The North American Third-Party Logistics Industry in 2011: The Provider CEO Perspective

The global marketplace for third-party logistics (3PL) services stabilized somewhat during 2010, reflecting improving economic conditions. Larger 3PLs again focused on servicing an expanding market, while their financial situation generally improved. Service offerings expanded, many of those companies began experimenting with the use of social media tools, and it appeared that a period of business as usual had begun.But then the Japanese earthquakes and tsunami interrupted this business-as-usual activity, stalling supply chains around the world. That disaster not only impacted the customer base of many of the largest 3PLs in the industry, but also the logistics service providers themselves.This article, which is based on a survey of the CEOs of twenty large 3PLs serving North America, was conducted in mid-2011 and focused on the state of the North American marketplace for 3PL services at that time. It is the eighteenth iteration of this annual survey. The authors also conduct similar annual surveys in Europe and the Asia-Pacific region.The 2011 survey focused on a variety of issues, including the key marketplace dynamics in the North American 3PL industry, the industry's response to the earthquake/tsunami in Japan, the industry's commitment to environmental sustainability, its expanded use of social media tools, and a wide range of other aspects of the industry's current status and future prospects in the region.The CEO of each of the companies included in the survey was contacted by telephone or email and asked to participate in a web-based survey. An initial target group of twenty of the fifty largest 3PLs in North America was contacted, and the CEOs of all twenty companies agreed to participate. However, only seventeen CEOs subsequently completed the survey online. The following companies participated in the 2011 North American survey: Agility LogisticsCardinal LogisticsCAT LogisticsDSC LogisticsDHL Exel Supply ChainGencoKuehne + Nagel LogisticsMenlo Worldwide LogisticsMIQ LogisticsYusen LogisticsPenske LogisticsSchenkerSchneider LogisticsTransplaceUPS Supply Chain SolutionsUTiWerner LogisticsSome questions were not answered by all CEOs due to individual company policies concerning financial disclosure. Further, in a number of instances, average industry data are presented, but there is often substantial variability around those averages. That variability reflects a number of factors, including differences in company strategies, operating policies, and market segments served.The 2011 North American survey addressed several 3PL provider revenue and profitability issues, and each is discussed below.Seventeen companies reported revenue data in responding to the survey. Collectively, these companies generated revenues of approximately $19 billion in North America during 2010, with four companies reporting 2010 revenues in excess of $1 billion. The annual revenues for 2011 survey participants averaged $1.114 billion.The CEOs were asked about the success of their companies in meeting their North American revenue growth projections during 2010. Three CEOs reported their companies exceeded company revenue growth projections for the year, twelve indicated that their companies met their projections, and two reported their companies failed to meet their projections. Reflecting improved economic conditions, these results were quite different than those reported in the 2010 survey in which nine of the sixteen companies reported that they failed to meet their projections during 2009.The CEOs were next asked to categorize the profitability of their companies' North American business units during 2010. Three CEOs said their companies had been very profitable, twelve said marginally profitable, and one reported his company had broken even. None reported their companies had been unprofitable.CEO views were also solicited concerning the profitability of the North American 3PL industry as a whole in 2010. Thirteen believed the industry was marginally profitable, and four believed the industry had broken even for the year. In contrast, in the 2010 survey, seven of the sixteen respondents categorized the industry as marginally unprofitable during 2009.While there has been a worldwide consolidation movement in the 3PL industry in recent years, the pace of that movement slowed considerably in North America during the past year. In fact, only two of the seventeen companies participating in the survey reported that their companies made one or more acquisitions during 2010, collectively acquiring two smaller 3PLs. The respondents expect acquisitions to play a relatively modest role in company revenue growth during the next year. On average they expect acquisitions to generate 8.82 percent of their revenue growth, and twelve respondents indicated that they do not expect any of their companies' growth to come from acquisitions over that time period.Again reflecting improving economic conditions, ten CEOs indicated that their companies had introduced new services during the past year. Those service offerings took a variety of forms and included the following: Reverse and repair logistics for mobile telephonesTesting, repairing, and refurbishing services for wireless devicesPalletized small package serviceFlexible warehouse-space programConsulting servicesEnhanced purchase-order management servicesService offerings in the chemical industryRepackaging and relabeling services in the health care industryNew transportation-management servicesA wide range of environmental sustainability topics has been incorporated into the last four North American surveys. The data generated in those surveys have shown a strong commitment to the pursuit of “green” goals by participating companies whose commitment was maintained throughout the global economic downturn. The continuity of the green commitment was again demonstrated by the responses