3PL CEO study points to increasing optimism in global 3PL market

By Jeff Berman, Group News Editor
September 26, 2014

Optimism in the form of increasing profits was a key takeaway in the Annual Survey of Third-Party Logistics (3PL) CEOs, released earlier this week at the Council of Supply Chain Management Professionals (CSCMP) Annual Conference in San Antonio.

Now in its 21st year, the survey was conducted by Dr. Robert Lieb, professor of Supply Chain Management at Northeastern University, and sponsored by Penske Logistics. It is based on feedback from 27 3PL CEOs throughout North America, Europe, and Asia-Pacific, with cumulative revenues in 2013 at roughly $46 billion.

One of the survey’s main findings saw that the average three-year revenue projections among 3PL CEOs in North America were 10.39 percent (down from 11.5 percent in 2013), and 7.71 percent for Europe (up from 6.4 percent in 2013), and 15.0 percent for APAC (up from 9.0 percent in 2013). And 15 of the 27 global CEO’s noted that their respective companies exceeded 2013 revenue projections, with 13 meeting projections, and seven coming up short.

“Naturally, there were differences across regions for revenue projections,” said Lieb at CSCMP this week. “If you look at the North American marketplace, the projections are pretty similar to last year’s survey, and are solid even though they are a little bit lower. 2014 looks like a good year for a lot of 3PLs and it looks to be a continuation of 2013 when it is all said and done.”

Lieb added that there are multiple factors driving ongoing 3PL revenue gains, including a continuation of near shoring from China to Mexico, with 3PLs in Mexico seeing subsequent resultant gains in business, due to the wage gap between the two countries narrowing, and a pro-business government in Mexico, a drop in crime in Mexico, and shorter lead times bringing about lower transportation costs.

While North American 3PL prospects are bright, Europe’s remain dim, as companies in southern Europe are still suffering, with any growth on the continent coming from northern and eastern Europe, noted Lieb. The rebounding 3PL-related sectors showing any type of rebound in Europe, he said, were automotive and lifesciences.

The slow growth, especially for asset-based European 3PLs, is currently viewed as a major hindrance, according to Lieb.

Another notable takeaway of the survey focused on merger and acquisition (M&A) activity within the 3PL sector, with just 3 of the 27 surveyed CEOs saying their respective companies were involved in significant M&A activity in 2013, and they added that revenue growth through acquisitions is expected to be modest over the next three years, with many CEOs expecting no revenue growth through M&A for the same period.

Among the reasons cited for little to no uptick through M&A were few attractive targets, overpriced companies, negative experiences with previous acquisitions, and risks related to economic uncertainties.

Penske Vice President of Logistics Joe Carlier said that even though there is some interest in M&A among 3PL CEOs, the larger challenge is finding the right company at the right price.

“That has been the big drawback, with companies saying they are looking but not seeing what they need or anything they like,” he said. “Companies also learn lessons from the past and factor them into their M&A price offering.”

Sustainability also received a fair amount of attention in the survey with ten of the 27 CEO’s reporting their companies kicked off green projects, 15 expanded existing sustainability programs and eight set to begin new sustainability programs next year.

From a Penske perspective, Carlier said it is more of a matter of staying true to the current sustainability initiatives it employs.

He cited how Penske endeavors to maximize its green focus, which has seen the company become part of the EPA SmartWay Program for several years through its transportation carrier program. Other major areas of focus and interest cited by Lieb and Carlier were natural gas-powered vehicles, speed limiters, and LEED-certified buildings, among others.

The survey also examines various industry dynamics cited by 3PL CEOs. Making the cut were nearshoring’s growth, Amazon’s impact on the supply chain, capacity issues in different modes of transportation, and labor-related issues.

In regards to the labor, Carlier observed that supply chain professionals and truck drivers are the biggest needs from a human capital perspective, with 3PL’s actively recruiting on college campuses for the former and the need for thousands of drivers throughout the sector.

“There is an uptick in economic confidence, and a lot of the companies that did not traditionally outsource were kind of holding off to see where things were going,” said Carlier. “This year, there is an increase in new opportunities for opportunities that have not previously outsourced. But now with more confidence in the market, there is a realization for a need to make investments in technology or whether to be a private fleet operator, or invest in additional warehousing space or outsource. This is increasing in all verticals, with companies taking steps to increase efficiencies in their end-to-end supply chain.”

The advent of the e-commerce-based supply chain also drew considerable interest in the survey.
And the question of whether e-commerce giant Amazon is a 3PL was raised in the survey, as it noted Amazon’s focus on speed and visibility and its underpricing of transportation services has subsequently increased customer expectations relative to speed and service. What’s more, ten of the surveyed global 3PL CEOs said they provide logistics support to Amazon and ten said that Amazon has captured the logistics requirements of many small online startups, while absorbing transportation capacity resulting in 3PLs reassessing competitive strategies.