CSCMP 2014: Dr. Robert C. Lieb 2014 3PL Provider CEO Perspective

North American, European and Asia-

Pacific Markets for 3PL Services:

2014 3PL Provider

CEO Perspective

Dr. Robert C. Lieb Professor

Northeastern University

Dr. Kristin Lieb Associate Professor

Emerson College

Joe Carlier Senior VP of Sales

Penske Logistics

Discussion Topics

• Introduction to the Surveys and Findings

• Summary of Major Regional Findings

– North America

– Europe

– Asia-Pacific

• Other Key Findings

• Observations and Expectations

2012 Third-Party Logistics Provider

CEO Surveys

• This is the 21st iteration of these surveys.

• 27 CEOs of the world’s leading 3PLs participated in the

three regional surveys.

– North America, Europe, and Asia-Pacific.

• Collectively their companies generated approximately

$46 billion in 3PL revenues in those markets in 2013.

• The surveys provide insights to the 3PL industry:

– Global overview from the CEO perspective.

– Regional market specifics, allowing comparisons

across geographies.

NORTH AMERICAN

SURVEY RESULTS

North American Respondents

CEO Participants

• Agility Logistics

• Cardinal Logistics

• DHL Exel Supply Chain

• DSC Logistics

• Kuehne + Nagel Logistics

• Menlo Logistics

• MIQ Logistics

• Penske Logistics

• DB Schenker

• Transplace

• UPS Supply Chain Solutions

• UTi Integrated Logistics

• Werner Logistics


Performance to Growth Objectives

Exceeded

Exceeded Exceeded

Met

Met

Met

Failed to Meet Failed to Meet

Failed to Meet

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013


3PL Profitability

None of these companies reported a loss in 2013, and all CEOs believed the regional 3PL industry was profitable for the year.

Company Performance

• 2 very profitable

• 10 moderately profitable

• 1 broke even

Industry Performance

• 1 very profitable

• 12 moderately profitable


Industry Dynamics

• More near shoring, particularly APAC to

Mexico

• Capacity shortages in many markets

• E-Commerce growth

• Amazon effect on supply chain marketplace

• Talent management challenges

• Labor issues in trucking/maritime industries

• Regulatory changes and their impact

• Constant pressure to upgrade technology

North American Industry Dynamics

Near Shoring

• Responses similar to last year

• 10 /14 CEOs said some key NA customers moving back from China to Mexico

• Reasons:

– Chinese wages

– Mexico becoming a “better value” (incentives)

– Shorter supply chains

– Increasing transportation costs

• Nearly 1/3 reported increased revenues related to near shoring

• Industries involved:

– Automotive (5), consumer goods, telecom, high tech, and industrial products

• CEOs: near shoring will increase significantly in next three years


Regional Market Opportunities

• Expanded support of E-Commerce

• Expansion of tech support for customers

• Growth of dedicated common carriage as private fleets shrink

• Emphasis on multi-client facilities and services

• Growth in Mexico and southern border trade

• Expansion of port-related services in Mexico/Canada

• Rebuilding automotive business in U.S. and Mexico

• Development of innovative and repeatable solutions to drive improvements in customer supply chains


Most Significant Problems

• Finding and keeping management talent

– The most significant problem (8 “Top 3” mentions)

• Continuing margin pressures

• Coping with capacity shortages

• Weak balance sheets and low ROI

• Difficult to build global capabilities

• Hard to find qualified and affordable

acquisition candidates


Transportation Capacity Issues

• Transportation capacity problems—yes—9/14

• Multiple modes involved:

– 7 truckload, 4 intermodal, 2 LTL, 1 rail

• Markets most heavily impacted:

– National markets due to driver shortages

– TL in Northeast and Southeast, West Coast ports

• Impact on 3PLs and their customers:

– Higher rates

– Longer transit times

– Difficulties meeting on-time service goals and cost targets

– Shifting freight to more expensive modes

Most Significant Problems Capacity Issues (continued)

Steps taken to address capacity problems:

• Developed core carrier strategies to lock in capacity

• Network design enhancements supporting less reliance upon constrained modes

• Developed alternative routes and improved service agreements with carriers

• Regular dialogue with key customers on their challenges, forecasts and developing needs.

