3 PL CEO Survey 2006 | Apr 10, 2023 1
North American, European andAsia-Pacific Markets for 3PL
Services:The 3PL Provider CEO Perspective
Dr. Robert C. Lieb, Professor of Supply Chain Management,
Northeastern University
Karen V. Butner, Associate Partner, IBM
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Discussion Topics
Introduction to the Surveys and the Report Findings
Summary of Major Regional Findings
- Americas
- Europe
- Asia-Pacific
Comparative Key Findings
Conclusions and Expectations
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The 2006 Third-Party Logistics Provider CEO Surveys
America22
EMEA11
APAC11
This is the 13th year that the annual 3PL CEO Surveys have been conducted.
Forty-four CEOs of the world’s leading 3PLs participated in our three regional surveys. The regions examined were North America, Europe, and the Asia-Pacific region.
Collectively their companies generated nearly $50 billion in 3PL revenues in those markets in 2005.
The surveys provide a global overview of the 3PL industry from the perspective of the CEOs.
The data generated not only give insight into the specifics of the regional markets, but also allow comparisons across geographies.
The survey data also provides an industry benchmark, and has been used by 3PLs in their strategic planning efforts.
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North American SurveyCEOs of 22 of the largest North American 3PLs participated in the survey
Cardinal Logistics Caterpillar Logistics Services DSC Logistics Exel Logistics Genco Kuehne & Nagel Logistics, Inc. Landstar Maersk Logistics Menlo Logistics MeridianIQ NAL
NYK Logistics Panalpina Penske Logistics Pittsburgh Logistics Ryder Schenker Schneider Logistics TNT Logistics Transplace.com UPS Supply Chain Solutions UTi
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North American Survey3PL operating revenues in North America continue to grow
$1.045,00
$883,00$846,00
$752,00$823,00
0
200
400
600
800
1000
1200
2001 2002 2003 2004 2005
Operating Year
Op
erat
ing
Rev
enu
e ($
M)
Average Annual Revenues of Participating Companies
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North American SurveyDuring the past three years, these companies have become more successful in meeting their regional revenue growth projections
0 10 20 30 40 50 60 70
Exceeded
Met
Failed
2004
2005
2006
North American 3PL Performance in Meeting Growth Projections
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North American SurveyThe majority of CEOs indicated that their companies and the North American 3PL industry had been moderately profitable in 2005
Company Profitability
0 20 40 60 80 100
Unprofitable
Break even
Moderatelyprofitable
Veryprofitable
For the third straight year, none of the participating CEOs reported that their North American business unit failed to record a profit during the year.
Industry Profitability
0 20 40 60 80
Moderateunprofitable
Break even
Moderatelyprofitable
Veryprofitable
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North American SurveyIndustry dynamics again highlighted continued pricing pressures, growing demand for 3PL services, and increased pressure to internationalize service offerings
0 5 10 15 20 25 30 35
Entrance of large foreign based 3PL providers into theU.S. market
Increasing customer expectations with respect to ITsupport
Large-scale mergers of 3PL providers
Increased pressure to internationalize service offerings
Growing interest in outsourcing broader array of services
Continuing downward pressure on pricing
2005
2006
Total points
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North American SurveyFor the second straight year, the CEOs saw the greatest industry opportunities in the possible expansion of their international services
0 5 10 15 20 25 30
Expansion of transportationmanagement services
Offering enhanced ITsolutions
Expansion of internationalservices
2005
2006
Total points
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North American SurveyFinding/keeping management talent is the region’s top problem, followed by the high-cost/ low return on IT investments, and steadily increasing customer expectations
0 5 10 15 20 25 30 35 40
Pressure to globalize serviceofferings
Continuing downwardpressure on prices
Steadily increasing customerexpectations
High-cost, low return on ITinvestments
Finding and keepingmanagerial talent
2005
2006
Total points
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North American SurveyRising fuel prices have impacted 3PL costs, but contract provisions have allowed most of those increases (86%) to be passed on to customers
0 10 20 30 40 50 60
No impact
Moderate impact
Substantial impact
The Impact of Increasing Fuel Costs on 3PL Costs
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European SurveyCEOs of 11 of the largest European 3PLs participated in the survey
Caterpillar Logistics Services Exel Logistics Geodis Kuehne & Nagel Logistics, Inc. Maersk Logistics Menlo Logistics Penske Logistics Ryder Schneider Logistics TNT UPS Supply Chain Solutions
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European SurveyAverage annual 3PL operating revenues in Europe were reported at approximately the same level as the previous year
$1.39$1.41
$1.25$1.31
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2002 2003 2004 2005
Operating Year
Op
erat
ing
Rev
enu
e ($
M)
Average Participating European 3PL Company Revenue
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European SurveySome European 3PLs continue to have problems meeting their revenue growth projections
0 10 20 30 40 50
Exceeded
Met
Failed to Meet
2006
2005
European 3PL Performance in Meeting Revenue Growth Projections
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European SurveyThe majority of European CEOs indicated that their companies and the European 3PL industry had been moderately profitable in 2005
Company Profitability
0 20 40 60 80 100
Unprofitable
Break even
Moderatelyprofitable
Veryprofitable
Industry Profitability
