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3PL Services
3PLs Are Driving Trade Growth in China
A new study of the third party logistics industry by Georgia Institute of Technology, Capgemini, DHL and SAP shows that China is the key country for growth in international sourcing and trade, and that 3PL providers are a major factor in enabling this.
The study found that 53% of the respondents intend to further expand their activities into China.
Most commonly their plans call for importing and exporting of finished goods to and from China (51%), closely followed by outsourcing production to third parties in China (47%) and creating production facilities (41%). In addition a vast majority of the senior supply chain executives surveyed for the report indicate that they use their current 3PL providers to help them dealing with the substantial logistic challenges that exist as part of their expansions into China.
"With these extensive expansion plans in China 3PL providers will not only benefit from the international sourcing and trade growth in China, but also drive it," says Erik van Dort, Global Distribution Leader at Capgemini. "Opening a new market has many challenges, leading 3PL user companies to rely heavily on their existing 3PL providers and seek their help in their expansion operations."
The results come from the 11th Annual 3PL study, published by Capgemini and Georgia Institute of Technology, in collaboration with SAP and DHL. The study also shows declining satisfaction around 3PL providers' IT capabilities. Results from previous years have indicated a gradual decrease in the satisfaction rate and this year it reached an all-time low, with only 35% of users saying they are satisfied with their 3PL providers IT skills. This is a significant drop from 2003 when 75% of the North America respondents indicated they were satisfied (this data was not measured in the other regions in 2003). This decline should because for concern since overall 92% of this year's respondents agreed that IT capabilities are a necessary element of 3PL provider expertise.
"Information technology is a major cornerstone in the evolution from today's 3PL business models to future models," said Scott Sykes, Supply Chain Principal, SAP Americas. "All models will interact and be interdependent, and at the same time they all require a different view and strategy on IT. "As a result, it will become even more important that one integrated IT platform can support various business models and help them to streamline operations, achieve financial and strategic objectives and meet customer expectations."
Traditional 3PL services, such as transportation, warehousing, and customs clearance, are most often outsourced. 3PL users characterize their relationship with 3PL providers as generally successful but also indicated that they expect continual improvements in service levels and IT capabilities, something they believe is not happening. Two of the key challenges for the 3PL industry in the future will be capacity management and innovation. Just over half of the respondents (58%) agreed with the statement "3PL providers provide us with new and innovative ways to improve logistics effectiveness". The 3PL users require a more proactive approach from their suppliers and want them to demonstrate a broad set of skills, both tactical and strategic.
John Langley from Georgia Institute of Technology explains: "Generally speaking, 3PL customers have significant expectations of global 3PL providers, particularly in the areas of supply chain integration and information technology. While a majority of customers would like to see the 3PL sector take a leadership role in these areas, their experience to date suggests there are areas where improvement is needed."
The findings from the new study show that price is still the first factor when selecting a 3PL provider (87%). The second most important factor is quality of "tactical, operational logistics services" (85%).
DHL Ulrik Topp, Global Head of Marketing Services with DHL says: "Today, more and more customers are price sensitive but are also demanding a high quality. To be successful within the 3PL Logistics market you definitely cannot focus on one or the other, you have to have both and above all create real value for the customers".
This year 1,430 logistics and supply chain executives responded to the survey, an increase of 31% over last year. Around a third of the respondents (515) came from North America, 257 came from Asia-Pacific (82 from China), 341 from Europe and 82 from South and Latin America.
http://3plstudy.com/
North American 3PL CEOs Upbeat About the Future
The 12th annual survey of North American 3PL CEOs by Northeastern University professor Dr. Robert Lieb points toward a bullish outlook for the next three years. On average, the 22 CEOs surveyed projected that the revenue base of their companies would grow by 16.6% during 2006, and that their revenue growth rates would average 17.5% per year over the next three years. Their projections for revenue growth in the North American 3PL industry for the one and three-year periods were both estimated at 10.5%.
