Proving the Business Case for the Internet of Things

Amazon poses technology problems for 3PL providers

Steve Rogerson
October 6, 2015
 
Third-party logistics providers are actively seeking technology to help them cope with an increase in e-commerce business, according to the 22nd Annual Surveys of Third-Party Logistics Provider (3PL) CEOs, sponsored by Penske Logistics.
 
For all three regions – Asia-Pacific, Europe and North America – surveyed, CEOs said the expansion of 3PL technology support for e-commerce was critical for the industry's on-going success. Survey respondents cited significant changes in the e-commerce marketplace in the past year, referencing strong growth, an increased focus on next-day delivery and rapid expansion of international e-commerce.
 
In both North America and Europe, CEOs reported that Amazon had a particularly significant impact on supply chains and the e-commerce industry in their regions, highlighting the company's focus on same-day delivery and its developing relationships with 3PL companies for last-kilometre delivery.
 
"Amazon's recent actions are impacting e-commerce in a major way," said Robert Lieb, professor of supply chain management at Northeastern University's D'Amore-McKim School of Business. "The company's market dominance and huge popularity with customers creates a great opportunity for 3PLs to assist Amazon, and ensure customers get the goods they need – especially during peak e-commerce seasons."
 
On average, e-commerce now accounts for an average of 11.85 per cent of North American 3PLs' revenue, and CEOs predict it will increase to 20.85 per cent in three years. On average e-commerce revenues now account for 5.33 per cent of European respondent revenues, and that percentage has been projected to grow to 9 per cent in three years. Growth in Asia-Pacific's e-commerce market was aided by the region's massive e-commerce provider, Alibaba – a company Asian-Pacific CEOs believe might become a significant competitor for 3PL business in the region.
 
Ride-sharing companies, most notably Uber, are believed potentially to pose a threat to aspects of the 3PL industry in the future. As an international transportation network with technology at its core, Uber operates in more than 60 countries and has attracted significant investment capital. The company could eventually pose a threat to 3PL business, by providing last-kilometre delivery services, becoming a small LTL carrier and taking business away from small-volume couriers.
 
The survey also revealed that 3PL CEOs are confident about the current state and future revenue growth potential of both their companies and the regional 3PL industries.
 
The annual survey, which this year included the CEOs of 30 of the world's largest 3PLs, found that more than 80 per cent of the companies surveyed were profitable in 2014. CEOs from North America and Asia-Pacific forecasted three-year revenue growth averages for their companies of 7.86 and 11.50 per cent, respectively. European CEOs forecasted 5.33 per cent growth over the same period.
 
CEOs across North America, Asia-Pacific and Europe were also asked to project regional industry revenue growth rates for the next three years in each of their regions. North American CEOs projected average industry revenue growth rates of 5.92 per cent; European CEOs projected average industry revenue growth rates of 4 per cent; and CEOs in the Asia-Pacific region projected average industry revenue growth rates of 5.75 per cent.
 
The surveys were being presented at last month’s Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference in Florida by Lieb and Joe Carlier, senior vice president for Penske Logistics. The findings analyse responses from 30 major 3PL CEOs across North America, Europe and Asia-Pacific whose companies generated more than $40bn in revenue in 2014. The report was co-authored with Kristin Lieb, associate professor of marketing communications at Emerson College.
 
"Last year, the logistics industry experienced one if its best years in many years and 2015 is on-track to be a good year as well," said Marc Althen, president of Penske Logistics. "The 3PL industry continues to deliver value, savings and efficiencies by collaborating closely with customers and adjusting to rapidly changing economic conditions, business challenges such as capacity and talent shortages, as well as consumer online shopping needs that demand new and agile supply chain and fulfilment models."
 
Only seven of the 30 CEOs reported significant M&A activity by their companies during the past year. Following the onset of the global recession in 2008, there were relatively few large-scale acquisitions in the 3PL industry. That has changed dramatically since early 2014. Since that time, there have been ten major acquisitions by 3PLs totalling $18n.
 
This is leading to a significant restructuring of the industry in many markets, and will require effort on behalf of those 3PLs to integrate those operations post-acquisition. It will also result in significant brand confusion in the marketplace that will have to be addressed by those companies. Many of the CEOs involved in this year's surveys believe this recent wave of M&A will lead to defensive acquisitions by other 3PLs.
 
CEOs across North America, Europe and Asia-Pacific agree that the need for M&A stems from four key factors: 3PLs experiencing market pressure to expand service offerings; an increased desire to offer one-stop services to customers; the need to drive scale in specific markets; and a desire to expand their geographic footprint.
 
North American CEOs predicted that 6.54 per cent of their revenue growth over the next three years would come from M&A activity. European CEOs projected that figure at 3.67 per cent while CEOs from the Asia-Pacific region predicted that 4 per cent of their revenue growth during that period would be M&A related.
 
In Europe and North America, CEOs continue to be concerned by the truck driver shortage and talent management issues spanning the industry. More than a quarter of North American CEOs and over half of Asia-Pacific CEOs cited the worsening driver shortage to be a key factor affecting the global 3PL market. Additionally, an inflexible workforce, oppressive regulations, rapidly changing market conditions, increased costs for technology upgrades and capacity constraints are dynamics these CEOs believe will affect the global 3PL industry over the next several years.
 
In North America, 80 per cent of CEOs reported that the decline in oil prices had a positive impact on key customers, particularly with regard to lower transportation costs. CEOs agree that lower oil prices are not likely to have a significant impact on the environmental sustainability programmes of 3PLs.
 
Changing economic conditions are impacting the 3PL industries in Europe and Asia-Pacific, in particular. While a few European CEOs reported observing some improvement in the Eurozone, many agree that the European 3PL market has not rebounded significantly in the past year. The majority of Asian-Pacific CEOs cite the declining GDP growth rate in China as an industry dynamic impacting the region's 3PL industry, with additional responses citing infrastructure issues in the region's emerging markets and difficulties in developing accurate economic forecasts.
 
• The global connected logistics market is expected to grow from US$5bn in 2015 to $20.5bn by 2020, at a CAGR of 32.3 per cent, according to Markets & Markets. The key players in this market include Cisco, Eurotech SPA, GT Nexus, IBM and Infosys.