to the 2011 survey.Ten of the seventeen companies participating in this year's survey reported that they expanded their existing sustainability programs during the past year. Those expansion efforts included such actions as making carbon calculators available to more customers, increasing resources dedicated to existing programs, expanding alternative fuel fleets, expanding company involvement in the EPA's Smartway program, and developing more sophisticated tools for measuring emission levels.Eight 3PLs also reported starting new sustainability initiatives during the past year. Among the more interesting initiatives introduced were: Use of new trailer skirts on company trucksUse of solar energy in company facilitiesUse of wind energy at company buildingsUse of more energy efficient T-5 lighting in warehousesIntroduction of natural-gas-powered trucks into company operationsInstitution of “no idling” policy at all logistics centersMandated use of green cleaning supplies at all company facilitiesRespondents were also asked to identify the most significant environment sustainability development that occurred within their companies during the past year. Their responses clustered into several areas. Four mentioned company efforts to enhance the ability to track, collect, and analyze related data. Four focused on operational changes such as network optimization efforts and establishment of distribution-center bypass programs. Three others focused on technological changes such as refleeting and using low-power, auto-off lighting.Those surveyed were asked several questions about the degree of customer interest in environmental sustainability issues. They were first asked what percentage of their existing customers has asked them to analyze their existing supply chain practices in terms of environmental impact and cost. On average, the CEOs indicated that 7.9 percent of their existing customers did so, but there was a wide range of responses.Those surveyed were also asked how frequently the green/environmental sustainability capabilities of their companies were a major factor in determining whether they won new contracts or extend existing contracts. None of the CEOs said very frequently, two said frequently, and 15 said infrequently.The commitment of these 3PLs to environmental sustainability improvements continues, but their customer base is still primarily driven by cost and service.The CEOs were asked if the recent tsunami and earthquakes in Japan had impacted their operations in North America. Eight of seventeen who said that they had were asked to explain the nature of that impact. While most focused the explanation on related disruptions of customer supply chains, particularly in the automotive industry, several highlighted specific company impacts. Company-specific impacts included such developments as declining freight volumes into Japan, a drop in intermodal volume coming from Japan through West Coast ports, and challenges related to finding solutions for clients whose links to Japan had been disrupted. It is interesting to note that none of the eight companies reported making any operational changes within their companies due to the natural disaster. The lack of operational changes may have been due to planning prior to the event. In fact, fifteen of the seventeen companies reported that they had business continuity plans in place prior to the tsunami/earthquakes, and all fifteen reported that those plans covered responses to natural disaster. When asked how important those continuity plans were in guiding company responses to the disaster, four CEOs said very important, five said important, and six said not important. Three CEOs reported that after the disaster their companies put additional contingency plans in effect.The CEOs were asked if their companies had learned any lessons throughout the process. Ten indicated they had, and those lessons were as follows: Planning is critical, but sharing processes and communicating effectively enabled us to respond quickly.Preparedness and a well-structured contingency plan are invaluable.Flexibility in modal and carrier selection is necessary to respond to such disruptions.A dedicated team should manage a comprehensive business continuity plan—these cannot be managed as a side activity.Fourteen CEOs said their North American customers had been impacted by the tsunami/earthquakes. While eight said that less than 10 percent of their customers had been impacted, others put those numbers closer to 50 percent. The CEOs were then asked to identify the industries that were hit hardest by the disaster. Thirteen identified the automotive industry, ten mentioned the electronics/high tech industry, two cited industrial manufacturing, and one mentioned specialty chemicals. Those surveyed were also asked to identify the most significant consequences for their customers and they emphasized the following: disruption of supply (mentioned by 14 respondents), reduced production (12), disruption of lean and/or JIT manufacturing programs (8), transportation disruptions (6), supplier failure (5), loss of sales in Japan (4), and loss of facilities in Japan (4).The 3PL executives were asked what the most important lessons that their customers should have learned from the disaster were. Their responses varied, and included the following: A supply chain is very fragile, and can be easily disrupted.We should have a disaster recovery plan—many did not (mentioned by seven CEOs).It is important to work with logistics service providers that have the scope, resources, and experience to manage the many variables such an event generates.Our supply chain should be more diversified.We should audit our suppliers more frequently.We should investigate alternative transportation capabilities in our core lanes.The 3PL providers were then asked, “Based upon your interaction with your key customers, what impact do you believe this disaster is likely to have on their future