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From SCDigest's On-Target E-Magazine

- Aug. 13, 2014 -

Supply Chain News: Little Change in Second Gartner Magic Quadrant for Global 3PLs

As Shippers Look for Fewer, Larger Providers, 3PLs Continue to Evolve

SCDigest Editorial Staff

Gartner continues to extend the reach of its "Magic Quadrants," which place suppliers of software, hardware and service in a four box diagram across two dimensions: completeness of vision and ability to execute.

In 2013, for the first time, Gartner produced a Magic Quadrant for global 3PLs, an effort led by Gartner analyst Greg Aimi. He told SCDigest at the time that the inaugural process was challenging, as many of the global 3PL service providers were unfamiliar with the Magic Quadrant offering or in some cases even Gartner itself.

SCDigest Says:

Leading companies increasingly seek to strike a balance between engaging best-in-class 3PLs, rationalizing the set of global logistics providers they are working with, and maintaining their own internal pool of talent and expertise, Gartner says.

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The process was a bit easier this year, with the 3PLs now at least somewhat familiar with how the Magic Quadrant's work, while at the same time Aimi told SCDigest that the 2013 experience led Gartner to adjust its evaluation criteria just a bit for 2014.

Of course, there are thousands of 3PLs across the globe large and small. To qualify for this 2014 3PL Magic Quadrant, a provider had to meet the following criteria:

Initial Size Criteria: Reported 2012 annual net revenue from logistics services of at least $1.25 billion, excluding pass through transportation costs.

Services Diversification: Generated no more than 65% of that revenue from only one of these main logistics services: transportation management, warehousing and distribution management, and international freight forwarding

Regional Diversification: Generated revenue from multiple regions of the world, with no more than 80% of that revenue coming exclusively from North America, South America, EMEA or Asia/Pacific.

That actually led to the same 12 global 3PLs in the MQ this year that were there in 2013, and the "dot" positons show relatively little change year over year as well. Gartner notes a number of very large 3PLs did not make the evaluation list again this year because they failed in one of the criteria above, such as too much revenue concentration in just one services area. Major 3PLs that met the overall revenue threshold but lacked sufficient services or regional diversification include CH Robinson, Ryder, Panalpina, Nippon Express and several others.

The Magic Quadrant process involved a lengthy questionnaire to complete, generally some form of web presentation to Gartner analysts, and Gartner interviews with the some of each vendor's customers. Gartner analysts then assign numeric ratings to each sub-category within the core dimensions of vision and ability to execute, and Gartner software takes that data and positions each vendor with a dot in one of the four quadrants (basically, high and low for each of the two dimensions).

For the global 3PL MQ, the completeness of vision dimension includes such areas as the vendor's market understanding and insight, marketing and sales strategy, services offering strategy, vertical industry strategy, level of innovation and more.

The ability to execute dimension included such criteria as breadth of products and services, pricing relative value, market responsiveness, sales and marketing execution, operational excellence and more.

Global 3PL Trends

As usual , the global 3PL Magic Quadrant added some overall commentary on key trends in the logistics outsourcing market.

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Global and multinational corporations are changing the way in which they engage with 3PL service providers, Gartner says. "These corporations are no longer pursuing single-minded cost-reducing outsourcing agendas for their logistics needs. Increasingly complex demands on their own logistics organizations have resulted in companies blending their logistics expertise with that of carefully selected 3PL partners."

As a result, leading companies increasingly seek to strike a balance between engaging best-in-class 3PLs, rationalizing the set of global logistics providers they are working with, and maintaining their own internal pool of talent and expertise, Gartner says.

In general, that has meant a change towards use of fewer, larger 3PLs, giving companies a manageable set of logistics services providers to interact and collaborate with. That said, most large companies still directly or indirectly engage many smaller 3PLs to meet niche service or geographic needs, Aimi told SCDigest in a separate interview. Often, the larger 3PLs act as a so-called "4PL" in those cases to manage the smaller providers.

Gartner adds that "Large multinational and global 3PL customers have begun requiring their 3PLs to offer more services across more regions, and to integrate those services across end-to-end business processes so that they might be able to use them as a global preferred provider."

Part of the goal of fewer larger providers is also to minimize the level of technical integration versus that required across a 3PL portfolio of perhaps dozens of companies.

This change in customer requirements naturally has led to change in the 3PLs themselves.

"Over the past 10 to 15 years, we've seen rampant M&As as 3PLs have begun to attack this challenge to expand their presence by adding more service offerings, providing greater regional availability and creating vertical industry specialty capabilities," Gartner notes.

However, simply acquiring add-on capabilities and offering largely disconnected services is not nearly enough, Gartner says. 3PL buyers today want a competitively priced, comprehensive set of services that are consistently integrated and reliably available wherever they need it across the globe.

With that as an introduction, the 2014 global 3PL Magic Quadrant is shown below.

2014 Gartner Global 3PL Magic Quadrant

Source: Gartner

Five 3PLs made their way into the top right leadership quadrant, but clearly three have really pulled away from the pack: DHL, DB Schenker and Kuehne + Nagel. - interestingly, all three are German companies.

The MG graphic should also give readers a feel for how the process works. Notice that a number of providers scored higher on the "ability to execute dimension" than the two other providers in the leadership quadrant (UTI and Agility), but because they scored relatively lower on the vison dimension, they did not make it across to the leadership area.

The Garter report also includes a nice description of the strengths and weaknesses of each vendor in this year's MQ, and is available at no charge of course to any Gartner clients.

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