Executive Briefings

3PL CEOs Like Where Their Companies Are Headed and Their Revenue Opportunities, Study Finds

CEOs of third-party logistics services providers are confident about the current state and future revenue growth potential of both their companies and the regional 3PL industries.

The annual survey, conducted by Robert Lieb, professor of supply chain management at Northeastern University's D'Amore-McKim School of Business, which this year included the CEOs of 30 of the world’s largest 3PLs, found that more than 80 percent 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 percent and 11.50 percent, respectively. European CEOs forecasted 5.33 percent 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 percent; European CEOs projected average industry revenue growth rates of 4 percent; and CEOs in the Asia-Pacific region projected average industry revenue growth rates of 5.75 percent.

The findings analyze responses from 30 major 3PL CEOs across North America, Europe and Asia-Pacific whose companies generated more than $40 billion in revenue in 2014. The report was co-authored with Kristin Lieb, associate professor of marketing communications, Emerson College. The survey is underwritten by Penske Logistics.

Key findings include:

The Growth of Mergers and Acquisitions

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 totaling $18bn. This is leading to a significant restructuring of the industry in many markets, and will require substantial 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 solutions 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 percent of their revenue growth over the next three years will come from M&A activity. European CEOs projected that figure at 3.67 percent while CEOs from the Asia-Pacific region predicted that 4 percent of their revenue growth during that period would be M&A related.

A More Focused E-Commerce Approach 

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-mile delivery. On average, e-commerce now accounts for an average of 11.85 percent North American 3PLs’ revenue, and CEOs predict it will increase to 20.85 percent in three years. On average e-commerce revenues now account for 5.33 percent of European respondent revenues, and that percentage has been projected to grow to 9 percent 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. For all three regions surveyed, CEOs said that the expansion of 3PL technology support for e-commerce was critical for the industry’s ongoing success.

“Amazon’s recent actions are impacting e-commerce in a major way,” said Northeastern’s Lieb. “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.

Additional Supply Chain and Logistics Industry Trends and Insights

West Coast Port Issues: In early 2015, one of the worst labor conflicts in recent history, labor slowdowns at major West Coast ports, created significant supply chain issues for carriers, 3PLs and shippers, particularly in the North America and Asia-Pacific regions. Consequences included long delays, the re-routing of many shipments, shipments getting stuck in ports, frequent mode shifts (ocean to air), changes in destination ports, long transit times, missed sales for customers and considerable customer unrest. Amid these significant issues, the conflict underscored the importance of companies addressing risk mitigation and choosing a proactive 3PL partner with a proven track record and strategy for handling disruptions. Despite their customer’s problems with the affected ports, 3PLs believe that few of them will significantly change their degree of reliance upon those ports in the future.

Global 3PL Industry Concerns: In Europe and North America, CEOs continue to be concerned by the truck driver shortage and talent management issues spanning the industry. Twenty-six percent of North American CEOs and 60 percent of Asia-Pacific CEOs cited the worsening driver shortage to be a key factor effecting 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.

Lower Oil Prices: In North America, 80 percent 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 programs of 3PLs.

Economic Uncertainties: 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.

Future Impacts of Ride-sharing Services: Ride-sharing companies, most notably Uber, are believed to potentially 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-mile delivery services, becoming a small LTL carrier and taking business away from small-volume couriers.

Survey Design

Companies participating in the annual survey included: Agility Logistics, CEVA Logistics, Cardinal Logistics, Coyote Logistics, Genco, DHL Excel Supply Chain, DSC Logistics, Kuehne + Nagel Logistics, Inc., Menlo Logistics, MIQ Logistics, Nippon Express, Panalpina, Penske Logistics, Rhenus Contract Logistics, Transplace, UPS Supply Chain Solutions, UTi Integrated Logistics and Werner Logistics.

Source: Penske Logistics

The annual survey, conducted by Robert Lieb, professor of supply chain management at Northeastern University's D'Amore-McKim School of Business, which this year included the CEOs of 30 of the world’s largest 3PLs, found that more than 80 percent 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 percent and 11.50 percent, respectively. European CEOs forecasted 5.33 percent 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 percent; European CEOs projected average industry revenue growth rates of 4 percent; and CEOs in the Asia-Pacific region projected average industry revenue growth rates of 5.75 percent.

The findings analyze responses from 30 major 3PL CEOs across North America, Europe and Asia-Pacific whose companies generated more than $40 billion in revenue in 2014. The report was co-authored with Kristin Lieb, associate professor of marketing communications, Emerson College. The survey is underwritten by Penske Logistics.

Key findings include:

The Growth of Mergers and Acquisitions

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 totaling $18bn. This is leading to a significant restructuring of the industry in many markets, and will require substantial 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 solutions 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 percent of their revenue growth over the next three years will come from M&A activity. European CEOs projected that figure at 3.67 percent while CEOs from the Asia-Pacific region predicted that 4 percent of their revenue growth during that period would be M&A related.

A More Focused E-Commerce Approach 

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-mile delivery. On average, e-commerce now accounts for an average of 11.85 percent North American 3PLs’ revenue, and CEOs predict it will increase to 20.85 percent in three years. On average e-commerce revenues now account for 5.33 percent of European respondent revenues, and that percentage has been projected to grow to 9 percent 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. For all three regions surveyed, CEOs said that the expansion of 3PL technology support for e-commerce was critical for the industry’s ongoing success.

“Amazon’s recent actions are impacting e-commerce in a major way,” said Northeastern’s Lieb. “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.

Additional Supply Chain and Logistics Industry Trends and Insights

West Coast Port Issues: In early 2015, one of the worst labor conflicts in recent history, labor slowdowns at major West Coast ports, created significant supply chain issues for carriers, 3PLs and shippers, particularly in the North America and Asia-Pacific regions. Consequences included long delays, the re-routing of many shipments, shipments getting stuck in ports, frequent mode shifts (ocean to air), changes in destination ports, long transit times, missed sales for customers and considerable customer unrest. Amid these significant issues, the conflict underscored the importance of companies addressing risk mitigation and choosing a proactive 3PL partner with a proven track record and strategy for handling disruptions. Despite their customer’s problems with the affected ports, 3PLs believe that few of them will significantly change their degree of reliance upon those ports in the future.

Global 3PL Industry Concerns: In Europe and North America, CEOs continue to be concerned by the truck driver shortage and talent management issues spanning the industry. Twenty-six percent of North American CEOs and 60 percent of Asia-Pacific CEOs cited the worsening driver shortage to be a key factor effecting 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.

Lower Oil Prices: In North America, 80 percent 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 programs of 3PLs.

Economic Uncertainties: 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.

Future Impacts of Ride-sharing Services: Ride-sharing companies, most notably Uber, are believed to potentially 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-mile delivery services, becoming a small LTL carrier and taking business away from small-volume couriers.

Survey Design

Companies participating in the annual survey included: Agility Logistics, CEVA Logistics, Cardinal Logistics, Coyote Logistics, Genco, DHL Excel Supply Chain, DSC Logistics, Kuehne + Nagel Logistics, Inc., Menlo Logistics, MIQ Logistics, Nippon Express, Panalpina, Penske Logistics, Rhenus Contract Logistics, Transplace, UPS Supply Chain Solutions, UTi Integrated Logistics and Werner Logistics.

Source: Penske Logistics