supply chain strategies and practices?” Their responses clustered in several areas. Five suggested that their customers were likely to pursue greater supply chain diversification by adding redundant suppliers. Three believed they would be more active in planning for supply chain disruptions. Greater customer emphasis on near shoring, accumulation of more safety stock, greater diligence related to single source suppliers, and more geographical dispersion of manufacturing and supply were each mentioned twice.The use of social media has grown dramatically during the past several years and the related tools are increasingly used in business-to-business and business-to-consumer settings. As a result, this year's North American survey contained a number of questions concerning that topic. The results of those questions are summarized in table 1.A blog is a type of website or part of a website that is typically public (you do not need to be validated as a “friend” or customer to read it), dynamic (updated frequently), and focused on topics or issues of interest to the blogger and his or her intended audiences. Four CEOs reported their companies have public-facing blogs, all of which were created between 2009 and 2011. When asked about the general purposes of those blogs, the executives gave a wide range of answers, including such purposes as providing a resource for employees, customers, and suppliers; educating various parties concerning the company's mission; strategically representing the company as committed to sustainability; positioning the company as an industry expert; and connecting with various audiences about the company's business activities. The CEOs were also asked about the topics typically covered in company blogs. The executives mentioned such topics as the company's carbon footprint, reviews of regulatory changes, environmental sustainability tips, current data about the various modes of freight transportation, customer success stories, and thought-leadership articles.Facebook is a social networking service and website that was established by Facebook, Inc., in 2004. It has more than 800 million users. As shown in table 1, ten North American 3PLs reported having company Facebook pages. The content of those pages varies substantially, but typically includes information on the company's background, a discussion of its service offerings and markets served, and for customers to with the company and about various aspects of its is a social networking in It companies and company executives to their to those they have validated as or the networking of all CEOs reported having they indicated that many of their executives also are used to available and new is also used to to about the company and industry and to new or is social networking that to and read of to is a of providing efficient for those the to a company or an they have a or interest in what it is on a they on to they a of from they has been used by eight of the 3PLs who participated in the survey. companies reported that their have been as a of new through Facebook, and one of the to 3PLs is that they can a single for each by the to each of these the company that it its intended audiences. In other these effectively the of the for the eight CEOs reported that their companies on a website that in companies have generally used such to their current customers, and various operational of company can 3PL on by for the company related or from the 3PL that a to the such as email or or any of the social media mentioned CEOs believe the use of social media is to in the industry, while only five believe it is to customer When asked to identify the goals of their initiatives to six companies said to with customers, four mentioned and two reported using the tools to new The CEOs whose companies have been using social media were then asked to its impact to The impact was reported as but However, of the seventeen CEOs indicated that they believe the use of social media increasingly important in the 3PL industry in the has been discussion within the North American logistics about the of of transportation in markets as the global In many that as to and about more The CEOs were asked if had in any of the markets they and of seventeen said They were then asked in which markets those had and the most frequently mentioned market was services (mentioned by six Three others cited in and the number focused on a of services in and services from the were each mentioned by one CEOs were then asked what if were by their companies to their customers those Among the were the base of used on of developing alternative for in through contracts with key increasing services and for in 3PL fleets, and freight to intermodal has been substantial in the North American marketplace during the past several As fuel increasing transportation many 3PL customers made changes to their transportation strategies to the impact of those on their asked the CEOs if any of those changes had been by their key customers or if customers had to strategies as fuel ten said that of those changes had been Three mentioned from to intermodal services and two mentioned from to Among the changes mentioned by one were increasing to from to increasing interest in and freight consolidation from to on fuel and more on fuel to with the each annual North American survey, the CEOs were asked a of questions concerning their of the current status and future prospects of the 3PL industry in the they were asked to identify the most important and in the 3PL They were also asked to the most important developments within their companies and within the 3PL industry during the past CEOs were asked to identify and the most important industry dynamics the North American 3PL marketplace in 2011. A was a two and a one were used in the shown in table to the the most significant dynamic in the North American 3PL marketplace was economic with twenty and five In place with and was fuel on with and It should