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- Oct. 6 , 2010 -

 

Logistics News: Review of the 2010 3PL Study

Survey Finds Spend Through 3PLs Declined Substantially in 2009; Change in Strategy, or Result of Efficiency? Gainsharing Appeals to Both Sides


   
 


SCDigest Editorial Staff

 
SCDigest Says:
 

The perception of 3PL IT capabilities has risen over each of the past three years, substantially reducing this "IT performance gap" - though still only 54% are satisfied with 3PL it capabilities.


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For the 15th year, Dr. John Langley of Georgia Tech, the consultants at Capgemini, and participants from other sponsors released the annual 2010 Third-party Logistics report, commonly called the "3PL study" by many in the supply chain and logistics industry. Based on survey data from over 1100 shippers and 3PLs, the report covers a wide variety of data and insight on the use of outsourced logistics providers and the relationships between the shippers and 3PLs  on a global basis. This year, the report also had focused sections on the use of total landed cost (TLC) calculation and outsourced logistics practices  in the life sciences and "fast moving consumer goods" sectors.

The full reported can be downloaded here: 2010 3PL Study.

As with most everything else, third-party logistics was impacted by the deep global recession of 2009. 3PL revenue in the US dropped from $127 billion in 2008 to $107 billion last year according to the report, citing data from Armstrong Associates.  That's not unexpected, given the sharp drops in unit volumes and the steep decrease in transportation costs; perhaps more interesting is the fact that there was also a significant fall in the percent of total logistics costs spent through 3PLs.

Respondents said 42% of their spend was now with outsourcers, down 10-15% over recent the data in recent years. The report surmises that with lower logistics volumes shippers pared back on the use of outside logistics providers more aggressively than they did their own internal operations.

Again this year, the survey found the use of 3PLs as a percent of total logistics spend was lowest in North America at just 35%, versus 41% in Latin America, 49% in Europe, and 51% in Asia.

An average of 24% of shipper respondents say they are returning to insourcing some of their logistics activities, and 36% of 3PL respondents observe that some of their customers are insourcing certain logistics activities.

Nearly one-half (46%) of shipper respondents are consolidating the number of 3PLs they use, and 73% of 3PL s feel that customers in general are reducing or consolidating the number of 3PL relationships they maintain.

Shippers Generally Satisfied - but Looking for More

Again  this year, the report found that overall, shippers are very satisfied with their 3PL relationships, with 89% of them saying they were generally satisfied with those relationships. Here, North America led the way, with a satisfaction rate of 92%, a few percentage points above the other three global regions. An astounding 97% of 3PLs were generally satisfied with their client relationships. Along the same lines, 72% of shippers agree their 3PL s are sufficiently agile and flexible to accommodate their current and future business needs and challenges.

While a strong majority of shipper respondents (68%) believe that 3PL s provide them with new and innovative ways to improve logistics effectiveness, that is far short of the 95% of 3PLs which believe they provide their clients with that high level of innovation.

The report notes that in this second year that 3PL respondents were part of the survey, "There is a persistent gap between the ratings that shipper respondents assign to various aspects of the 3PL-shipper relationship and somewhat more positive evaluations provided by the 3PL respondents themselves."

  

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While there is still a substantial gap in the shipper expectations for the information technology capabilities of 3PLs versus how shippers view those capabilities, the good news for outsourcers is that that gap is shrinking. As shown in the figure below, the perception of 3PL IT capabilities has risen over each of the past three years, substantially reducing this "IT performance gap" - though still only 54% are satisfied with 3PL it capabilities. (It would, however, be interesting to know what that percentage is in just North America and the other regions.)

Both Shippers and 3PLs Interested in More Gainsharing

According to the survey, 56% of shippers have become more interested in “gainsharing,” and 52% of 3PL s respondents agree that their customers have become more interested in gainsharing arrangements. The report suggests that "it appears that recent economic events have resulted in a greater interest on the part of shippers to share risk as an important attribute of a successful relationship."

 

The report cites the comment of one respondent from the retail industry who notes that  “Negotiating, tracking, and managing gainsharing agreements is difficult. It may require significant investment by the 3PL that is hard to recover, especially if that capability becomes the new ‘what is expected’.”


The report concludes with a few observations on things that haven't changed much. For example., "Shippers’ reticence to share strategy and data is a consistent finding in the annual 3PL studies," something the report suggests is a barrier to innovation and collaboration.

The conclusion also tries to tie together two seemingly conflicting data points: the first, as mentioned above, is that the percentage of total logistics spend accounted for by 3PLs is sharply down, while 65% of respondents said they had increased their level of outsourcing. The report authors wonder if perhaps the answer to that discrepancy is that 3PLs have delivered major cost savings to their shipper clients.

"The future growth and development of the 3PL sector will be highly dependent on the ability of the providers to work effectively with their shipper customers to conceptualize and implement innovative solutions to logistics and supply chain problems," the report notes.

Next week, we'll cover part two of our 2010 3PL study review and comment, focusing on the special sections on total landed cost and sector deep dives on 3PL relationships in the life sciences and fast moving consumer goods sectors.

What is your take on the 2010 3PL report? Any of the results surprise you? Anything that you would like to see the report cover or ask that is does not? Let us know your thoughts at the Feedback button below.

 

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