0 20 40 60 80 100
Unprofitable
Break even
Moderatelyprofitable
Veryprofitable
2005 2004
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European SurveyDuring the past several years European 3PLs have responded to the 2004 expansion of the EU in a number of ways
0 2 4 6 8 10 12 14
Closed Western European facilities and opened facilitiesin new EU member countries
Acquired 3PLs already operating in those countries
Developed alliances with 3PLs already operating in thosecountries
Made significant infrastructure investments in thosecountries
Followed existing customers into those countries
2004
2005
2006
Total points
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European Survey Industry dynamics again highlighted pricing pressures, growing demand for 3PL services, and large-scale mergers of 3PL providers in the region
0 5 10 15 20 25 30
Increased pressure tointernationalize
Large-scale mergers of 3PLproviders
Growing interest inoutsourcing broader array of
services
Continuing downwardpressure on pricing
2005
2006
Total points
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European SurveyAccording to the European CEOs their companies face a number of important management challenges in Europe. These include:
Effectively integrating recent acquisitions into their companies Accessing adequate funds to support IT expansion efforts Development of adequate resources to support company moves into Eastern
Europe and Russia Hiring and retaining high quality human resources Effectively managing company growth in Europe Developing good implementation skills with respect to new accounts Building a Pan-European platform from which new services might be
launched Improving processes to lower costs
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Asia-Pacific Region SurveyCEOs of 11 of the largest Asia-Pacific Region 3PLs participated in the survey
Caterpillar Logistics Services DHL Eagle Global Logistics Exel Logistics Kuehne+Nagel Logistics Landstar Logistics Maersk Logistics Menlo Logistics MeridianIQ UPS Supply Chain Solutions UTi
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Asia-Pacific Region Survey3PL operating revenues in Asia continue to grow
$565,00
$361,00
$433,00
0
100
200
300
400
500
600
2003 2004 2005
Operating Year
Op
erat
ing
Rev
enu
e ($
M)
Average Annual APAC Operating Revenues of Participating 3PLs
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Asia-Pacific Region SurveyOn average, China will still remain the region’s most important 3PL revenue source in 2008, but India’s share of regional revenues will have tripled between 2004-2008
51,6%
14,0%16,0%
6,0%
28,0%
37,0%
14,0%12,0% 13,0%
24,0%
12,5%
9,0%
21,8%
4,0%
36,0%
0%
10%
20%
30%
40%
50%
60%
China Japan Australia India Other countries
2004 2005 2008 projected
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Asia-Pacific Region SurveyThe majority of APAC CEOs indicated that their companies and the regional 3PL industry were at least moderately profitable in 2005
Company Profitability
0 20 40 60 80
Unprofitable
Break even
Moderatelyprofitable
Veryprofitable
Industry Profitability
0 20 40 60 80 100
Unprofitable
Break even
Moderatelyprofitable
Veryprofitable
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Asia-Pacific Region SurveyIndustry dynamics highlighted pricing pressures, large-scale merger activity, and increased pressure to internationalize company service offerings
0 2 4 6 8 10 12 14 16
Entrance of large foreign based 3PL providers into theU.S. market
Increasing customer expectations with respect to ITsupport
Growing interest in outsourcing broader array of services
Increased pressure to internationalize service offerings
Large-scale mergers of 3PL providers
Continuing downward pressure on pricing
Total points
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Asia-Pacific Region SurveyMany providers have established operations in China, but their success in meeting various goals in China varies widely among these companies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Establishing the companybrand in the market
Penetrating the Chinese 3PLmarket
Generating operating profits inChina
Attracting “local” accounts
Very Successful
Successful
Unsuccessful
Very Unsuccessful
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Asia-Pacific Region SurveyIn identifying regional growth opportunities, some CEOs focused on specific countries, while others emphasized opportunities related to specific services
Servicing the continued growth of the domestic markets in China and India Supporting global sourcing efforts of manufacturers of all sizes Supporting increasingly complicated supply chain solutions in the region Provision of freight management services or reliable ground transportation
options in China Expansion of the visibility tools offered to clients Building and operating shared-use of facilities Expansion of value added services Provision of customs clearance services
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Asia-Pacific Region SurveyThe CEOs identified a wide range of regional problems
Human resources management issues - Competition for skilled human resources is intense - It is hard to match the available labor skill set to client requirements- Managers tend to have single or dual country expertise, but tend to lack
“theatre-wide” knowledge
Compliance with national and local regulations within the region is difficult
Operating costs continue to rise with wage increases
There is a lack of political stability in the region
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Key Comparative Findings: Mergers and Acquisitions (M/A)The industry consolidation movement continues in all three regions
Twenty-three of the 44 CEOs involved in the regional surveys reported their companies had been involved in significant M/A activity in their regions during the past year
Two-thirds of the CEOs ranked continuation of the consolidation movement among the most important regional changes they expect during the next three years
