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From SCDigest's On-Target E-Magazine

- Oct. 7, 2015 -

Supply Chain News: Highlights from the 20th Annual Third-Party Logistics Study

Data from Last Year's Study Showing Reduction in Outsourcing Seems to be an Aberration, While Perception of 3PL IT Capabilities Stays Flat


 SCDigest Editorial Staff

For the 20th consecutive year, Dr. John Langley of Penn State University has led the annual Third Party Logistics Study, released again this year at the CSCMP conference in San Diego last week.

The data, based on survey responses from hundreds of shippers and 3PLs worldwide, doesn't usually change all that much from year to year, but some overall trends are clearly discernible.

But first, to understand the data, the results in what is titled the 2016 report  come from survey data taken in 2015, but which in many but not all cases is based on responses as to what happened in the 2014 calendar year. Got that?


In addition to the survey data, the report is based on a series of three forum type discussions on key outsourcing issues that were held earlier this year in Chicago, Rio de Janeiro and Sydney.


Perhaps most noteworthy, the data that last year indicated a drop in the use of outsourcing now seems to likely have been a statistical blip, which SCDigest suggested might be the case in our summary of the previous report. That survey found shippers were outsourcing just 36% of their logistics spend in 2013, sharply down from 44% in 2012 and contrary to the general trend upwards in that share over many years.

SCDigest Says:

The report notes that perhaps the biggest challenge of outsourced relationships is achieving high levels of alignment between shippers, 3PLs and carriers/asset providers.
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Was this a real and surprising trend that shows a pullback in outsorucing? It appears not, with respondents on average this year saying a whopping 50% of logistics spend was outsourced in 2014, likely meaning last year's number was simply in fact a aberration as often occurs in such survey data.

Along the same lines, 73% of shippers indicate they  are increasing their use of outsourced logistics  services this year, which compares to a figure of
68% reported last year. Somewhat contradictorily, the percent of shippers saying they are decreasing the use of 3PLs and are doing more insourcing also rose to 35% this year, from 26% in last year's study.

In general, shippers and 3PLs seem to be ever more satisfied with their mutual relationships, and slowly but surely shipper satisfaction with 3PL IT capabilities continues to increase.That said, there are still gaps in the how collaborative and strategic outsourcing relationships really are versus the avowed intentions of both sides.

The report includes the chart below from the report, based on data from Armstrong & Associates. It shows 3PL revenues in North America were up a healthy 5.8% last year versus 2013, and has been averaging 4.3% annual growth since 2006 despite taking a big hit during the financial crisis.

While we don't have a figure for all of North America to compare, US nominal GDP rose 3.6% in 2014, so 3PL revenues exceeded GDP growth by 2.2 percentage points last year, a trend we had seen for many years through the late 1990s and mid-way through the decade of the 2000s, as the CARG number in the chart would indicate (GDP growth in North America has been below 4.3% since 2006.


But in 2013, US nominal GDP rose 3.4%, above the 2.9% growth in North American 3PL revenues.


3PL revenues rose even faster in Europe in 2014, up more than 10% year over year, no doubt reflective of at last some improvement in the Euro economy. 3PL spend was up 5.5% in Asia, well below the 10.2% annual growth rate recently seen, certainly a reflection of the slowing Chinese economy.


Spend dropped sharply in South America, down 6.7%, as many countries in that region have struggling economies, in part driven by falling commodity prices.



Changes in 3PL Spend by Region 2013 to 2014



Source: 2016 3PL Study, from Data from Armstrong & Associates


All told, shippers and 3PLs say they are very happy with their mutual relationships. 93% of shippers report their relationships with 3PLs generally have been successful, and this is mirrored by a 94% figure from 3PLs that indicate their relationships with shippers have generally been successful.


Those numbers have been trending up over the last 10 years of the report, and may be at a sort of peak at this point.

As others have noted, in general there is also a trend to consolidate the numbers of 3PLs a company uses. 57% of shippers say they are working to reduce the total number of 3PLs with which they work - up just a bit from the 53% of respondents who felt that way in in last year's study.


(Distribution/Materials Handling Story Continues Below )


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"IT Gap" Still Present but Much Better than in the Past

For its entire history, the 3PL report has shown that shippers as a group are modestly unsatisfied with 3PL IT capabilities.

That basic scenario is true again this year, but what the report calls the "IT gap" is in general declining. As shown in the figure below, while the percent of shippers who say a 3PL's IT capabilities is a critical element of overall success has risen from 89% in 2002 to 93% in this year's results, the percent of shippers satisfied with those capabilities has increased at a much faster rate, from just 27% in 2002 to 59% this year.


IT Gap Slowly Closing for 3PLs



Source: 2016 3PL Report


That is a meaningful change, and generally good news for 3PLs. At one level, this should not be surprising, as over the past decade the majority of 3PLs have moved from home-grown and admittedly limited technologies to the same commercial packages that shippers themselves use. Still, 41% of respondents were unsatisfied with 3PL IT capabilities.

The conclusion: either shipper perceptions have not yet caught up with 3PL technology realities, or 3PLs are simply not using the capabilities they have to their maximum extent.


Strategic versus Tactical Relationships


3PLs would like to develop more strategic relationships with their shipper clients, while some but not all shippers also seek these type of strategic relationships, while others prefer more tactical, execution-oriented relationships with their outsource providers.


The reality is that a supplier of almost any good or service would prefer to have more strategic relationships with customers, and in the case of 3PLs if not almost any supplier this is in large part because a more strategic relationship may expose a 3PL to other problems and opportunities a client has, so that they can expand the number or type of services they can provide them.


The percentage of both shippers and 3PLs characterizing their relationships as strategic has been trending up over time.


In this year's study, 43% of shippers consider their organization to be strategic buyers of 3PL services, compared with 37% which say they are tactical buyers and 20% to be a combination of both. Interestingly, when asked what percentages of their customers are in each of these categories, participating 3PLs indicated 31% are strategic, 26% are tactical and 43% are a combination of both.


Of course, the "combination" response may be the real right answer, as most companies can't be strategic with all their 3PLs but only a small subset, likely a key reason companies are seeking to reduce the number of 3PLs with which they work.


The report actually says there are three broad categories of shipper-3PL relationships: tactical partner, service
partner and strategic partner.  Those three categories are defined in more detail than in the graphic below.


Types of 3PL Relationships



Source: 2016 3PL Report


The report notes that perhaps the biggest challenge of outsourced relationships is achieving high levels of alignment between shippers, 3PLs and carriers/asset providers, when each party has their own goals, objecives and constraints.


Can such multi-level alignment really be achieved, and if Yes, how to get there? The last part of the report offers some guidelines and recommendations - SCDigest will cover those in part two of our report summary next week.


The full 2016 3PL Study is available with free registration at


Any reaction to this year's 3PL report summary? What are your thoughts about 3PL IT capabilities? What percent of 3PL relationships do you believe are strategic? Let us know your thoughts at the Feedback button below.

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