3PLs Are More Upbeat than Most about Long-Term Growth

Oct. 19, 2011
All of the major 3PL companies were profitable last year, according to a new study, and they’re looking to build on that growth in the coming years.

Most of the major third-party logistics providers (3PLs) experienced improved economic conditions in 2010, with 88% of companies surveyed in North America meeting or exceeding their revenue projections, as compared with only 50% in 2009, according to a survey of 3PLs conducted by Robert Lieb, professor of supply chain management at Northeastern University, and underwritten by Penske Logistics, a 3PL.

The survey findings, which were reported at the annual Council of Supply Chain Management meeting in Philadelphia, analyze responses from 36 3PL CEOs across North America, Europe and Asia-Pacific, whose companies were responsible for generating approximately $58 billion in revenue in 2010.

Economic conditions appeared to slightly improve for 3PLs surveyed in 2010 in North America. None of the companies were unprofitable and none of the CEOs believed the regional 3PL industry operated at a loss for the year. In Europe, economic conditions continued to be challenging for 3PLs, with only 55% of companies surveyed meeting or exceeding their revenue growth projections for the year, as opposed to 90% of companies surveyed in Asia-Pacific. Growth projections are most optimistic in Asia, with companies expecting to grow 15.8% in the next year, as compared to 10.8% expected in North America and 8.4% in Europe.

gCEOs continue to grapple with industry dynamics such as a stagnating economy, pricing pressures, rising costs and the impact of regulatory changes,h Lieb says. gThese are similar to the trends wefve been seeing in years past, and we are confident that the industry can adapt.h

gThis yearfs survey indicates the logistics industry has largely adjusted to the new economic realities and are now investing in growth,h says Joe Gallick, senior vice president of sales for Penske Logistics. gCompanies are leaner and more adaptive than just a few years ago. Today, logistics companies are better positioned to help serve their customers as catalysts for supply chain transformation and innovation, which ultimately drives their own growth prospects.h

Both European and Asia-Pacific CEOs report a shortage of managerial and operational talent in the industry as one of the major problems in their regions. In Europe, marketplace concerns about stability of the 3PL industry were also cited. The Asia-Pacific market is expanding, according to the survey findings, with CEOs seeing a variety of growth opportunities in the region, including increased volumes in China and India. The report also cites more extensive road transport services to support manufacturing in China as it moves inland.

The most significant development in the Asia-Pacific (APAC) region for 3PL services during the past year was the diminishing role of Guangdong and Hong Kong as manufacturing centers, with manufacturing shifting to other low-cost countries and to Chinafs western provinces. Demand for gall-in-oneh supply chain services increased in 2010, as the industry in APAC becomes more sophisticated.

Revenue Projections Improve

With few exceptions, the CEOs are more bullish about the financial prospects of their companies over the next one- and three-year periods.

One-year company revenue growth projections were 10.8% for North America (10.4% in 2010), 8.4% for Europe (7.2% in 2010), and 15.8% for APAC (22.5% in 2010). The average three-year company growth projections were 10.3% for North America (10.6% in 2010), 9.1% for Europe (8.3% in 2010), and 14.6% for APAC (19.5% in 2010).

One-year regional 3PL industry revenue growth projections averaged 6.8% for North America (7.3% in 2010), 6.1% for Europe (4.8% in 2010), and 9.0% for APAC (15.4% in 2010). The average three-year regional 3PL industry growth projections were 8.0% for North America (7.8% in 2010), 6.3% for Europe (5.4% in 2010), and 10.3% for APAC (12.9% in 2010).

Twenty-eight of the 36 CEOs surveyed report their companies were profitable during 2010, with three reporting they broke even, and three reporting their companies were unprofitable.

Outlook for Mergers and Acquisitions

Only five of the 36 CEOs report their companies were involved in significant M&A activity in their regions during the past year.

Most believe the 3PL consolidation movement will continue in their regions.

CEOs in all regions expect less than 9% of their companiesf average annual revenue growth to come from M&A over the next three years.

Impact of Supply Chain Disruptions

25% of the North American 3PL CEOs report that some of their customers experienced a loss of sales in Japan due to the tsunami and earthquake. Thirteen percent of the European CEOs report similar experiences, as do 50% of the CEOS surveyed in the APAC region.

88% of the 3PL CEOs included in the North American and European surveys report that some of their customers experienced a disruption of supply. 80% of the CEOS in the APAC region also repor that that was the case.

31% of the North American 3PL CEOs report that some of their customers experienced supplier failures as a result of the tsunami/earthquake. 50% of the CEOs involved in the European survey and 30% of those involved in the APAC survey also report that to be the case.

Environmental and Sustainability Investments Continue

Despite the volatility of the global economy, the 3PL industryfs involvement in environmental sustainability issues continues to expand.

Sixteen of the 36 CEOs report their companies launched new sustainability initiatives during 2010.

Nineteen CEOs report expanding existing sustainability projects.

The percentage of existing customers asking 3PLs to analyze their supply chains in terms of environmental impact/cost were 8% for North America (15% in 2010), 8% for Europe (7% in 2010), and 7% APAC (9% in 2010).

gGreenh capability is einfrequentlyf a major factor in attracting and retaining clients, according to 86% of CEOs surveyed.

Social Media Plays a Growing Role

3PLs are generally optimistic about the value of social media activities moving forward, despite the impact of these activities having been limited to date.

œ 69% of companies believe social media will become increasingly important in 3PL industry
œ 64% of companies have LinkedIn accounts
œ 47% of companies have Facebook pages
œ 36% of companies have Twitter accounts
œ 28% of companies post videos on YouTube
œ 17% of companies surveyed have blogs

Companies participating in the annual survey include: Cardinal Logistics, DSC Logistics, DHL Exel Supply Chain, Genco Supply Chain Solutions, Kuehne+Nagel Logistics, Menlo Logistics, Penske Logistics, Schenker, Schneider Logistics, Transplace, UPS Supply Chain Solutions, UTi Integrated Logistics, Caterpillar Logistics Services, Agility Logistics, Werner Logistics, Yusen Logistics, MIQ Logistics, CEVA Logistics and Wincanton.

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3PLs Remain Committed to Sustainability Despite Recession

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