Spending on logistics across Argentina, Brazil, Canada, Mexico and the United States will increase by $106 billion by 2012, as the size of outsourced share of this expenditure grows by 32%, according to research compiled by business information provider Analytiqa.
While the United States dominates the region's logistics activity, it is consistently outperformed, in terms of growth at least, by the smaller, developing markets of Argentina, Brazil and, to a lesser extent, Mexico.
Following a decrease in market size of some $20 billion over the 2007 –2009 period, Analytiqa's research warns third party logistics providers (3PLs) that in each country, there are unique challenges that they will have to overcome if they are to be successful.
While targets for growth by industry sector will be unique to each national market, on a more generic level across country boundaries, for 3PLs looking to win business, flexibility is a 'must-have.' 3PLs must improve their responses to changes in volumes, locations and deadlines. However, with this flexibility also comes increasing demands for greater speed of response. As supply chains become leaner and inventories decline, outsourcing becomes an increasingly attractive proposition, but the pressure on 3PLs to deliver increases.
This is where the use and application of technology will be important. To enable growth objectives to be achieved, investment by 3PLs will take on an ever important role and careful choices will have to be made about when, where and how to invest in future growth. On the one hand, investment in transport management remains vital, if efficiencies are to be maximized and costs minimized. However, 3PLs must also invest in greater customer relationship management, meeting manufacturer and retailer requirements for their service providers to engage with them in a more regular, intelligent fashion.
On a country by country basis, key and emerging trends include:
An increasing level of sophistication of logistics service provision is largely customer-driven, as demands for greater visibility of products, reverse logistics solutions and / or value-added services more often than not originate from retailers or manufacturers, with logistics service providers reacting to these needs.
Brazilian supply chains continue to be hampered by costs that are significantly higher relative to other countries, but growth potential arises from integrated supply chain requirements and greater levels of supply chain collaboration (such as shared user warehousing or distribution). Transportation infrastructure continues to suffer from poor management but the award of global sporting events in the country (World Cup 2014 and Olympics 2016) will finally provide the stimulus to improve conditions.
In order to survive, traditional trucking companies are expanding their expertise to encompass a wider spectrum of services. This is not only driven by increasing customer sophistication in their supply chain operations, but also by the competitive forces that exist between service providers and the consolidation of a fragmented service sector.
The relatively high nature of logistics costs will eventually lead many manufacturers and retailers to outsource their supply chain activities as they seek opportunities for cost reduction. While automotive and retail markets will lead the way, there will be room for significant improvement in service provision across other industry sectors.
As the region's most developed and mature logistics market, the challenges faced by 3PLs in the U.S. are somewhat different to those in South America. Among those analyzed by Analytiqa, there are fears that at a basic level, the logistics sector will experience a severe skills shortage as the industry struggles to attract the level and quantity of talent to meet its growth objectives.
Analytiqa forecasts that over the next five years, the less mature logistics markets of South America will continue to embrace outsourcing of their logistics services. Markets in South America are set for significant development, particularly of more integrated logistics solutions—combining warehousing and distribution for example –rather than the more basic levels of service provision that currently exist.
"As the economies of Latin America shift from producer-led economies to consumer-led economies, supply chains will react, change shape and develop in line with the endmarkets they ultimately serve," says Mark O'Bornick, Analytiqa's research director. "Driven by economic growth and greater awareness of the benefits of outsourcing, the contract logistics market will undoubtedly grow, but there is clear evidence that 3PLs are not maximizing their opportunities. 3PLs cannot take growth for granted, especially where they are perceived to add little value.
"In fragmented service provider markets, the increasing consolidation of 3PLs, through M&A activity, will enhance scale and provide opportunities for advancement, but the downturn has sharpened the price sensitivity of customer negotiations. This will remain for some time and the chance that sophisticated customers will in-source away from commodity service-based 3PLs remains a real threat."