• Pushing cross-border intermodal services

• Urging customers to be “mode agnostic”

• Supporting customer moves from JIT deliveries to give more flexibility in their supply chains

• Charging customers more for unanticipated surges

• Working with customers to collaboratively fill capacity


E-Commerce

• 11/14 support customer E-Commerce activities

• Two have a separate E-Commerce business unit

• Major E-Commerce opportunities

– Provide forward stocking locations

– Offer same day order processing and shipping

– Support last mile delivery services

– Expand fulfillment services

– Help small start-ups to achieve scale

– Provide real time shipment visibility (B2B)

– Offer returns, repairs, reverse logistics

– Support omnichannel activities of traditional retailers

E-Commerce

Problems and Risks

• Many related activities are labor-intensive

• Labor requirements likely to vary significantly over time

• Significant capital cost requirements

• May be difficult to achieve scale; start up issues

• Complexity of direct to consumer B2C activities

• Requires broad range of services--security/liability issues

• B2C is very different than B2B

• Operations must be very market responsive, difficult to plan and level load activities

• Substantial risk of failure of smaller E-Commerce companies


Significant Market Developments Last Year

Most often cited…

• E-Commerce expansion—growth of fulfillment needs

• Affordable Care Act implementation—cost impact

• More customer interest in collaboration—shared

warehousing and transportation

• Ongoing labor problems at West Coast ports

• Driver shortage in major sectors of trucking industry

• Rapid technological changes

• Development of better sustainability metrics


Expected Market Changes Next Year

• More 3PL consolidation

• Intensified capacity issues in some markets

• Driver shortage will worsen

• More emphasis on multi-client transportation networks and shipment collaboration

• Accelerating growth of E-Commerce, particularly B2B

• More activities closer to major markets

• More emphasis on speed of fulfillment

• More small DCs spread over larger areas

• Growing pressure to increase technology spend

• Greater impact of security measures on design and execution of supply chains

North American Respondents Revenue Growth Forecast

11.5%

14.6%

10.4% 10.8%

1-Year

Projection

3-Year

Projection

COMPANY LEVEL INDUSTRY LEVEL

6.6%

8.3%

6.6% 6.5%

1-Year

Projection

3-Year

Projection

2013 2014 2013 2014 2013 2014 2013 2014

EUROPEAN

SURVEY RESULTS

European Respondents CEO Participants

• Agility Logistics

• DHL Supply Chain

• Menlo Logistics

• Neovia Logistics


• Rhenus Contract Logistics



European Respondents

Performance to Growth Objectives

Exceeded

Exceeded Exceeded

Met

Met

Met

Failed to Meet

Failed to Meet

Failed to Meet

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014


3PL Profitability

Two CEOs reported their companies were unprofitable in Europe in 2013; but none believed the regional 3PL industry lost money during the year.

Company Performance

• 4 Moderately profitable

• 1 Breakeven

• 2 Moderately unprofitable




Status of the European Economy

• European 3PL market has not rebounded significantly in past

year—unanimous

• Some customer in-sourcing taking place

• Little near shoring; several CEOs believe it will become significant

in longer term

• 3PL growth primarily in Eastern Europe, some growth in Germany, Belgium and the Netherlands

• Some 3PL growth coming from automotive, life sciences, E-

Commerce, and traditional retail sectors


Russian 3PL Market

• Five 3PLs operate in Russia

• Opportunities:

– Supporting healthcare and retail industries

– Providing warehousing services

– Providing logistics services to support growth of domestic markets

• Observation: large population, and immature market

• Many risks in Russia:

– Major political risks

– Significant customs problems (frequent delays for inbound Western products)

