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Growing pains forlogistic

outsourcers

Submitted by:Group 9

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Third Party Logistic Providers 3 PLs

$100 billion industry

Determined to save money and to focus on corebusiness

Market of 3 PLs grow at a CAGR of 10 + %

3 PLs are hard pressed due to increasingcustomer demands

Shrinking profit margins and inadequate ROI

Increasing pressure from related transportbusiness

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Current Scenario of Market

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The world of 3 PLs

Help reduce

Capital spending

Working capital

Personnel cost

Offer customers 15 to 20% saving on warehousing andtransportation cost

Promised to reduce customer delivery cycle by 10 to 25 %

Help the companies to move their inventories twice as fast ascompared to in house logistics

Customer demands cross border integration from 3 PLs

Use IT to optimize flow of information

Potential savings are frequently larger for information relatedlogistics costs than for asset related logistics.

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Tougher World for LogisticProviders

Average ROI (7-8%) is well below WACC

Reasons for low ROI are

Over payment for acquisitions

Delays in capturing integration benefits

Flawed contractual relationship

Transparent cost structure

Low renewal rates (~ 40%) Difficulty in attaining economies of scale

Contract by contract approach

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A h B ild L di

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Approaches to Build Leading3PL

1. Offering more value Improve supply chain design skills focus on

industries with reducible assets and informationrelated costs

Ignore companies which regard logistics as a coresuccess factor Master the specifics of the industry supply chain

match supply and demand flows with cost andperformance

Develop strong IT systems Expand range of services example integrated

logistics and trade forwarding Enhanced regional and global scope

A h t B ild L di

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Approaches to Build Leading3PL contd.

2. Structural Scale Advantages Build scale advantages that will be harder for competitors

to duplicate example UPS Use same warehouse and transportation assets to serve

many customers Larger volumes enable to consolidate and renegotiate

freight purchases at better rates and spread back-officeand IT costs over large customer base

Increased density by using shared networks Link several participants in one network

Standardizing and integrating various IT systems Setting priorities Negotiations for sharing benefits and fixed network costs

A h t B ild L di

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Approaches to Build Leading3PL contd.

3. Pursuing consolidation- 3 PL market is fragmented

- M&A could help 3 PL improve their economics

- M&A offered limited economies of scale in immediateterm but offers integration benefits in long run

- Multi client user network can be used if the mergedcompanies had customers in the same sector

- 2 groups for industrial consolidation

- Group 1: developing strong regional position in number ofsectors e.g., Exel, DHL

- Group 2: dominate one sector in single region e.g., TDG,microlog

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Thank You