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  First Thoughts

    Dan Gilmore


    Supply Chain Digest

Dec. 10, 2022

State of the 3PL Union 2022

Dr. John Langley of Penn State Leads Important Report for 26th Straight Year

Each year in late June, we get the State of Logistics Report from CSCMP, which I summarize under the banner of "The State of the Logistics Union."

Each year in early fall we get the annual "3PL Study," released at the CSCMP conference. And so it was again this year with the 2022 study, now in its amazing 26th year, all under the leadership of my friend Dr. John Langley of Penn State.

So this week you get my summary of the 3PL report (we read more so you can read less), which I might as well title the "State of the 3PLU union," as it really is a fine compendium of many data points from the logistics service provider sector.

Gilmore Says....

This year, 94% of shippers believe 3PL IT capabilities are a very important factor in success, while only 56% are satisfied with those capabilities.

What do you say?

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The continuous Langley's leadership has lately been pared with somewhat changing sponsor mix. This year's report was sponsored by consulting and technology firm NTT Data  (I must confess I had never heard of it), Penn State and Penske Logistics. Without the sponsors the report wouldn't happen, so they are worthy of some public recognition.

Since I knew I could get a copy of the report later I didn't attend the CSCMP presentation, but I did duck my head into the session room and it was well attended as is it is every CSCMP. The interest in logistics outsourcing obviously remains high, and nothing pulls the current dynamcics together like this study.

The report is based in part on survey responses from 345 shippers and 3PLs worldwide – down from 421 last year. As I can attest from our work here at SCDigest, getting people to complete surveys is increasingly difficult.

The report has been positioned in recent years as a global study, but while there were survey responses from many countries, 85% of responses from current users
of 3PL and 4PL services were from North America this year, up a lot from some recent reports - 65% of respondents were from North America two years ago, for example. Whether that is a good or bad trend depends on your perspective - some want to know just what is happening in the US.

As has been the case for many years, the report again this year focuses on a set of survy data and related discussion across a set of issues that mostly stay the same every year (e.g., the famous "IT Gap" - see below), along with a new set of focus topics for this year that get some pages in the report, usually supported by some additional survey data.

In this year's study, those focus topics include sustainability and ESG, cold chain, the "intelligent supply chain," the impacts of COVID, and three more "contemporary issues."

I will summarize today the main general data points and insights, and visit the specialty topics next week.

As usual, a very high 90% of shippers say that their relationships with their 3PLs generally have been successful. As is also typical, a higher number of 3PLs - 98% - believe their customer relationships are working.

The report found that on average total company logistics expenditures as a percentage of sales revenue was 11% this year, versus 9% last year.

The percent of total logistics expenditures directed to outsourcing surpisingly fell to just 40% this year on average, versus 53% in the last survey. I frankly have a hard time believing the drop if any was really that sharp.

But it is consistent with other measures in the report. This year, the percentage of shippers' transportation spend managed by 3PLs came in at just 51%, also sharply down from 64% last year.

Meanwhile the percentage of shippers' warehousing spend managed by 3PLs also fell sharply to just 37%, a drop from 48% last year.

Is use of 3PLs really declning that significantly? The previous few measure would not seem consistent with the 56% of shippers who said shippers are increasing their use of 3PLs - though that was down from 62% last year.

A very interesting chart in the report shows responses from shippers and 3PLs to a series of questions relative to their relationships – and as can be seen, there are some different perceptions between the two groups. I will note inexplicably the quality of the charts in the report are quite poor, so I am sorry about that:


Source: 2023 3PL Study

As an example discrepancy, as you can see almost all 3PLs (86%) believe using 3PLs drives lower logistics costs for shippers, while only 64% of shippers themselves feel that way, down from 68% last year. Similarly, 73% of 3PL users say that 3PLs provide new and innovative ways to improve logistics effectiveness, versus a much higher 90% of 3PLs that believe they are providing that value.

Another large discrepancy came on the topic of whether shippers are collaborating with other companies, even competitors, to achieve logistics cost and service improvements. A strong 75% of 3PLs agreed, versus just 57% of shippers. I don't believe it's even that high.

57% of 3PL users report reducing or consolidating the number of 3PLs they use, from 59% as reported last year, while 77% of 3PLs believe this is a trend.

SCDigest is always interested in the dreaded "IT Gap," which the report has been following for many years. That gap refers to the percentage difference between how shippers place 3PL IT capabilities in terms importance (always very high, usually in the low 90s in terms of percentage), versus their view of actual 3PL IT capabilities, always with a much lower score.

For years the IT Gap was large but shrinking. However, for reasons that are unclear, it spiked back up in four years ago and stayed there, as seen in the chart below:



Source: 2022 3PL Study


This year, 94% of shippers believe 3PL IT capabilities are a very important factor in success, while only 56% are satisfied with those capabilities.

The report says that gap is "stuck in neutral."

My view: some 3PLs still try to get by with aging, often home-grown technology that is simply far out of date. There is some complexity here, because if in the middle of a contract with a given shipper or multiple shippers, introducing new technology raises some issues. Even the shipper may not want to upset the apple cart.

But I also believe that many 3PLs that have deployed modern technologies often do not fully use those capabilities or cannot present them in a way most convincing to shippers.

I am out of space. The full report available for free download with registration here. It is as usual a solid effort, but the graphics quality is an issue, and for some reason the report left out the usual data from non-3PL users, e.g., why they don't outsource, which I found interesting.

A look at the focus issues discussed this important research report in another First Thoughts column right here soon

Any reaction to this data from the 3PL report? Let us know your thoughts at the Feedback section below.

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