– Lax corporate code of conduct

– Lack of good property

• Ukraine issues make it difficult to justify further investments in Russia


Industry Dynamics

• Stagnant economic conditions—crisis

countries

• Growth of E-Commerce

• Rising 3PL costs

• Low 3PL profitability

• Greater demand for 3PL flexibility

• Longer client decision cycles

• Shorter contracts

• Slower growth in China impacting Europe



• Supporting E-Commerce growth

• Growth in life sciences industry

• Transform customer fixed costs to variable costs

• Expansion of value added services

• Consolidation of existing facilities

• Grow volume in stabilizing European economies

• Support growing European trade with Africa



• Intense competition in slow/no growth markets

• Right-sizing operations in Europe

• Managing aftermath of poor forecasts

• Differentiating company services in marketplace

• Rising labor costs in some markets

• Talent development issues

• Expanded role of Purchasing in selecting 3PLs

• Customers want shorter contracts

European Respondents E-Commerce

• Six serve E-Commerce customers

• One has separate E-Commerce business unit

• E-Commerce accounts for 4.5% of revenues

– Forecast to grow to 12% in three years

• B2B is 59% of revenues, and B2C is 41% of revenues

European Respondents E-Commerce

• Services Provided

– Fulfillment services

– Warehousing

– Pick/pack

– Order preparation

– Sorting

– Shipping

– Returns management

– Parcel deliveries

– Front end web support

– Last mile delivery

– Including delivery to lock

boxes and pack stations

• Opportunities

– Multi client warehousing

– Last mile delivery services

– Consulting

– Multi channel management

– Order management

– Funds and information management

– Value added services and reverse logistics

• Risks

-Small customers

-Large investment required

-Unpredictable market

-Amazon



• Increased E-Commerce activity

• Economic recovery continued to move slowly

• Growing perception of commoditization of 3PL

services—less appreciation for value added services

• Increased pressure on 3PLs to be more flexible, agile

• Reduction of customer stock levels

• New security requirements

• More supplier alliances



• Slow growth

• Resumption of 3PL consolidation movement

• Emergence of greater 3PL global consistency

• Even more supplier alliances

• Increased emphasis on closer relationships

with key customers and suppliers

• More customer movement toward in sourcing

6.4%

10.3%

7.7% 8.3%

1-Year

Projection

3-Year

Projection


4.1%

5.9%

4.0% 4.2%

1-Year

Projection

3-Year

Projection

2013 2014 2013 2014 2013 2014 2013 2014


Revenue Growth Forecast

ASIA-PACIFIC

SURVEY RESULTS

Asia-Pacific Respondents

CEO Participants

• DHL Supply Chain

• Menlo Logistics





3PL Revenues and Profitability

Three met or exceeded regional revenue projections

in 2013. One was unprofitable; one believed the

regional 3PL industry was unprofitable for the year.

Company Performance







Industry Dynamics

• Continued regional growth

• Ongoing concerns about global economy

• Substantial increase in E-Commerce activity

• Significant shifts of customer activity in region

• Infrastructure problems in emerging economies

• Uncertain political environment in the region

• Rising labor costs and related labor problems

• More discussion of near-shoring

• More intense competition with local 3PLs


Important Observations on China

• 3PL business in China continues to become much less

import/export oriented

– 3PL revenues now 42% import/export activities and 58% related to domestic distribution/consumption

• Several CEOs noted some customer shifts of manufacturing

within Asia and to Mexico

– Singapore, Malaysia, Vietnam, Thailand

• Two companies reported following customers from China to

new locations


Vietnam

• Three respondents operate in Vietnam—new market

OPPORTUNITIES: provision of national transportation services,

service major hypermarket chains, expanding operations from

Thailand, support manufacturers with VMI, Lean, supplier

management, import/export, international freight services, small

package delivery

RISKS AND PROBLEMS: certain areas of logistics not fully open to foreign companies (i.e. trucking), shortage of English-speaking

supply chain talent, infrastructure issues, tight regulations,

compliance issues, fraud, corruption


Thailand

• Five respondents operate in Thailand

OPPORTUNITIES: service automotive, consumer, high tech, retail,

pharmaceutical, agribusiness, and industrial markets; domestic

distribution for retail and consumer sectors

RISKS AND PROBLEMS: highly uncertain political environment,

potential violence, tight labor market for highly skilled managers, high employee turnover, very competitive marketplace

