Global Study Reveals Increased Use of 3PLs, but Churn and Consolidation a Continuing Threat

Paris, October 3, 2011 – Capgemini Consulting, the global strategy and transformation consulting brand of the Capgemini Group, in cooperation with Penn State University, leadership advisory firm, Heidrick & Struggles and global logistics provider, Panalpina, today announced the findings of the 16th Annual Third-Party Logistics (3PL) Study, examining the global market for outsourced logistics.

The report reveals that the majority of shippers worldwide are increasing their use of 3PL services, with 64 percent of respondents reporting a rise. At the same time, the report indicates an average of 42 percent of total logistics expenditures being spent on outsourcing, the same as last year’s study. However, 24 percent of shipper respondents reported some return to insourcing 3PL services and 58 percent report they are reducing or consolidating the number of 3PLs they use, indicating uncertainty about the global economy continues to impact 3PLs.

The 2012 Third-Party Logistics Study is based on more than 2,250 responses from both shippers and logistics service providers in North America, Europe, Asia-Pacific and Latin America, as well as other locations throughout the world such as the Middle East and Australia. In addition to documenting the evolution of the third-party logistics market, this year’s report also provides an in-depth analysis of logistics operations in emerging markets and the electronics industry as well as talent management to address the skills shortage in the logistics industry.

Today’s 3PL marketplace is experiencing significant change and established 3PLs are adjusting their business models to provide greater value to shippers. The report shows relationships between shippers and 3PLs continue to be successful with 94 percent of 3PLs and 88 percent of shippers stating communication, flexibility and openness are key to contributing to their success. However just 68 percent of shippers judge their 3PLs as sufficiently agile and flexible, down from 72 percent last year suggesting this is an area where 3PLs can make significant further contributions to supply chain success.

“The responses from this year’s study represent an interesting record of the shifting use of 3PL services,” said Dan Albright, vice president and North American supply chain Lleader at Capgemini Consulting. “While some companies are increasing outsourcing services, we are still seeing the consistent churn that occurs each year with 3PL respondents observing that some of their customers are returning logistic activities back in-house. It’s vital that 3PLs and shippers work in close collaboration and that 3PLs remain innovative by offering value added services to provide true value to shippers to help reverse this trend.”

Spotlight: Growth in emerging markets while traditional markets are slowing

A substantial 80 percent of shippers in the survey conduct business with or within an emerging market, with the majority (52 percent) doing so from a mature market. China, India, Brazil and Mexico are considered the top emerging market opportunities amongst respondents. With mature, industrialized markets largely growing at a slower pace, the emerging markets offer significant growth potential. The 3PL capabilities shippers most value when entering emerging markets are expertise on the latest global trade regulations and managing and optimizing shipment routing based on free trade agreement (FTA) knowledge. The majority of shippers in mature (65 percent) and emerging markets (73 percent) recognize 3PLs’ knowledge of FTAs as very important.

“Entering any new market requires due diligence and this is more critical when it’s an emerging market. Government investment in infrastructure will contribute to attracting global manufacturers and 3PLs to do business in emerging markets.” said Nicholas Wyss, senior vice president, global head of industry vertical fashion, Panalpina Management Ltd. “Shippers based in mature and emerging markets favor strong support from 3PLs for a successful 3PL operating model in emerging market countries.”

Spotlight: Challenges facing 3PLS in the Electronics sector

Multiple layers, supply constraints and the specific challenges the various channels present, coupled with short product lifecycles, mean the electronics industry demands a fast and nimble supply chain. Because electronics products are often high value, they pose specific challenges including assuring security, preventing counterfeit and packaging sufficiently to handle long distance transportation. Pressure to reduce operating costs was cited as the top logistics challenge for shippers in the electronics industry (59 percent), but just 28 percent believe 3PLs can help them with this challenge. The report’s findings suggest that within the electronics industry, 3PLs need to perform better in selling to electronics customers and shippers need to be more open to collaborating with 3PLs to address their top challenges.

“Logistics operations within the electronics industry are faced with a number of unique challenges. Close communication and collaboration between shippers and 3PLs is vital as supply chains become more complex” said Dr. C. John Langley, clinical professor of supply chain management, and director of development for the Center for Supply Chain Research, Penn State University. “As the demand for high value electronic goods increases, it is more important than ever that shippers are able to draw on 3PLs’ knowledge to achieve a solid supply chain.”

Spotlight: Importance of talent management for 3PLs

Despite the positive reports of the supply chain's role as a significant contributor to attaining business goals, the logistics industry is experiencing a shortage of capable supply chain managers prepared to work in vital management positions. As supply chains grow more complex, they require leaders who are more diverse and multi-faceted. The report revealed shippers and 3PLs most highly value operational execution (51 percent and 60 percent respectively) followed by people management and development skills (54 percent and 43 percent respectively) in their leaders. To date, the majority of both shippers and 3PLs recruit from inside their own industries but many are increasingly looking to recruit talent from other industries. Company success and performance, attractive salary and benefits and personal development opportunities within the company are considered the top qualities needed to attract talent.

“As logistics become ever more intrinsic to a company’s ability to attain its business goals, shippers and 3PLs must be able to put trust in supply chain leaders to be prepared for future business challenges.” said Neil Collins, managing partner, transportation & logistics--Americas, Heidrick & Struggles. “The logistics market must look to develop programs for talent management to create a clear, well-defined business strategy for the recruitment, retention and development of talent.”

About the study

2,258 logistics executives from both 3PL users and providers in North America, Europe, Asia-Pacific and Latin America, as well as other regions and geographies, participated in the 2012 Third-Party Logistics Study via a web-based survey. The findings were supplemented with a significant number of focus interviews with industry observers and experts, primarily relating to the special topics identified for this year. Facilitated workshops were also conducted where shipper participants collaborated on shared issues to help provide a better understanding of the survey’s results and to gain their valuable perspective as 3PL users. Though last year the 2010 3PL study was published, this year’s report is called 2012 since that will be when the results will be in active discussion.

For more information, visit www.capgemini.com.

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