CEOs in all regions expect a significant percentage of their revenue growth in the next three years to come from M/A activity: North America—15.4%; Europe—17%; and, Asia-Pacific Region—22.5%
To date, the impact of the M/A movement on the 3PL marketplace has varied substantially by region
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Key Comparative Findings: Mergers and Acquisitions (M/A)There are typically a variety of post-acquisition issues to be addressed
Integration of operations, reporting and IT systems
Addressing a wide-range of people issues including blending different “cultures,” handling redundancy, and compensation issues
Maintaining customer relationships throughout the transition period
Blending sales and marketing strategies
Presenting a “single-face” to the marketplace
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Key Comparative Findings: Managing Customer RelationshipsIn all three regions 3PLs are increasingly customer-selective, and have generally been successful in developing more collaborative relationships with key customers
0 20 40 60 80 100
Verysuccessful
Moderatelysuccessful
Unsuccessful
EMEA America APAC
0 20 40 60 80 100
Yes
No
EMEA America APAC
More customer selectivity over the past several years
Success in developing collaborative working relationships
with key customers
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Key Comparative Findings: Managing Customer RelationshipsCEOs identified many barriers to improved collaboration including:
Lack of top management commitment to the concept in client companies Client perception that 3PLs provide a service not a strategic partnership Lack of necessary resources in one or both organizations to support true
collaboration Too many contact points within the client organization at different
organizational levels Lack of client willingness to share critical information with the 3PL Increased use of consultants to manage the bid process—”they get in the way” Lack of trust in one or both organizations Internal conflicts within the client organization The short time horizon of many clients
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Key Comparative Findings: Managing Customer Relationships3PLs have made many organizational changes to promote collaborative relationships with key accounts, including formation of:
Executive sales teams to focus on key accounts New business development organizations Customer advisory teams and consumer councils that are involved in strategic planning exercises A larger customer solutions group Industry-specific groups to focus on the dynamics of particular industries Focused account leadership groups A key account management organization A restructured customer service organization to assure that key accounts receive a uniform quality
of service around the globe A new customer care organization A global account management program that focuses on key accounts Positions for key customers on the company’s board of directors
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Key Comparative Findings: Managing Customer Relationships3PLs have made many operational changes to promote collaboration with key accounts. These have included:
A commitment to longer-term contracts with key customers The use of consultative selling techniques Regular operations reviews Support for collaborative transportation planning among customers Co-development of new SCM capabilities with key customers More frequent customer visits, and investment in more contact people Investments in more sales and relationship management training for employees More customer involvement in analytical projects More aggressive linkages between the company’s sales and customer service
activities The use of more individual incentives related to key accounts A commitment to constantly evaluating customer requirements Presentation to key accounts of more strategic proposals with larger potential
payoffs to both parties Focus on value creation for customers even in areas in which the company doesn’t
directly provide the service.
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Key Comparative Findings: Managing Customer RelationshipsMany of these companies are also using technology to support collaboration
0 20 40 60 80 100
Yes
No
EMEA America APAC
Use of technology in attempting to build collaborative working
relationships with key customers CRM software
Supply chain visibility tools
Supply chain integration software
Software that supports analytical projects for customers
Customer performance portals (not CRM)
EDI linkages to customers
Technology used
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Key Comparative Findings: Market Differentiation FactorsMost Frequently Cited Differentiation Factors by RegionWe found similarities and differences in what these companies emphasize in attempting to differentiate themselves from competitors in the regional markets
A commitment to high-quality customer service
The company’s global reach
Breadth of company service offerings
The company’s superior IT support capabilities
The company’s excellent operational execution
North America
The talent of company employees
The company’s global reach
Breadth of company service offerings
The company’s superior IT support capabilities
The company’s non-asset based approach to 3PL
EMEA
The company‘s long-term presence in the region
The company‘s global reach
Breadth of company service offerings
The company‘s superior IT support capabillities
The company‘s experience in particular industry verticals
APAC
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Key Comparative Findings: The Use of 4PLs or LLPsMany CEOs in all three regions believe there is increased customer interest in the possible use of 4PLs or Logistics Lead Providers (LLP)
APAC
YES45%
NO55%
Europe
YES70%
NO30%
America
YES59%
NO41%
Question: Many industry observers believe that there is growing interest in the use of 4PLs or LLP to manage multi-company relationships. Do you agree?
