The 2016 3PL CEO Survey: Growth, but headwinds to come

The March issue of Supply Chain Management Review featured The 2016 3PL CEO Survey: Threats, Disruptions, and Opportunities, the annual survey conducted by Robert C. Lieb of the CEOs of fourteen of the largest third-party logistics (3PL) companies serving the North American marketplace. Launched in 1994, this marked the 23rd iteration of Lieb’s survey. The SCMR article focused on the threats, disruptions and opportunities confronting 3PL CEO’s as they grapple with e-commerce, new technologies such as 3D printing, West Coast port issues and the political uncertainty emanating from Washington. Yet, Lieb’s study also included research into other areas. Over the next several weeks, we’ll be publishing the rest of the survey here on SCMR.com. Bob Trebilcock, editorial director.

The Financial State of the Regional 3PL Industry

All in all, 2015 – the year reviewed for this survey - should be looked at as a financial success; but, as we’ll note shortly, financial headwinds may be in the future. All fourteen participating companies* were included in last year’s survey, providing an apples-to-apples comparison. Moreover, all fourteen reported revenue data. Collectively, they generated approximately $19.8 billion in North American revenues during 2015, representing more than ten percent of the estimated $190.1 billion revenue base of the region’s 3PL industry.

The CEOs were asked to categorize the success of their companies in meeting their North American revenue growth projections during 2015. In response five (36%) reported their companies exceeded projections, five (36%) indicated they met their projections, and four (28%) reported their companies failed to meet their projections. The CEOs were next asked to categorize the profitability of their companies’ North American business units during 2015. Two (14%) reported their companies had been very profitable and twelve (86%) said moderately profitable.

For the sixth year in a row all the companies participating in the North American surveys were profitable. As we have observed in previous years, despite the failure of some 3PLs to meet their regional revenue growth projections, they were still able to generate profits. To a great extent, that has been a function of the ability of those companies to adjust the scale and cost of their operations to volume, and a continuing focus on the quality of their customers. As we have shown in earlier papers many large 3PLs have devoted considerable attention to identifying their most important customers not only in terms of volume, but also in terms of yield. Having done so, the 3PLs then determine the necessary steps to build stronger relationships with those key customers.

The more asset-heavy a 3PL is, the more difficult it is to make those scale adjustments during down periods. CEO views were also solicited concerning their perceptions of the profitability of the North American 3PL industry as a whole in 2015. One (7%) categorized the regional 3PL industry as having been very profitable and the other thirteen (93%) believed it had been moderately profitable for the year. However, the one-year company and regional 3PL industry revenue growth projections of these CEOs indicate they expect 2017 to be a year of slow growth. But, they are substantially more optimistic about growth in the three-year time frame. In next week’s installment, we’ll look at how mergers and acquisitions are shaping the industry. Robert C. Lieb, Ph.D. is a professor of Supply Chain Management at the D’Amore-McKim School of Business, Northeastern University. He can be reached at [email protected]. Author’s note

*3PLs participating in the survey included:

• Agility Logistics
• APL Logistics
• Cardinal Logistics
• Coyote Logistics
• DHL Supply Chain
• DSC Logistics
• MIQ Logistics
• Nippon Express
• Transplace
• UPS Supply Chain Solutions
• Werner Logistics
• XPO
• Yusen Logistics (Confidential).*