Only one company reported any disruptions from military coup;

but, hard to make Thailand a priority with existing instability



• Support growth of E-Commerce and fulfillment

• Focus on supporting growth of intra-Asian trade

• Provide LLP services to assist global customers in

fragmented emerging markets

• Bring new logistics concepts to the region

• Market one-stop shopping capabilities

• Provide ground transportation services in emerging

markets

• Offer transportation management services to new customers



• Poor infrastructure in emerging markets

• Low quality ground transportation in some markets

• Too many players in the 3PL marketplace

• Depressed margins can’t justify long-term investments

• Political uncertainty in some countries

• Shortage of logistics talent

• Rising labor and real estate costs in several countries

• Many customers have short-term focus that impacts

contracts/relationships


E-Commerce

• Four provide E-Commerce support to customers

• One has separate business unit to serve E-Commerce

• Related revenues are 3.25% of current revenue base,

projected to be 14.5% in three years

• E-Commerce revenues: 78% B2B and 22% B2C

• Most frequently provided support services: managing order

and delivery, warehousing, transportation between DCs,

support of B2C activities through small package delivery

network, contract logistics services


E-Commerce (continued)

• OPPORTUNITIES: order fulfillment, E-Store management,

distribution/delivery, warehousing, technology, supply

chain design, transportation management, backroom support, and financial services

• PROBLEMS AND RISKS: fulfillment often very capital

intensive, many small customers with high risk,

achieving consistent service levels, particularly during peak promotional seasons, large stakeholders with

huge sums of capital entering the market—Alibaba

and Rookie Network in China



• Regional economic slowdown did not materialize

• 3PL market conditions stabilized and opportunities

increased

• Regional 3PL industry on better footing, some 3PLs have

recapitalized or received new funding through IPOs

• E-Commerce expansion

• Problems in emerging markets due to poor

infrastructure

• Many 3PL customers now focused on development of

short term strategies

• Increased customer demand for supply chain visibility



• Continued growth

• Further regional 3PL consolidation

• Asian 3PLs may lead that movement

• Many smaller 3PLs with financial problems will fail

• Logistics practices will focus on lean and flexibility

• More companies looking for alliances and joint venture

partners in China

• Continued expansion of E-Commerce activity

9.0%

11.6%

15.0%

16.2%

1-Year

Projection

3-Year

Projection


8.6% 8.0%

7.6%

10.4%

1-Year

Projection

3-Year

Projection

2013 2014 2013 2014 2013 2014 2013 2014

Asia-Pacific Respondents Revenue Growth Forecast

OTHER KEY FINDINGS

2014 CEO Survey

Other Key Findings

Mergers and Acquisitions

Environmental Sustainability

Is Amazon a 3PL?

Observations and Expectations

Questions

Other Key Findings

Mergers and Acquisitions

• Only 3 of the 27 CEOs

reported significant

M/A activity during the

past year

5%

12%

7%

NA EU APAC

Expected Revenue Growth

from M/A, Next 3 Years

Other Key Findings

Mergers and Acquisitions (continued)

Recent surveys: CEOs indicated M/A activity would accelerate

in all three regions, but that hasn’t happened. Why not?

CEO responses:

• Increased skepticism concerning potential benefits

• Previous acquisitions had major integration problems

• Many global 3PLs now have scalable base to grow

organically, don’t need acquisitions to support growth

• Few attractive M/A candidates

• Potential targets are generally overpriced

• Economic uncertainty of the 3PL marketplace increases risk

• Many regional 3PLs are privately held

Other Key Findings

Environmental Sustainability

• 3PL involvement in sustainability issues continued to expand

– 15 CEOs reported expanding existing sustainability projects: measurement tools, co-loading programs, C-level sustainability executives, natural gas units, automatic transmissions, modal shifts, facilities

– 10 of 27 companies launched new sustainability initiatives during 2013: carbon neutral initiatives, benchmarking, alternative fuel vehicles, solar power for facilities, new sustainability officer position, Green Freight Asia

– 8 plan to launch new sustainability initiatives in 2015: facility redesigns, fleet conversions, closer alignment with customer “green” goals

Other Key Findings

Is Amazon a 3PL?

