The majority of shippers worldwide are increasing their use of 3PL services, according to the 16th Annual Third-Party Logistics (3PL) Study, conducted by Capgemini Consulting, in cooperation with Penn State University, leadership advisory firm Heidrick & Struggles and global logistics provider, Panalpina.
The report reveals that 64% of respondents report a rise in 3PL usage. At the same time, the report indicates an average of 42% of total logistics expenditures being spent on outsourcing, the same as last year’s study. However, 24% of shipper respondents reported some return to insourcing 3PL services, and 58% report they are reducing or consolidating the number of 3PLs they use, indicating uncertainty about the global economy continues to impact 3PLs.
The study is based on over 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.
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% of 3PLs and 88% of shippers stating communication, flexibility and openness are key to contributing to their success. However, just 68% of shippers judge their 3PLs as sufficiently agile and flexible, down from 72% 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. “While 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 Grow while Traditional Markets Slow
A substantial 80% of shippers in the survey conduct business with or within an emerging market, with the majority (52%) doing so from a mature market. China, India, Brazil and Mexico are considered the top emerging market opportunities among respondents. With mature, industrialized 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 optimizing shipment routing based on free trade agreement (FTA) knowledge. The majority of shippers in mature (65%) and emerging markets (73%) recognize 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,” says Nicholas Wyss, senior vice president, global head of industry vertical fashion, Panalpina Management Ltd. “Government investment in infrastructure will contribute to attracting global manufacturers and 3PLs to do business in emerging markets. Shippers based in mature and emerging markets favor strong support from 3PLs for a successful 3PL operating model in emerging market countries.”
3PLs in the High-Tech 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%), but just 28% believe 3PLs can help them with this challenge. The report’s findings suggest that within the high-tech 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 John Langley, clinical professor of supply chain management and director of development for the Center 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.”
Importance of 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 reveals shippers and 3PLs most highly value operational execution (51% and 60%, respectively) followed by people management and development skills (54% and 43%, 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.”