplace is experiencing significant change and established 3PLs are adjusting their business models to provide greater value to shippers.

The report shows relationships between shippers and 3PLs continue to be successful with 94 percent of 3PLs and 88 percent of shippers stating communication, flexibility and openness are key to contributing to their success.

However, just 68 percent of shippers judge their 3PLs as sufficiently agile and flexible, down from 72 percent last year, suggesting this is an area where 3PLs can make significant further contributions to supply chain success.

"The responses from this year’s study represent an interesting record of the shifting use of 3PL services," says Dan Albright, Vice President and North American Supply Chain Leader at Capgemini Consulting.

"Whilst some companies are increasing outsourcing services, we are still seeing the consistent churn that occurs each year with 3PL respondents observing that some of their customers are returning logistic activities back in-house.

"It’s vital that 3PLs and shippers work in close collaboration and that 3PLs remain innovative by offering value-added services to provide true value to shippers to help reverse this trend."

Emerging markets

A substantial 80 percent of shippers in the survey conduct business with or within an emerging market, with the majority (52 percent) doing so from a mature market.

China, India, Brazil and Mexico are considered the top emerging market opportunities among respondents.

With mature, industrialised markets largely growing at a slower pace, the emerging markets offer significant growth potential.

The 3PL capabilities shippers most value when entering emerging markets are expertise on the latest global trade regulations and managing and optimising shipment routing based on free trade agreement (FTA) knowledge.

The majority of shippers in mature (65 percent) and emerging markets (73 percent) recognise 3PLs’ knowledge of FTAs as very important.

"Entering any new market requires due diligence and this is more critical when it’s an emerging market. Government investment in infrastructure will contribute to attracting global manufacturers and 3PLs to do business in emerging markets," says Nicholas Wyss, Senior Vice President, Global Head of Industry Vertical Fashion, Panalpina Management.

"Shippers based in mature and emerging markets favour strong support from 3PLs for a successful 3PL operating model in emerging market countries."

Challenges in electronics sector

Multiple layers, supply constraints and the specific challenges the various channels present, coupled with short product lifecycles, mean the electronics industry demands a fast and nimble supply chain.

Because electronics products are often high value, they pose specific challenges including assuring security, preventing counterfeit and packaging sufficiently to handle long-distance transportation.

Pressure to reduce operating costs was cited as the top logistics challenge for shippers in the electronics industry (59 percent), but just 28 percent believe 3PLs can help them with this challenge.

The report’s findings suggest that within the electronics industry, 3PLs need to perform better in selling to electronics customers and shippers need to be more open to collaborating with 3PLs to address their top challenges.

"Logistics operations within the electronics industry are faced with a number of unique challenges. Close communication and collaboration between shippers and 3PLs is vital as supply chains become more complex," says Dr C John Langley, Clinical Professor of Supply Chain Management, and Director of Development for the Centre for Supply Chain Research, Penn State University.

"As the demand for high-value electronic goods increases, it is more important than ever that shippers are able to draw on 3PLs’ knowledge to achieve a solid supply chain."

Talent management

Despite the positive reports of the supply chain's role as a significant contributor to attaining business goals, the logistics industry is experiencing a shortage of capable supply chain managers prepared to work in vital management positions.

As supply chains grow more complex, they require leaders who are more diverse and multi-faceted. The report revealed shippers and 3PLs most highly value operational execution (51 percent and 60 percent respectively) followed by people management and development skills (54 percent and 43 percent respectively) in their leaders.

To date, the majority of both shippers and 3PLs recruit from inside their own industries but many are increasingly looking to recruit talent from other industries. Company success and performance, attractive salary and benefits and personal development opportunities within the company are considered the top qualities needed to attract talent.

"As logistics become ever more intrinsic to a company’s ability to attain its business goals, shippers and 3PLs must be able to put trust in supply chain leaders to be prepared for future business challenges," says Neil Collins, Managing Partner, Transportation & Logistics - Americas, Heidrick & Struggles.

"The logistics market must look to develop programs for talent management to create a clear, well-defined business strategy for the recruitment, retention and development of talent."

For more information and to access the full study visit www.3plstudy.com.

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