While slightly more than one-third of the CEOs reported their companies had been involved in significant merger/acquisition activity during the past year, nearly all of the respondents believed that the consolidation movement will continue in the North American 3PL industry, and that its impact will become much more obvious during the next three years. Among the related changes that are expected are the continued globalization of the service offerings of those companies, the emergence of several "mega 3PLs" and the emergence of a number of specialized niche players who will primarily compete with each other rather than with the larger providers. Integration issues will pose a major challenge to the companies involved in the M/A movement.
The CEOs unanimously agreed that their companies had become increasingly customer-selective, and that there is growing emphasis in the industry on building collaborative working relationships with key customers. Further, all of the CEOs involved in the survey indicated that they believe that their companies have been at least moderately successful in their efforts to build such relationships. The companies have not only instituted numerous operational changes to overcome barriers to such relationships, but have also employed a wide range of technologies in supporting those efforts. These company actions have played an important role in the efforts of these companies to differentiate their service offerings in the highly competitive North American 3PL marketplace.
Nearly two-thirds of the CEOs believe that there is growing interest in the concept of fourth-party logistics in the North American 3PL marketplace, but only one of the 22 CEOs involved in this survey believed such relationships will be used extensively in the future.
On average, 13.5% of the customers of these companies are conducting RFID pilot studies, and many of the 3PL providers are participating in those pilots. The CEOs estimated that approximately the same percent of their customers are already committed to the use of RFID in their logistics operations. Once again, the CEOs ranked continuing downward pressure on pricing as the most important North American 3PL market dynamic. The related price compression has been a major issue in this market, and throughout the world for the past several years. The respondents, in recognition of the continuing globalization of the 3PL industry, selected further expansion of international services as the most significant opportunity for 3PL service providers in North America.
Not surprisingly, the CEOs identified finding and keeping management talent not only as the major problem in the North American marketplace, but also as comprising the major management challenge facing the industry. This is an ongoing problem not only in terms of being able to manage growth effectively, but also in terms of being able to manage the customer interface in such a way as to support building long-term collaborative working relationships with key customers.
The North American 3PL industry is well positioned for continued growth during the next several years it faces a number of important management challenges. First, given the healthy growth forecasts cited in this study, these companies must continue to effectively manage growth. To do so they must continue to pursue the customer-selectivity strategies documented during the past several years in our studies. At the same time, they must remember not to alienate small to medium companies that appear to have significant growth potential in their industry verticals. Second, these companies must continue to develop strategies that not only differentiate their service offerings in the market, but also clearly communicate those differences to not only existing key accounts, but also other companies targeted by them. Third, these companies must continue to respond to the "full service" pressures of the marketplace, particularly those calling for greater internationalization of their service offerings, while effectively rationing scarce financial resources. In some instances this might lead to further acquisitions, in others it may necessitate development of alliance relationships with industry leaders in other service sectors. Those following acquisition strategies will face a fourth management challenge which involves not only effective integration of acquisitions into their organizations, but also determining how to present a "single face" to the marketplace. The fifth, and in many instances the most important challenge will be developing strategies, policies and programs that allow these companies to recruit, train, motivate, and retain highly-qualified management talent.
http://cscmp.org
Higher Transportation Costs and Tighter Capacity are Altering Distribution Operations
Shippers and carriers continue to experience the effects of rising transportation costs and constrained capacity that include changes in rates, service levels and, in some cases, how they do business together, according to "Transportation Capacity Issues 2006," a new study released by the Warehousing Education and Research Council.
83% of transportation users said they experienced carrier rate hikes in the past year and most expected additional increases during 2006. Nearly 53% reported they had more service failures.
Almost 74% of shippers had modified warehouse operating procedures because of service issues, most changing or adding carriers and/or modes. Some companies used brokers to expand their pool of available carriers, and others (43%) added to their lists of approved carriers.
