Dissatisfaction with 3PL service on the rise, study finds

Reynolds Hutchins, Associate Editor | Feb 19, 2015 1:30PM EST

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There is a growing disconnect between third-party logistics providers and manufacturers and retailers who say they are dissatisfied with the level of service they are being provided.

According to a recent survey of more than 400 logistics and supply chain executives, 55 percent of the manufacturers and retailers polled say they already have switched, or intend to switch, 3PLs.

“3PLs appear to be on their back foot,” the eyefortransport report says.

Between 2012 and 2014, the survey found a 4 percent jump in “less than satisfied” responses from manufacturers and retailers. Positive reviews declined 3.5 percent over the course of the past two years. And service, the study reports, was the primary driver.

Business is booming for 3PLs, but as cost-cutting becomes the priority for manufacturers and retailers, more and more businesses have begun to “shop around” for more services at a lower price — driving down satisfaction, renewal rates and contract length.

Industry insiders have suggested for years that the logistics sector stands on the brink of commoditization: providing only short-term contracts for execution-based services at the lowest price, rather than long-term relationships with value-added, strategic operations.

In response, many 3PLs polled said they have diversified their array of value-added services and strategic operations.

But the eyefortransport survey paints a very different picture of how 3PLs and their customers view those services and the status of their business relationships.

While 36.8 percent of logistics providers said they maintained a 90 to 100 percent contract renewal rate, manufacturers and retailers reported significantly lower numbers. Indeed, only 16.1 percent of manufacturers and retailers reported renewal rates in the 90 to 100 percent range.

“Customers are not seeing the benefits of differentiation and value-added services we’ve been hearing from 3PLs over the past few years,” eyefortransport said.

Eyefortransport does note, however, “3PL services may be commoditized, but they’re not doomed.”

The study suggests that while manufacturers and retailers are still not entirely satisfied with the value-added services 3PLs are providing, new technologies could give them the break they’re after.

According to the report, 32 percent of manufacturers and retailers expect their 3PL to have at least some knowledge of augmented reality. Another 30 percent said they expect their logistics provider to have at least some knowledge of drone delivery.

The bulk of 3PL respondents said they are not yet exploring drones, 3D printing, driverless vehicles, augmented reality or similar innovations.

“What is interesting is that a not insignificant number of respondents have expertise in each of these four technology spaces,” eyefortransport said, “and respondents for all except augmented reality are already currently providing expertise, knowledge and services in these areas.

This could be an insight in how the industry will persevere through the trials of commoditization, eyefortransport said.

“Service-level required is greater and greater, margins are squeezed, contracts are short and customers are demanding more than ever,” the report concludes. “However, the 3PL industry is coming to a crossroads.

“With real innovation on the horizon, potential abound, we look toward 2015 to see improved partnerships, increased revenues, and more value in logistics services.”