The outlook for logistics

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The past 12 months have posed unprecedented challenges for logistics providers around the world … But in that time we have all learned a great deal and made business adjustments that undoubtedly positioned the industry for steady growth and continued success as the economy rebounds.” –Vince Hartnett, president, Penske Logistics

So, yes, OK, I am writing today about yet ANOTHER survey, this one taking the pulse of the global logistics industry (one would think I should be working for the Gallup organization, clipboard in hand and conducting door-to-door polling, the way I carry on about these surveys!)

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Whatever you think of survey methodology and whether it accurately reflects what’s occurring in the transportation and logistics markets right now, these reports t the very least open a window of sorts into what the top executives of the companies being polled are thinking. Are they pessimistic? Or optimistic? And, most importantly, what changes do they believe are occurring right now that could alter the business environment for their respective companies in the months ahead?

One of the more interesting trends that surfaced in the 16th annual 3PL Provider CEO Perspective survey is that supply chains are shortening or being relocated altogether – a continued trend towards what’s been called “reverse globalization” that shifts manufacturing activities away from Asia and back to North or Central America or Europe.

[Read that as: traditional factory jobs coming BACK to the U.S. as the complexities and costs of moving raw materials and finished goods throughout a globe-spanning manufacturing footprint become too much in some cases to bear.]

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“Many customers of the 3PLs involved in this survey took steps during the past year to shorten their supply chains,” noted survey author Professor Robert Lieb of supply chain management studies at Northeastern University, who conducted his reserach with Penske Logistics' sponsorship. “The CEOs surveyed in North America and Europe reported that, on average, nearly one-quarter of their clients had taken such steps during the past year. For the APAC [Asia-Pacific] region, the reported average was 9%.”

Lieb noted that 20 of the 35 CEOs that responded to this survey reported that some of their major clients had shifted some of their manufacturing activities from Asia to North or Central America or Eastern Europe. “The scale of that shift is small at this point, but many of the CEOs expect the trend to grow over the next several years as many companies seek to shorten supply chains,” he explained.

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Joe Gallick, senior vice president of sales for Penske Logistics, pointed out that during 2009, three separate surveys were conducted to generate this single report: one of the CEOs of large companies serving the North American third party logistics or “3PL” marketplace; another of those serving the European market; and a third of companies serving the Asia-Pacific3PL marketplace.

The 35 companies participating in this survey are big and well-known – including luminaries such as Cardinal Logistics, DHL Exel Supply Chain, Genco Supply Chain Solutions, Kuehne+Nagel Logistics, Landstar, Menlo Logistics, Penske Logistics, Ryder Integrated Logistics, Schneider Logistics, Transplace, UPS Supply Chain Solutions, Caterpillar Logistics Services, and CEVA Logistics, among others. Collectively, they generated in excess of $64 billion in 3PL revenues in those three global markets during 2008 – not too shabby by any stretch of the imagination.

However, this year, 16 of the 35 companies surveyed failed to meet their revenue growth projections during 2008 – nine in North America, six in Europe, one in APAC – though 33 reported they were at least at least moderately profitable during 2008, with only one unprofitable. Not surprisingly, though, the global recession is affecting their revenue growth outlook pretty significantly, with one-year company revenue growth projections at 6.9% in North America for this year (12.6% in 2008), negative 3.3% for Europe (10.8% in 2008) and 12.9% for APAC (21.4% in 2008).

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For the industry as a whole, the CEOS are in less sanguine about the outlook, projecting one-year industry revenue growth to average 3.5% for North America (9.0% in 2008), negative 1.4% for Europe (7.3% in 2008) and 10.7% for Asia-Pacific (11.2% in 2008).

Not surprisingly, 33 out of the 35 CEOs indicated that the economic downturn had intensified price compression issues within the industry (what a shocker this factoid is – not!), yet they also recognized battling over pricing had been a long-standing problem within the industry before the global recession began.

More seriously, the impact of the global recession on business relationships in the three regions is none too positive, with CEOs in all three regions reporting about one-quarter of such relationships with clients becoming more adversarial as a result of these tight economic times.

However, in some cases that was at least partially offset by the emergence of more collaborative relationships with other customers. Interestingly, more shippers in the North American region seem to be talking the collaborative approach, with 3PL CEOs reporting such relationships with more than one-third of their customers. European 3PL CEOs, by contrast, reported the same development with approximately 20% of their customers, while and APAC CEOs reported more collaborative relationships with approximately 13% of their clients.

What are the big problems ahead, according to 3PL CEOs? For those in North America, they include dealing with the ongoing economic recession and its related impact on volume, price compression, and the loss of talent tied to layoffs and hiring freezes. European CEOs focused on problems related to volume fluctuations, price compression and the financial instability of some important customers. The problems identified by the CEOs in the APAC survey included an ongoing lack of management talent in the region, the region’s “weak” infrastructure, cost pressures, and problems with government bureaucracy and corruption.

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Distilling all of this information down, Northeastern’s Lieb formed a 10-point “outlook” of major trends and issues that’ll affect the global market going forward:

1. Slow recovery of 3PL business, particularly in Europe

2. In many cases adversarial clients are likely to become ex-clients

3. Stronger relationships to emerge with many key 3PL customers

4. More emphasis on “quality” customers and solid verticals

5. Less aggressive posture on mergers and acquisitions

6. Slower pace of geographic expansion

7. More emphasis placed by large 3PLs on alliances with other 3PLs, carriers and middlemen

8. Failures among small/medium size 3PLs in all regions

9. Chronic management shortage lessened due to provider and user layoffs

10. Sustainability issues to receive greater attention, particularly in the APAC region

Yet despite those many negatives, Lieb reported that there’s a lot of positive thought flowing out there in the logistics community – especially as it relates to forming more collaborative (and thus hopefully more fiscally-equal) partnerships – and that could bode well for domestic truckers.

“Despite bearish growth projections and acknowledgement that consolidation, pricing pressures and operational reductions were, and may continue to be, necessary adjustments, the opportunities for improved collaboration with customers, expansion into emerging markets and the possible addition of new management talent have many excited about the next several years,” Lieb said.

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Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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