Inbound Logistics Market Insight Survey: 3PL Perspectives

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IL's annual 3PL Market Insight Survey offers a penetrating perspective into the market drivers governing 3PL growth strategies

You are now venturing into the deepest end of the outsourcing analysis abyss we call the 3PL Zone.

IL's annual 3PL Market Insight Survey offers a penetrating perspective into the market drivers governing 3PL growth strategies—in terms of operational scope, as well as the types of services and technologies logistics providers are investing in to meet outsourcers' evolving needs.

This year, Inbound Logistics collected more than 500 surveys from a wellspring of logistics service providers, ranging from large, global players serving Fortune 500s to small intermediaries serving niche verticals—and all types in between.

We also heard from a remarkable 4,626 readers, who discussed their logistics services needs and demands, supplying feedback on nearly 400 specific 3PLs.

Together with our annual Reader's Choice Top 10 3PLs and Top 100 3PL Providers, the 3PL Market Insight Survey presents a broad perspective into how the outsourcing industry is evolving, how logistics service providers are taking operational capabilities to a new stratum of sophistication, and most importantly, how they perceive customers' needs and challenges.

Global Services

The efficacy of supply chain expertise is flooding myriad industry verticals from traditional visionaries—notably sectors such as manufacturing (served by 97 percent of 3PLs surveyed), distribution (92 percent), retail (88 percent), and wholesale (66 percent)—to slower adopters such as the service and government niches.

Regardless of industry, globalization continues to shape the arc of outsourcing trends as businesses large and small leverage 3PL expertise and best-of-breed IT capabilities to penetrate and grow their interests in established and new offshore locations.

Nearly half (48.4 percent) of all 3PL respondents offer global services, reflecting a slight increase over last year's data.

Forward-thinking companies are not only leveraging 3PL penetration in foreign markets to augment and rationalize their sourcing and manufacturing networks, but also to strategically map these logistics hotspots to emerging consumer markets.

3PLs are slowly investing in IT capabilities that can address these strategic goals, with 18.4 percent offering global expansion services specific to sourcing and selling needs, and 40 percent providing global trade services.

Global 3PLs are approaching their own growth initiatives in two ways: seeking alliance partners that offer complementary service capabilities and operational capacity, and investing in proprietary offices and facilities worldwide.

The majority of 3PLs offering global services are taking the latter approach—81.3 percent of participants indicate they own facilities outside the United States.

Large 3PLs that specialize in ocean and airfreight forwarding are likely to have more offices in more places—17.3 percent of responding global 3PLs report operating more than 100 international facilities.

Smaller 3PLs are growing their global presence in a more organic way, following specific customers or vendors into new markets, with 36.5 percent of respondents indicating they maintain less than 10 offshore locations.

The majority (46.2 percent) of global logistics service providers fall somewhere in the middle, operating between 10 and 100 international sites.

The expansion of global supply chains, and the proliferation of 3PLs capable of managing specific functions and operational areas within the demand/supply network, give manufacturers and retailers an abundance of outsourcing options.

Many companies now use multiple 3PL partners to manage and control specific regional operations, niche verticals, or specialized logistics needs.

This trend has accordingly paralleled growing demand for service providers that offer lead logistics and 4PL capabilities—76.7 percent of respondents report such capacity, a 6.9-percent increase over last year.

Offshoot of Offshoring

Offshoring has alternately required companies to reconsider their stateside distribution networks to better integrate the inbound flow of product through import facilities, streamline transportation moves and total landed costs, and better match demand to supply.

Varying capacity and congestion concerns at U.S. West Coast ports, in particular, have some stateside consignees routing shipments through Mexico and Canada, and growing NAFTA volumes are contributing to this dynamic.

This trend reflects the fact that 40.9 percent of surveyed 3PLs focus solely on North America, and U.S.-only service providers are shrinking (10.8 percent this year, compared to 13.8 percent in 2006).

The importance of driving supply chain and transportation efficiencies from the point-of-origin has never been greater and has necessarily compelled 3PLs to shape their global solution portfolios with stateside consignees in mind.