Amazon’s Impact on Supply Chain Management

• High speed delivery programs have raised customer service level expectations

• Created buzz around same day delivery

• Its “free” two day delivery program under Amazon Prime has been a game changer

• Those programs are driven by marketing goals and do not cover the related transportation costs

• Those programs have impacted UPS, FedEx and DHL by reducing the requirements for expedited services

• Its online fulfillment services have supported entry of many new online retailers

• That has fostered much greater aggregate demand for such fulfillment services

Other Key Findings

Is Amazon a 3PL? (impact continued)

• Amazon’s aggressive marketing has led many retailers

to pursue omnichannel strategies to compete with it

• It’s driving 3PLs development of short and long-term strategies to support their B2C and B2B customers

• Its aggressive infrastructure build-out has shortened

delivery cycles

• Amazon’s market clout “kills firms with low prices.”

• It has shown the power of bringing a broad range of

supply chain resources under one platform

• It has demonstrated value of supply chain visibility to

many new online retailers

Other Key Findings

Is Amazon a 3PL? (CEO views)

• Ten respondents provide logistics services to Amazon

• Those services include: distribution, value added warehousing, transportation services, bulky goods fulfillment, and import/export services.

• Amazon employees work in one 3PL facility!

• Ten said Amazon has already had an impact on the 3PL industry

• Less than half would identify that impact.

• Those that did identified the following:

-many startups use Amazon instead of 3PL; Amazon driving change in supply chain practices and forcing 3PLs to rethink their service offerings; Amazon’s volume and the demands it places on carriers has caused availability and delay problems for some 3PLs; Amazon Supply threatens some B2B business now handled by 3PLs

Other Key Findings

Is Amazon a 3PL? (continued)

• Seven CEOs believe Amazon is a 3PL!

• Six believe there is already competition between Amazon and 3PLs

• Nineteen CEOs believe Amazon is a potential competitor for 3PLs.

They see potential competition in several areas.

– Its continued expansion of warehousing, distribution services, order fulfillment and transportation services might pose a threat across a broad range of 3PL services

– Amazon’s platforms support entrance of many new shippers into the marketplace—easy for it to capture their demand for supply chain services

– An Amazon fleet to support same-day delivery might also be used to compete with 3PLs that are transportation focused

– Amazon Supply could take B2B industrial customers from 3PLs

– Amazon might leverage its investment in cloud technology to become a clearinghouse for a steadily increasing share of E-Commerce business currently served by 3PLs

– It could make a committed move into the 3PL space through expansion and acquisitions

Other Key Findings

Observations and Expectations

• Industry structure—M/A, organic growth, mobility

• Industry outlook varies by region, 2014/2015 conditions

• Revenue projections vary significantly by region

• E-Commerce—major opportunity all regions/challenges

• Amazon—customer and competitor—current NA focus

• Manufacturing in emerging countries—long term pattern

• Nearshoring—greatest impact involves China/Mexico

• Talent management—continuing problem all regions

• Environmental sustainability—continued 3PL commitment

• Capacity shortages—most significant in North America

Other Key Findings

Questions

Audience questions for…

Dr. Robert C. Lieb

Professor of Supply Chain Management

Northeastern University

Joe Carlier

Senior VP of Sales

Penske Logistics

Contact Information

Dr. Robert C. Lieb » Professor of Supply Chain Management

D’Amore-McKim School of Business, Northeastern University

(617) 571-9743 [email protected]

Dr. Kristin Lieb » Assoc Professor of Marketing Communications

Emerson College

(617) 824-3425 [email protected]

Joe Carlier » Senior Vice President, Sales

Penske Logistics

(610) 775 6069 [email protected]

mailto:[email protected]



Don’t Forget to Complete the

Evaluation!

Download the conference app and rate this session.

Start by choosing: “Cornerstones and Tracks” on the main menu and follow the prompts to this session’s landing page.

CSCMP 2014: Dr. Robert C. Lieb 2014 3PL Provider CEO Perspective

Business

Transcript of CSCMP 2014: Dr. Robert C. Lieb 2014 3PL Provider CEO Perspective