Supply chain management: Tough year in the 3PL market, but better days ahead

Every year around this time, Modern publishes a special report on the top 20 public and refrigerated warehouse providers in the country. This year’s report by Lorie Rogers will be one of the highlights of our November issue. Keep an eye out for it.

Also around this time, Dr. Robert Lieb, a professor of supply chain management at Boston’s Northeastern University, publishes an annual survey of CEOs from the 3^rd party logistics industry. For this year’s report, sponsored by Penske, Lieb analyzed responses from 35 third-party logistics company CEOs across North America, Europe and the Asia-Pacific (APAC) regions. Combined, their companies generated about $64 billion in revenue last year.

I’ve been reading the survey for the past 10 years. It’s not only a retrospect on what happened last year – in case you couldn’t figure it out on your own, the 3PL business was in the tank in 2008 – but one of those data points about what business might look like next year. After all, if the 3PL business is quiet, the economy probably isn’t doing much. On the other hand, if 3PL warehouse operators and shippers are optimistic, we might be pulling out of this. Through the doom and gloom, Lieb found a glimmer of optimism among the crop of CEOs who responded to this, his 16^th annual survey. 

Yes, these execs expect continued consolidation, pricing pressures and operational reductions going forward. At the same time, “the opportunities for improved collaboration with customers, expansion into emerging markets and the possible addition of new management talent have many excited about the next several years,” Lieb wrote.

Here are some of the highlights that caught my attention:

* Industry growth: The executives see continued challenges in the short term, including negative growth in Europe. But they also see good times ahead, with average 3-year growth for the industry of 7.9% in North America, 4.9% for Europe and 11.7% for APAC. In my view, those are solid numbers.

* Client relationships: Even before the recession, 3PLs were pressured to reduce their prices. That has only intensified: the CEO’s reported that about 1/4^th of their business relationships had become more adversarial. The good news, 1/3^rd of their business relationships had become more collaborative. You’re always going to have some clients who are only focused on getting the cheapest possible price, but it appears as if an equal or greater number are looking to build a relationship. That should lead to better logistics. As the economy improves, it could also enable the 3PLs to be choosier about who they work with.

* In-sourcing is underway: Nearly 25% of CEOs in North America and Europe had taken steps to short their supply chains. Twenty of the 35 CEOs also reported that some of their major clients had shifted some of their manufacturing activities from Asia to North or Central America or Easter Europe. “The scale of that shift is small at this point,” Lieb reports, “but many of the CEOs expect the trend to grow over the next several years.” It’s a trend they’re calling reverse globalization. I don’t know whether we’ll see manufacturing come back to our shores, but reverse globalization opens some doors.

* Green is still around: 25 of the 35 CEOs reported that their companies had launched new sustainability initiatives during the year and 22 had expanded existing programs. None said they had scaled back their existing programs. We’re still trying to ge a handle on what’s real and what’s talk when it comes to sustainability, but their appears to be a commitment of some type among these CEOs.

To read the full executive summary, click here.