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Feature Article from Our Distribution and Materials Handling Subject Area - See All

From SCDigest's On-Target E-Magazine

Oct. 12 , 2011

Logistics News: Annual 3PL Study Finds Little Change in Outsourcing Levels Year over Year

Relationships are Evolving Though to Meet the New Normal; IT Satisfaction Gap is Still Large


SCDigest Editorial Staff

The 16th annual third party logistics (3PL) study was released as always at the annual CSCMP conference last week, this year in Philadelphia. The report summarizes survey responses from more than 1600 shippers and almost 700 3PL respondents, and was led as always by Dr. John Langley of Penn State University.

SCDigest Says:

As usual in this report, there is a disconnect between what shippers say they are going to do relative to outsourcing and what they actually do.
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One headline from this year's report: both shippers and 3PLs think it is time to reset expectations for these relationships given the "new normal" companies are operating in today.

As a quick note, for the first time the report this year has been titled with a forward looking date (the 2012 Third Party Logistics Study), in part, Dr. Langley said, so the report does not seem dated in just a couple of months after it is released roughly each October.

Citing data from Armstrong & Associates, the report says that in 2010, global spend with 3PL providers was some $541 billion, a sizable sum. Interestingly, 3PL spend in North America ($149 billion) is slightly lower than that in Asia ($157 billion) and Europe ($165 billion).

Outsourcing represents a significant percent of logistics spend, as shown in the chart below. Overall, across the globe, respondents said they spent about 42% of their total logistics spend with 3PLs, unchanged from last year's report.

By region, in North America 3PL spend represents about 38% of total logistics spend, versus 46% in Europe, 47% in Asia, and 35% in Latin America. There was an even bigger difference in the amount spent with outsourcers across regions for transportation - just 41% of transportation spend is managed by third parties in North America, versus 66% in Europe and 61% in Asia.

Spend on warehousing/distribution with outsourcers is more balanced across regions, at 36% in North America, 42% in Europe and Asia, and 40% in Latin America.

Nevertheless, the still tough economic times, continued globalization, and other factors are driving changes to shipper-3PL relationships, the report says.

"Many shippers and 3PLs agree that today’s business challenges represent some version of a “new normal,” driving the need for both types of organizations to identify and implement new strategies for success," the report says. "In effect, the starting line has been re-set, injecting a new, highly invigorated and highly competitive spirit into the logistics business environment."



(Distribution/Materials Handling Story Continues Below)


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It quotes one unnamed 3PL executive as saying that "Established 3PLs are recalibrating their business models to provide greater value to their shipper-customers. At the same time, they are looking over their shoulders at emerging sources of competition and the new and innovative offerings they are bringing to market.”

As usual in this report, there is a disconnect between what shippers say they are going to do relative to outsourcing and what they actually do. For example, despite no change in the percent of logistics spend going to 3PLs year over year, as noted above, 64% of shipper respondents reported an increase in their use of outsourced logistics services, and 76% of 3PL respondents agree this is what they are seeing from their customers. Regionally, 58% of North America shippers reported increased 3PL use.

This delta between what shippers say they are going to do vis-a-vis outsourcing and what they actually do has been a common theme over the past few years of the report.

On the other hand, 24% of shippers said they plan to "insource" some logistics activities currently being outsourced.

Satisfaction Levels are High - Sort of

Again this year, both shippers and 3PLs reported high levels of satisfaction in their relationships. 88% of shippers respondents view their 3PL relationships as "generally successful," and an even greater 94% of 3PL see things the same way. The numbers were within a percentage point or two regardless of region, and also about the same as last year's results.

However, a smaller but still impressive 71% of shippers think that 3PLs provide them with new and innovative ways to improve logistics effectiveness.

And as usual, shippers see room for a lot of improvement in 3PL IT capabilities. The good news is that the level of shipper satisfaction with 3PL IT capabilities has doubled over the past 10 years; the bad news is that that takes the level of shipper satisfaction is still just at 54%, creating a significant satisfaction "gap" between shipper expectations and what they perceive 3PLs to be delivering.


Shipper Satisfaction with 3PL IT Capabilities is Better, Still Low



Why don't some shippers use 3PL services? The report says the most common reasons are companies seeing logistics as a core competency, the importance of logistics in their company's success, their ability to reduce logistics costs internally, the challenge of integrating IT systems with 3PL systems, and challenges controlling outsourced activities.

As usual, the report covers some specialty issues, including the growing role of emerging markets and supply chain "talent management." We'll cover those and other issues next week.

The full study can be downloaded for free here: 2012 Annual Third Party Logistics Study.

How does the 2012 3PL report compare to your perceptions/experience? How do 3PL relationships need to change to adjust to the "new normal"? Are 3PLs getting a bad rap on IT capabilities - or not? Let us know your thoughts at the Feedback area below.

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