Especially in Europe the respondents believe there is an increased customer interest in 4PLs or LLP
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Key Comparative Findings: The Use of RFIDThe percentage of 3PL customers either “committed to RFID” or conducting pilot studies of RFID remains quite limited in all three regions
4%
13%
7%
0%
2%
4%
6%
8%
10%
12%
14%
AMER EMEA APAC
4%
14%
16%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
AMER EMEA APAC
Percentage of 3PL customers “already committed to the use
of RFID”
Percentage of 3PL customers conducting pilot studies of the
technology
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Key Comparative Findings: Revenue growth projectionsNorth AmericaCEOs still bullish about regional company growth prospects
North American CEO Projections of Their Company’s Growth Rate
Next year
Next three years
0%
5%
10%
15%
20%
25%
30%
'98 '99 '00 '01 '02 '03 '04 '05 '06
Projectedgrowth rate
North American CEO Projections of Their Company’s Growth Rate
Survey year
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North American CEO Projections of Industry Growth Rate
0%
5%
10%
15%
20%
'98 '99 '00 '01 '02 '03 '04 '05 '06
Survey year
Projectedgrowth rate
Next year
Next three years
Key Comparative Findings: Revenue Growth Projections North America CEOs continue to project solid growth for the North American 3PL industry
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Key Comparative Findings: Revenue growth projectionsAPAC CEOs project substantially higher company and industry growth rates than their European counterparts
APAC and EMEA CEO Projections ofCompany and Industry Growth Rates
Projection 2005 2006 2005 2006
1 year - Company 18% 30.9% 16% 15%
3 year - Company 18% 23.3% 13% 17%
1 year - Industry 20% 16.5% 9% 9%
3 year - Industry 16% 14.8% 9% 9%
APAC EMEA
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Conclusions and Expectations
Where do we find similarities across the regions? Company profitability—nearly all companies in the surveys were
profitable in 2005
Industry profitability—nearly all CEOs categorized the 3PL industry in their region as being profitable in 2005
Growth projections—3PL service demand was projected to grow substantially in all three regions over the next three years
Market dynamics—continued growth, price compression, M/A activity and pressures to expand internationally are major drivers in all three regions
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Conclusions and Expectations
Problems similar across regions—they included depressed margins, talent shortages, rising customer expectations, post-acquisition integration issues
Customer relationship focus—in all regions 3PLs are becoming more customer-selective, more industry focused, and have made many changes to promote more collaboration with key customers
Consolidation will continue—will happen in all regions and impact will increase
4PL interest and potential—growing interest across regions, but few CEOs expect extensive use in the future
RFID “commitment” still low—this is the case in all regions, CEO consensus is that major impact is three-five years off
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Conclusions and Expectations
Where do we find differences across the regions? Growth rate projections—the rates were high and nearly identical for NA and
Europe, but substantially higher for APAC
Realization of revenue growth goals—Only five companies didn’t meet their 2005 revenue goals; four were in Europe
Stage of industry development—in APAC the 3PL network is being built; in NA and Europe 3PLs are adjusting their networks and marketing mix
Growth rates of economies being served—highest in APAC, lowest in Europe
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Conclusions and Expectations
Opportunities—service expansion highlighted in NA; CEOs in other regions often focused on specific geographies as the best opportunities
Regulatory complexity—this appears to be a much more significant problem in APAC than elsewhere
Scale issues—in APAC many 3PLs are still attempting to achieve marketplace scale; in other two regions many 3PLs are re-assessing their scale of operation—is bigger necessarily better?
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Conclusions and Expectations
What do we expect? Continued solid revenue growth in all three regions
Increasing customer-selectivity and further customization by large 3PLs
Standardization of service offerings by niche players to increase their market share of small to medium size customers
Increased emphasis on risk-sharing and gain-sharing in 3PL contracts
More parent company board scrutiny of 3PLs if price compression and margin erosion continue
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Conclusions and Expectations
Significant increases in 3PL industry investment in recruiting, training and retention efforts
Continuation of the consolidation movement in all three regions with post-acquisition integration issues demanding even more attention
Differentiation pressures will increase to counter “commoditization” within the 3PL industry
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Questions?
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