Inbound logistics and integrated logistics services rank high among service providers, with 88.6 percent and 83 percent respectively offering capabilities in these areas. Both figures represent marked growth over last year's reported data.

Taking Inventory

Companies are also looking to more efficiently rationalize inventory in the pipeline to counter potential supply chain disruptions and shifting consumer demand. The number of 3PLs providing inventory management capabilities (76 percent) reflects a nearly 10-percent increase over last year.

Just-in-time (JIT) strategies and service capabilities, by contrast, are losing some luster (67 percent of 3PLs offer JIT compared to 70.8 percent in 2006) as manufacturers and retailers balance the business costs of running lean with customers running out of stock—and running to other 3PLs.

Demand for sophisticated information technology is expectedly keeping pace with the evolution of strategic supply chain tactics. Logistics service providers are rapidly building their IT capabilities to create value for outsourcers, as well as to help them engage in increasingly complex supply chain initiatives.

Dovetailing technology needs and strategic designs account for growth among 3PLs offering vendor management and product lifecycle management solutions, with 75 percent and 45 percent of respondents providing these forward-thinking solutions—a jump of 14 percent and 8 percent, respectively, from last year.

This upward trend reflects the increasing dependence outsourcers place on their 3PLs to engineer prescriptive solutions that radiate further into the supply chain.

Working closer with vendors and suppliers enables stateside shippers to leverage greater control over inventory to help them better forecast volume, control supply as demand varies or when disruptions occur, and reduce total landed costs.

Public and private initiatives aimed at "greening and leaning" the supply chain have similarly heaped pressure on companies to examine ways they can more efficiently manage and control products during their entire lifecycle.

The European Commission, for example, has mandated that European appliance and electronics manufacturers assume responsibility for products after they have outlived their expected use.

In time, U.S. manufacturers may face similar directives, placing additional emphasis on product lifecycle management as well as reverse logistics—a service which 74 percent of 3PLs currently offer.

Transportation & Technology

The trials and travails of managing complex freight movement continue to yield growth opportunities for 3PLs with solid track records in transportation management.

The uncertainty of fuel prices and truck capacity, and the certainty of fewer drivers and higher equipment costs, inevitably push shippers to outsource non-core transportation activities.

On the domestic front, truckload (TL) and less-than truckload (LTL) services are in high demand, offered by 94.9 percent and 91 percent of 3PLs.

Reducing transport spend is still a top priority for outsourcers, but with rigid fuel costs and capacity constraints, 3PLs need to look around corners to squeeze out costs.

Fortunately, the railroads have been working on the railroads, and intermodal solutions are becoming a more integral component of the U.S. transportation mix.

Compared with last year's data, 3PLs catering to rail (69.7 percent) and intermodal services (84.3 percent) are up 7.3 percent and 3.2 percent, respectively.

In heavily congested areas or where trucks are scarce, shippers can leverage rail/intermodal solutions to access capacity and negotiate cheaper rates by taking long-haul cargo off the highway.

Multi-modal logistics services also promise to be a boon for 3PLs capable of managing inbound product flow through congested ports with innovative transport solutions.

The growth and proliferation of inland ports in or near major import locations—many of which are served by both rail and road—offer shippers a more efficient way to transship product to less congested areas where it can clear customs and be consolidated for final distribution.

3PLs are also investing and growing a portfolio of specialized services such as import/export/customs (69 percent), direct-to-store (75 percent), and direct-to-home (48 percent) that facilitate and expedite the inbound movement of products to points of consumption.

When shippers have less leverage in terms of time and modal hand-offs, but have predictable capacity and are willing to pay for it, dedicated contract carriage (DCC) services, which 66.3 percent of 3PLs offer, are another option.

Is Asset-Based an Asset?

Given the difficulties companies often encounter trying to locate capacity, asset-based 3PLs have long touted their leverage in accessing equipment as a major selling point.

However, a near equal amount of service providers—43.5 percent vs. 41.9 percent—identify themselves as "non-asset based" and "both asset- and non-asset based."

