Boom Time Seen for Outsourced Logistics Business

Enterprise expenditure on 3PLs set to increase significantly, but service providers must understand factors driving outsourcing trend - Datamonitor

Enterprise expenditure on 3PLs set to increase significantly, but service providers must understand factors driving outsourcing trend - Datamonitor

London — January 25, 2006 — Business looks set to boom for third-party logistics providers (3PLs), with significant increases in spending expected for companies across several sectors in the years ahead, according to a new study from independent market analyst Datamonitor.

In its recently published "European Logistics House View" study, Datamonitor predicts that expenditures on outsourced 3PL provision across the automotive, consumer, hi-tech, pharmaceutical and retail industries will increase significantly over the coming four years.

In Europe's highly competitive automotive industry, for example, continual pressure on costs will mean 3PLs account for 60 percent of overall expenditure on logistics services by 2010, according to the report. However, Datamonitor advises that 3PLs must understand the factors driving the outsourcing trend in respective industries if they are intent on winning new business.

Rising Spend in European Retail Market

Although the grocery retail sector is largely nationalistic due to differing domestic tastes within Europe, the largest European markets are reaching saturation point. As a result, grocery retail companies are developing along two dimensions.

First, there has been a marked increase in the product ranges offered by the largest retailers, such as Asda and Tesco, which now include clothing and also electrical items. Secondly, companies are also expanding geographically, particularly into Eastern Europe and the Far East.

According to Datamonitor, both of these trends will affect the complexity of the industry's supply chain, creating windows of opportunity for 3PLs to capture a share of what Datamonitor expects to be a EUR10 billion ($12.3 billion) rise in logistics spend by 2010.

Consumer Companies Moving Eastwards

Meanwhile, within consumer electronics, the introduction of the Waste Electrical and Electronic Equipment (WEEE) directive in June will offer 3PLs with reverse logistics capabilities a chance to capture significant market share.

"Within the consumer grocery sector European companies are shifting their gaze eastwards due to competitive pressures caused by an increase in private labeling and a rise in discounters," says Chris Morgan, Datamonitor logistics analyst and author of the research. "However, as with the retail sector, success in Eastern Europe will largely depend on the available logistics network, which is where 3PLs with the necessary infrastructure could play a significant role."

Sector Breakdown

Datamonitor's findings on other segments included:

  • Hi-tech - outsourced logistics will account for two-thirds of overall logistics spend in 2010
    The supply chain in the hi-tech sector has come under pressure due to the success of the "just-in-time" business model and the continuing globalization of both the production and consumer bases. As a result, logistics operations are becomingly increasingly complex. Consequently, Datamonitor expects logistics spend in this sector to increase by EUR600 million ($735.8 million) through to 2010, two-thirds of which will be given to 3PLs.

  • Pharmaceutical industry - 3PLs have the potential to capture market share
    Outsourcing of logistics in the European pharmaceutical industry is not as mature as in the U.S. market. Although traditionally a difficult sector to break into due to strict compliance codes, 3PLs have the potential to capture market share due to their expertise. This will be especially true for those that can offer global networks, as companies are relocating their manufacturing bases to low-cost countries due to the deregulation of the pharmaceutical market and the strengthening of intellectual property agreements.

  • Automotive - higher wages and legislation playing in favor of outsourced logistics
    The problem of higher wages in the EU15 countries — Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom — has continued to force automotive manufacturers to shift some production to the emerging markets, including the recently ascended E.U. states. Moreover, in 2007 the introduction of the End of Life Directive, which necessitates that manufacturers set up systems for dealing with old automotive parts, will also present considerable opportunities to logistics players.
Morgan concludes: "The driver for all industries looking to outsource the movement of their goods is the need to reduce costs in order to increase profitability. Employing an expert to maintain various stages of its logistical supply chain allows a company to focus on its core competencies and 'stick to the knitting.' However, 3PLs will have to understand and anticipate the specific factors driving their targeted industry if they are to satisfy current customers, capture new ones and make the most of this boom time."

Datamonitor's "European Logistics House View" provides an overview of the European logistics market, incorporating top-level data, forecasts and analysis of the main factors affecting the industry both currently and in the future. The presentation assesses the breakdown of logistics spend across five industry sectors, spanning the EU15 countries. Key metrics include in-house versus outsourced logistics spend, with forecasts to 2010.

Additional Articles of Interest

— All that glitters may not be gold when it comes to outsourcing manufacturing productions to China. First, weigh the costs and learn the facts with this helpful guide. Read "China or Bust: Recognizing the True Costs of Outsourcing" on

— Supply chain executives can drive profitability ahead if they closely align their supply chain strategies to five universal business plan challenges. Read more in "Collaborate to Innovate," in the December 2005/January 2006 issue of Supply & Demand Chain Executive.

— Consumers spent nearly $28 billion on the "Black Friday" after Thanksgiving 2005, up 21.9 percent over 2004's results. Great news for retailers, but a potential nightmare for supply chain executives trying to get the right product on the right shelf at the right time. The lesson: Now is the time to plan for the next peak shipping season. Read more in the "Seasons' Peakings," the Executive Memo column in the December 2005/January 2006 issue of Supply & Demand Chain Executive.