be that this dynamic first in the North American survey in five of the last seven annual surveys. It to be a significant in the but its impact to have been by 3PL strategies that have been identified in our surveys. In strategies such as developing more between service providers and and service offerings to be having an in this the survey, the CEOs were asked to identify the most significant for 3PLs in the North American market, as has been the in there was In fact, while there were available respondents), only two were mentioned more than related to were mentioned six and related to more with customers were cited by four were mentioned including those related to expansion of increasing and expansion of CEOs were then asked to identify the most important their companies in the North American 3PL industry, and they identified a range of to the the North American 3PL industry's two most important were on which for fifteen and and finding and management which the number of and It should be that the had been as the in the 2009 and 2010 North American surveys. The was as the most important in the 2010 survey. and related to meeting customer each ten and for eight and seven asked to identify the most significant development in the 3PL industry during the past year, the CEOs put emphasis on economic conditions. While five cited the economic four others that indicated others emphasized of in the industry, and the number focused on in the of the suggested that environmental sustainability capabilities had a market and cited fuel as the most significant development in the past CEOs were then asked what major changes they to place in the North American 3PL industry in the next years, and fifteen to this As had been the in our seven most recent annual North American the and movement their with six CEOs that they believed the consolidation movement would in North America during the next other was mentioned more than Among the changes mentioned were: into the industry, an in the of customer supply chains, of the industry's greater on and of transportation particularly with to the CEOs were asked to annual company and industry revenue growth for the and and sixteen CEOs those Their projections are shown in table and are discussed terms of company growth projections, the CEO were very similar to those by the CEOs in the 2010 survey. The average company revenue growth for the next was percent last with the company revenue growth average percent last However, again as have in the from company to with the company projections from percent to and projections from percent to 15 terms of industry growth projections, the CEOs that the industry's revenue growth would average from last year's percent The industry projections averaged from last year's percent The individual CEO projections of the industry's growth from percent to 15 percent for the and has discussed the results of a 2011 survey of the CEOs of seventeen of the largest 3PLs operating in the North American those companies generated approximately $19 billion in North American 3PL revenues during 2010, and none of the 3PLs reported unprofitable during the year. Reflecting improving economic conditions, the CEOs were about the revenue growth prospects of their North American operations and the 3PL industry for the and of these companies expanded existing environmental sustainability programs and new sustainability initiatives during the than of the 3PLs participating in the survey indicated that the Japanese tsunami and earthquakes had impacted their operations in North America. However, there were that these companies were somewhat for such in that fifteen CEOs reported that their companies had business continuity plans in at the time of the disaster, and all of the plans covered responses to natural CEOs said their North American customers had been impacted by the disaster with the most significant impacts disruption of reduced disruption of lean and/or JIT manufacturing and transportation disruptions. The 3PLs expect their customers to respond by their supply more safety stock, and their and production of the 3PLs surveyed have using social media such as Facebook, and and they also blog and company on The impact of these social networking efforts on the 3PL industry has been to and is primarily focused on of the CEOs believe that the use of social media increasingly important in the 3PL The of and use of these tools by these companies is similar to their and use of the in and on were identified as the most important dynamics in the North American The most important were identified as and more with key The CEOs identified the most important their companies in the North American 3PL marketplace to be on and finding and management expect the North American market for 3PL services to to not only in response to improving economic conditions, but also as a of the the of business in While the consolidation movement in the industry slowed with economic conditions, expect the movement to as the However, of those upon improvements in the global that are by at this in supply chains of many of the companies by the 3PLs participating in this survey were impacted by the Japanese earthquakes and particularly companies in the automotive and electronics/high of these customers were not for such an and they are likely to greater on business continuity planning in the As they do so, the plans are likely to significant changes in and manufacturing strategies that their for 3PL The 3PLs serving the can play an important role in their clients developing those strategies, while making necessary to their service offerings to meet these new market use of social media by 3PLs and an important of the and strategies of these The 3PLs may that the pace at which they and the use of these tools may an important source of market The industry's efforts in the of environmental sustainability are and likely more of a factor if the economic recovery and customers less on cost