Non-asset based 3PLs traditionally bring a more objective approach to securing capacity, which cost-conscious shippers can appreciate. 3PLs that own assets, but are willing to procure outside equipment per customer needs, offer a compromise.

Just as global strategy and technology go hand in hand, transport-focused 3PLs are investing in mission-critical communication and visibility technologies to expand their value proposition to customers.

Electronic data interchange and visibility technologies remain industry standards, with 92 percent and 78 percent of 3PLs offering these services. Both numbers reflect marginal growth over last year.

Widespread use of these technologies has essentially rendered them mainstream, and shippers have come to expect these types of capabilities as standard applications.

Pushing the Envelope

Inevitably, 3PLs are pushing the IT investment envelope further to placate shipper concerns over rising freight transport costs.

Web enablement—which includes e-fulfillment, e-operations, and e-SCM—is becoming a common service offering among 3PLs, especially as their customers migrate away from legacy systems.

Internet-based supply chain solutions present shippers with user-friendly interfaces for enhancing total visibility, streamlining product movement, and forecasting demand—as well the capabilities to share and communicate this information with disparate business partners.

Among service providers polled, 64 percent offer solutions in this area.

The emerging promise of sophisticated supply chain technologies such as RFID/wireless and customer relationship management solutions are gradually gaining traction in the 3PL space as well.

Shippers have traditionally been cautious about engaging and investing in these innovative, but costly, IT tools. 3PLs are helping to allay some of these concerns, with 68 percent and 57.2 percent offering services in these respective niche technologies.

Warehousing and Distribution

As a result of growing unpredictability and pressure to reduce costs, global companies are diversifying their offshore sourcing and manufacturing operations to create additional flexibility and scalability.

This, in turn, means stateside consignees are charged with designing and integrating U.S. distribution networks that properly interface with global networks so they are equally responsive to shifting demand and supply conditions.

Outsourcing is often the most efficient and economic approach to engineering these strategic changes and third-party logistics providers are increasingly capable of managing warehouse and distribution operations, with 80 percent of providers offering DC management services.

Faced with the diverging challenges of ensuring supply pipelines remain reliable and viable while reducing total landed costs is no small task.

Resigned to the fact that transportation management processes leave little room for efficiency and cost savings, companies are considering two approaches to rationalizing their global warehousing and distribution networks.

First, companies are looking beyond the four walls to identify how and where they should locate product to best match demand with supply. For some companies this means staging inventory further back in the supply chain and placing more responsibility on their supply partners.

As a result, 3PLs offering vendor-managed inventory capabilities are growing in number, with 55 percent providing services in this area.

On the domestic front, companies are leveraging third-party expertise to identify sites suitable for distribution and warehouse facilities.

After choosing an appropriate location, companies are then challenged with finding the best strategy for getting the facility up and running.

Should they invest in and build their own? Lease or purchase an existing facility? Or partner with a developer to design and build a new facility for lease? Nearly 60 percent of 3PLs offer location services to address these concerns.

A second approach to optimizing distribution efficiency is reengineering processes and systems within the four walls to expedite product movement and inventory turns.

Companies often look to system enhancements including innovative pick/pack and subassembly machinations, or more strategic initiatives such as crossdocking, to increase productivity, reduce errors, and improve the flow of inbound and outbound product movement.

Accordingly, 81.4 percent and 72 percent of 3PLs provide solutions and services in these respective operational functions.

Choosing the Top 100 3PLs

Now that you have the inside scoop on the ebb and flow of global outsourcing trends, Inbound Logistics takes you straight to the source: our annual Top 100 3PL Providers list.

Choosing the Top 100 is never easy, and the responsibility becomes increasingly difficult year after year, as the pace of change and the number of new service providers willing to tempt fate in the 3PL Zone grows.

This year, we streamlined our list from more than 500 companies through a diligent process of collecting and evaluating surveys, personal interviews, and online research.

The service providers we selected are companies that offer the diverse operational capabilities and experience to meet readers' unique needs.

Whether you use this index purely as a reference or as a navigational beacon to steer your company into the new dimension of global outsourcing, we hope it puts the market in perspective for you.

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