At the Council of Supply Chain Management Professionals Annual Global Conference, taking place this week in San Diego, Calif., a new study was released that showed 3PL CEOs are confident about the current state and future revenue growth potential of both their companies and the regional 3PL industries.
The 22nd Annual Surveys of Third-Party Logistics Provider (3PL) found that more than 80% of the companies surveyed were profitable in 2014.
CEOs from North America and Asia-Pacific forecasted three-year revenue growth averages for their companies of 7.9% and 11.5%, respectively.
European CEOs forecasted 5.3% growth over the same period.
CEOs across North America, Asia-Pacific and Europe were also asked to project regional industry revenue growth rates for the next three years in each of their regions. North American CEOs projected average industry revenue growth rates of 5.9%; European CEOs projected average industry revenue growth rates of 4%; and CEOs in the Asia-Pacific region projected average industry revenue growth rates of 5.6%.
“Last year, the logistics industry experienced one if its best years in many years and 2015 is on-track to be a good year as well,” says Marc Althen, president of Penske Logistics. “The 3PL industry continues to deliver value, savings and efficiencies by collaborating closely with customers and adjusting to rapidly changing economic conditions, business challenges such as capacity and talent shortages, as well as consumer online shopping needs that demand new and agile supply chain and fulfillment models.”
An encapsulation of key survey findings follows.
The Growth of Mergers and Acquisitions
Only seven of the 30 CEOs reported significant M&A activity by their companies during the past year. Following the onset of the global recession in 2008 there were relatively few large –scale acquisitions in the 3PL industry. That has changed dramatically since early 2014. Since that time there have been ten major acquisitions by 3PLs totaling $18 billion. This is leading to a significant restructuring of the industry in many markets, and will require substantial effort on behalf of those 3PLs to integrate those operations post-acquisition. It will also result in significant brand confusion in the marketplace that will have to be addressed by those companies. Many of the CEOs involved in this year’s surveys believe this recent wave of M&A will lead to defensive acquisitions by other 3PLs.
CEOs across North America, Europe and Asia-Pacific agree that the need for M&A stems from four key factors: 3PLs experiencing market pressure to expand service offerings; an increased desire to offer one-stop solutions to customers; the need to drive scale in specific markets; and a desire to expand their geographic footprint. North American CEOs predicted that 6.6% of their revenue growth over the next three years will come from M&A activity. European CEOs projected that figure at 3.7% while CEOs from the Asia-Pacific region predicted that 4 percent of their revenue growth during that period would be M&A related.
A More Focused E-Commerce Approach
Survey respondents cited significant changes in the e-commerce marketplace in the past year, referencing strong growth, an increased focus on next-day delivery and rapid expansion of international e-commerce.
In both North America and Europe, CEOs reported that Amazon had a particularly significant impact on supply chains and the e-commerce industry in their regions, highlighting the company’s focus on same-day delivery and its developing relationships with 3PL companies for last-mile delivery. On average, e-commerce now accounts for an average of 11.9% North American 3PLs’ revenue, and CEOs predict it will increase to 20.9% in three years.
On average e-commerce revenues now account for 5.3% of European respondent revenues, and that percentage has been projected to grow to 9 percent in three years. Growth in Asia-Pacific’s e-commerce market was aided by the region’s massive e-commerce provider, Alibaba – a company Asian-Pacific CEOs believe might become a significant competitor for 3PL business in the region. For all three regions surveyed, CEOs said that the expansion of 3PL technology support for e-commerce was critical for the industry’s ongoing success.
“Amazon’s recent actions are impacting e-commerce in a major way,” says Robert Lieb, professor of Supply Chain Management at Northeastern University’s D’Amore-McKim School of Business. “The company’s market dominance and huge popularity with customers creates a great opportunity for 3PLs to assist Amazon, and ensure customers get the goods they need – especially during peak e-commerce seasons.”