"The study indicates that many companies are paying more for less service and they are making adjustments in other areas to compensate," observed Robert L. Shaunnessey, WERC's executive director. "There is an interesting but not surprising trend toward greater collaboration between shippers and carriers in an effort to achieve greater efficiency and productivity throughout an increasingly complex supply chain."
Many firms have changed modes to combat capacity and service issues, the most significant shift being from motor carrier to intermodal. Companies have also extended their operating schedules, expanded use of drop and hook operations, added personnel, adopted transportation management systems and increased inventories, among other operational changes. At least one firm has shipped LTL quantities as a full truckload--boosting cost along with reliability.
The second annual study was compiled by C.F. Lynch & Associates. Small, mid-sized and large firms represented a cross-section of North American industries and business types. The full report, priced at $60 for WERC non-members, is available at http://www.werc.org/
TNT To Divest Freight Management Business Unit
According to TNT N.A management, the Holland-based postal and express company is focusing on the growth opportunities in its core mail and express network distribution activities. TNT Freight Management is a freight forwarding business using air and sea transportation and originates from Wilson Logistics which was acquired by TNT in 2004. The business unit employs 2,300 people, operating from 126 offices in 28 countries with a significant presence in the Nordic region. The business unit represents approximately € 800 million in annual revenues. No time frame has been announced for the sale of this business.
http://group.tnt.com
SEKO Opens Office In Brazilian Gateway To South America
SEKO, a global provider of freight forwarding and logistics solutions, recently opened SEKO-Brazil, further expanding its global logistics network in South America. Headquartered in Sao Paulo, near Rio de Janeiro, the SEKO-Brazil office is located in the heart of the important southeastern industrial corridor of the country, providing SEKO with a broad range of freight forwarding services throughout the growing South American marketplace.
SEKO-Brazil provides customized supply chain solutions for shipments of any size via air, ocean and ground transportation, as well as logistics consulting, customs brokerage services, import/export documentation, customs clearance declarations, bill of lading issuance, warehousing and negotiation of freight rates.
Brazil is currently enjoying a growth rate in foreign trade of 2.3 percent, in large part due to its excellent infrastructure, which includes modern highways and railroads, inland waterways, air and ocean ports, telecommunications and energy sources.
http://www.sekoworldwide.com
Collaboration key to optimizing China supply chains, says APL Logistics Chief
Companies moving cargo from China to the U.S. must adopt a more collaborative approach to improving the efficiency of their supply chains, according to Brian Lutt, President of global supply chain leader, APL Logistics. Lutt's comments were made during a recent address to the prestigious annual Conference of the Council of Supply Chain Management Professionals in San Antonio, Texas.
He identified a number of key issues U.S. companies face when adding the China link to their supply chains, including:
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Compliance needs
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Cultural issues
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Congestion--particularly in inland transportation
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Connectivity between coastal and inland areas
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Shipment security
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Securing sufficient ocean and air transportation--particularly in periods of high demand
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The complexity of managing multiple currencies
"Since China is the starting point of an enormous--and growing--number of global supply chains, companies seeking to optimize the efficiency of their individual supply chains must focus closely on improving access to best-practice logistics capabilities at the China end," Lutt said.
He said companies must first understand the current realities of managing a China-linked supply chain, and work with all stakeholders involved, including their overseas vendors, government agencies, and 3PLs in a collaborative framework to improve China's logistics capabilities and ensure their own supply chain success.
"The need for partnership is made more urgent by the steady shift in the commodity mix in imports from China towards higher value segments, and imports from China continue to grow at a rapid pace," added Lutt, a 20-year shipping and logistics industry veteran with extensive experience of managing supply chains for global companies in China. APL Logistics began operating in China in 1988 and became the first foreign logistics company to receive wholly foreign owned enterprise (WFOE) status. Today, it operates a total of 40 offices and offers access to more than 1.5 million square feet of distribution space throughout China.
http://www.apllogistics.com
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