Third-party logistics market still growing

Northeastern University's annual survey of 3PL CEOs predicts continued growth for the industry, with some surprising shifts.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 10/30/2007

The CEOs of the leading third party logistics providers (3PLs) remain optimistic about the prospects for their companies and for the 3PL industry over the next year.

That is one of the findings from “The North American Third Party Logistics Industry In 2007: The Provider CEO Perspective,” an annual survey of 40 industry CEOs from Dr. Robert Lieb, a professor of supply chain management at Boston’s Northeastern University. Lieb has been surveying the 3PL industry since 1994. The annual survey, sponsored this year by Penske Logistics, is a snapshot of the areas of growth and trends in the industry according to its biggest players.

The CEOs made the following one-year revenue growth projections for their companies:

• 12.9% for North America
• 12.5% for Europe
• 28.8% for Asia-Pacific

And they made the following projections for the industry:

• 11.1% growth for North America
• 7.5% growth for Europe
• 12.9% growth for Asia-Pacific

While the industry is growing considerably faster than the economy as a whole, Lieb sees a more tempered view this year. “While the CEOs in all three regions continue to be quite bullish about future revenue growth prospects of not only their companies but also the regional 3PL industry, their growth projections have become more modest over the past several years,” he reports.

It comes as no surprise that globalization remains a major driver behind the expansion of the 3PL industry. Lieb expects to see more growth coming from South America, intra-Asian activities and Eastern Europe/Russia.

What is a surprise is that while much of the news today is about the shift in manufacturing to China, 3PL CEOs are beginning to see a shift from Asia back to low-cost producers in the Americas. Eight of 21 respondents said their major manufacturing accounts were shifting some operations back to North and Central America, including Mexico. “All respondents indicated that the impact so far has been minor, but that the trend is likely to continue,” Lieb reports.

Finally, 3PL providers are showing little interest in the adoption of RFID, with only a small percentage of providers piloting the technology. The reasons: the costs are too high and the value to be generated is too low.

The impact of globalization came as no surprise to Vince Hartnett, president of Penske Logistics. “Globalization is one of the most important underlying dynamics driving our business,” Hartnett says. But it’s not just driving out costs and complexity that is turning companies to outsource their global supply chains. “Our customers are trying to drive standard business processes,” says Hartnett. “They no longer want to treat their international flows as unique supply chains. They want a truly global supply chain that operates the same in Asia as it does in North America.”