3PL news: Annual 3PL study indicates industry is showing post-recession growth signs

Despite overall economic conditions being better than they were a year ago, third-party logistics (3PL) CEO’s are still indicating business conditions have a ways to go before things fully turn around, according to the results of the 17th Annual Survey of Third-Party Logistics Providers.

The survey is conducted by Dr. Robert Lieb, professor of Supply Chain Management at Northeastern University, and sponsored by Penske Logistics. It is based on feedback from 31 3PL CEOs throughout North America, Europe, and Asia-Pacific, with cumulative revenues in 2009 at roughly $37 billion. Survey results were presented at the Council of Supply Chain Management Professionals Annual Conference earlier this week.

One of the main takeaways of this year’s survey was that 48 percent of the CEOs said their companies did not meet revenue growth projections although 80 percent still turned a profit. Average 2009 revenues for surveyed companies were $1.3 billion in North America, $1.7 billion in Europe, and $298 million in the Asia-Pacific region.

A factor impacting revenues to a certain extent is price compression, Lieb told CSCMP attendees. Much of what price compressions entails are steps 3PLs are taking to remove costs out of their systems, explained Lieb.

“Some 3PLs are actually walking away from business to achieve this,” said Lieb. “The larger companies in the 3PL industry have spent more and more time with customer selectivity and customer profiling processes to decide who their customers should be and who they would like to work with over time. “In the early days of this business, there was a general feeling that any customer is a good customer, but as the industry has matured it has become apparent that is not necessarily the case.”

Looking at the future, the survey found that 3PL CEOs are optimistic about future growth prospects. One-year revenue growth projections were 10.4 percent for North America, 7.2 percent for Europe, and 22.5 percent for Asia-Pacific. These were all considerably higher than last year’s survey, which was conducted during the recession. Three-year average growth projections were 10.6 percent for North America, 8.3 percent for Europe, and 19.5 percent for Asia-Pacific, which also were higher on an annual basis.

And while the recession caused many 3PLs to perhaps limit or cut back on sustainability efforts in order to focus on yields and keeping costs down, the survey clearly indicates that being “green” is far from a fad, with 14 of 31 3PL CEO’s noting they launched green initiatives in the last year and 18 expanded existing sustainability programs. Another 25 now have formal sustainability groups, and 12 say that their sustainability capabilities differentiate them from the competition.

Among the problems facing the 3PL sector, according to the survey were pricing, the expanded role of procurement, “dumb” competition, growing IT requirement, and a talent shortage (for North American 3PLs).

Talent shortages, explained Lieb, have often been at the top of the list.

“CEOs have often said one of the biggest problems they have had was to…have enough managerial and operational talent to staff up like they were in the past when they were seeing 20 percent growth rates,” said Lieb. “But now we are in a situation where there have been massive layoffs in the 3PL industry in the last several years, so the talent pool in the marketplace should be stronger than it has been in years…although there is still a feeling in North America and on a global basis that there is a shortage of talent.”

Another notable survey takeaway was that nearly 90 percent—87 percent—of 3PL CEOs indicated that some of their manufacturing customers have moved towards near-shoring options in the last year, which will likely extend to 3PLs in the future.

Penske Logistics Senior Vice President of Sales Joe Gallick provided attendees with a rundown of which factors weigh most on the minds of 3PL CEOs regarding operating and strategic decisions 3PLs are making or are considering making.

Among those factors cited by 3PL CEO’s were: a high unemployment rate, the recession, the political landscape, price compression, global planning challenges, and freight volumes relating to an uncertain economic environment.