23rd Annual Survey of 3PL CEOs highlights various industry trends and dynamics

Various facets of the third-party logistics (3PL) continue to show the evolving role the sector has in serving and helping shippers meet their goals and expectations, with 3PLs also seeing solid bottom line success, according to the Annual Surveys of Third-Party Logistics (3PL) CEOs, released earlier this week at the Council of Supply Chain Management Professionals Annual Conference in Orlando, Florida.  

2016 marks the 23rd year of the survey, which was again conducted by Dr. Robert Lieb, professor of supply chain management at Northeastern University. It is based on feedback from 21 3PL CEOs throughout North America and Europe, with cumulative revenues in 2013 around $45 billion.

Average three-year revenue growth averages among North American 3PLs were at 3.8 percent (down from 7.86 in 2015), with Europe at 7.6 percent (up from 5.33 percent in 2015).

All 14 North American CEOs surveyed said their companies were profitable in 2015 and each indicated they believed the regional 3PL sector was also profitable. And 4 of the 5 European 3PL CEOs surveyed said they met or exceeded 2015 revenue growth projections, with all 5 saying they believed regional 3PLs were profitable in 2015.

Some of the report’s most significant findings focused on the North American e-commerce marketplace, which continues to gain major revenue traction, even though it only accounts for around 14 percent of the revenue base for the surveyed companies.

That was evidenced by North American 3PL e-commerce revenues seeing an average growth of 18.46 percent in the last year. What’s more, the survey cited various related changes, including: steadily increasing customer demands for shorter retail cycles; shorter delivery trips, due to retailers being pressured to market position inventory; increased e-commerce activity for heavier goods outpacing package goods growth; reverse logistics and returns growing in importance and becoming even more of a 3PL opportunity; and “massive” investments by Amazon and Walmart putting real pressures on other retailers to change competitive strategies.

“This number exceeded expectations for sure,” said Lieb. “And European 3PL e-commerce growth came in at about half of what was expected. E-commerce is becoming such a big part of 3PL business, and prices are becoming depressed in many cases as they relate to market conditions. Many of the changes we are seeing as they relate to e-commerce are reactionary, and I think one of the problems is that it is being driven by the Amazon’s and Walmart’s, and the smaller retailers are left wondering what they need to do to compete with that, leading them to consider things like building alliances with other companies to better compete. And they are potentially losing last mile deliveries in many cases, too.”

Looking ahead, Lieb said it is likely that some 3PLs will lose business to Amazon, because of some of the things Amazon is trying to do on its own on the logistics front, leaving these 3PLs wondering if they can offset those losses through increased business activity with other retailers.

Another focus area of the North American part of the survey centered on the aftermath of the 2014-2015 West Coast port congestion issues, which led to widely documented issues for shippers moving goods through West Coast ports such as long delays and transit times and lost sales due to new deliveries.

But even when a new five-year port labor agreement was inked in 2015, the survey found that few 3PL CEOs felt their key customers would meaningfully change their reliance on those ports due to those issues. That point was driven by 11 North American 3PL CEOs noting that some key customers had changed port strategies.

Lieb explained that even with a new contract in place, 3PLs by no means viewed it as business as usual at the impacted ports, and instead reassessed things through considering alternative port options such as increased usage of East Coast ports and the expanded Panama Canal, moving freight through Houston, and shipping to the West Coast of Mexico and Canada, among other options.

Other issues and industry dynamics cited in the report included things like rapidly changing technology, an ongoing industry talent shortage and finding and keeping talented employees, and uncertain economic conditions, and coping with increasing customer service level expectations.

Addressing the talent shortage, which has been an issue for more than ten years, Lieb explained that even though more schools are offering supply chain management programs, it still is not enough, as 3PLs are competing with manufacturers and retailers for the same people.

“Some estimates say they shortage is north of 100,000 per year, it is huge,” he said.

On the economic front, Lieb noted that the North American 3PL projections looks anemic compared to past years but are still two-to-three times current GDP levels. And those growth expectations are likely to be reached for 3PLs, he said, because when things are slowing down companies are more focused on cost control and are more likely to look for outside help.