The future of the logistics and transport outsourcing segment is bright, as firms continue to depend on third party providers to address pressing needs like labor shortages, tightening capacity and rising consumer expectations. Both clients and 3PL providers are getting better at what they do, leading to improved relationships and quality of services.
According to the 2016 Third Party Logistics study, shippers and third party logistics providers continue to work individually and with each other. Majority of providers and clients reported successful partnerships and positive results. The study showed that 70 percent of those that use logistics services reduced overall logistics costs, while 83 percent said 3PL services have improved customer service.
Like previous years, the most frequently outsourced 3PL services in 2016 will be transactional and repetitive processes. Higher-value, strategic and customer-facing activities will still be outsourced, but to a lesser extent. Shippers will continue to depend heavily on third party firms for IT services and IT management as technology continues to change how the industry operates. IT services are now a core competency for 3PL providers, although there are areas that could be improved.
The industry should expect the following key areas of focus in 2016:
Over the past two decades, some shippers have reported increased 3PL outsourcing activity, while others have reported an increased use of insourcing. The 2016 study found that 3PL outsourcing continues to outpace insourcing, and this trend is expected to continue in the next few years. The majority of shippers (73 percent) said they plan to increase outsourced logistics services. 3PL users said that about 50 percent of their total logistics spending are related to outsourcing.
Demand for global logistics, transport and supply chain services is rising in most regions, with positive growth rates in North America, Europe and Asia-Pacific. These growth rates are consistent with some improvements in global economies. Meanwhile, only 35 percent of shippers indicated that they are insourcing logistics services. The same percentage of providers (35 percent) agreed that some of their clients are turning to insourcing. Outsourcing continues to outpace insourcing in the industry by 2 to 1, according to study.
Most companies outsource about three different logistics services to multiple 3PL providers. This includes niche providers like freight forwarders, large companies like DHL and FedEx, and contemporary innovators like Google Express and UberRush. This year, analysts expect that companies will mainly outsource the following 3PL services: domestic transportation, warehousing, international transportation, freight forwarding, customs brokerage, reverse logistics, cross-docking, freight bill auditing and payment, and transportation planning and management. The least frequently outsourced services will be strategic and IT-intensive activities like supply chain consultancy, IT and fleet management.
The logistics sector is highly fragmented, but there is a growing trend toward consolidation. More companies (57 percent) are consolidating the number of third party logistics services they use in keeping with the strategic sourcing trend. Consolidation and mergers and acquisitions have led to rising prices and fewer 3PL partners. For example, the merger of German transportation company Hapag-Lloyd with Chilean shipping company CSAV is expected to help the company save at least $300 million due to productivity improvements, cost reduction and better networks. Two of the world’s biggest container shipping companies also signed a 10-year agreement to share vessels along several routes to improve capacity and network efficiency. Mergers and acquisition activity in the logistics sector is expected to continue in the coming years. This requires 3PL providers to adopt different regional strategies and build stronger customer relationships.
The final mile is competitive area within the logistics industry. A successful final mile fulfillment process depends on optimized routes, real-time tracking and communication and incentivized scheduling. 3PL providers are implementing innovative solutions to capture greater market share. For example, Uber’s UberRush (bike delivery service in New York City) and UberCARGO (Hong Kong van service) feature real-time delivery tracking through the Uber app. The use of drones is another innovative final-mile solution that has been growing since Amazon introduced the method in 2013. Amazon expects that hundreds of thousands of drones (from Amazon and other providers) will be operational within the next decade.
Competition in the supply chain industry increases every year, and this year is no different. Logistics providers are working hard to remain competitive and provide more value to 3PL clients. In 2016, providers will continue to ramp up technology capabilities, data-driven solutions and collaboration with other companies to differentiate themselves and keep up with the industry’s rising demand for innovation.
Customer service continues to improve in the logistics sector as 3PLs use technology and better processes to their advantage. Customers have higher expectations, and they want same-day and even same-hour delivery for certain items. Shippers are willing to pay a higher price for improved customer service, and 3PL providers are responding by investing in new capabilities and working with companies in other industries.
Technology keeps on improving supply chain operations in the logistics and transport industry. A recent study reported that 60 percent of respondents use technology to increase inventory/shipment visibility, plan and schedule transportation management initiatives, and select the most efficient shipping lanes and methods. More than half (58 percent) said they are investing in new capabilities provided by competitors and companies in other industries. This trend is expected to continue next year and beyond.
In answer to the question of which IT systems or tools are considered “must haves” for 3PL providers to serve their clients, respondents named transportation management and scheduling (TMS), electronic data interchange (EDI), web portals for shipping information, warehouse/distribution center management (WMS), and other technologies that improve supply chain process execution. Some respondents also mentioned more customer-facing tools like customer order management, CRM, network modeling, and global trade management.
The logistics industry is feeling the impact of third platform technologies, although adoption is still in its infancy. In 2016, the industry will see more supply chain managers interested in advanced data mining and analytics tools, mobile application, cloud-based systems and distributed order management. 3PL providers understand that providing the right technology is now a necessary core competency.
To keep the costs of innovation low, many 3PL providers are turning to cloud services. Cloud solutions help shippers, logistics providers and trade participants cut transportation costs, comply with regulations, manage inventory effectively, and improve visibility. According to the latest 3PL study, the majority of 3PL providers now offer in-house or third party cloud-based logistics solutions. This trend is only expected to grow as demand for cost-effective software rises.
Shrinking capacities and new government regulations are pushing 3PLs to use data-driven tools to reduce empty miles, identify the most efficient shipping lanes and continuously optimize routes. In 2016, more 3PL providers and shippers will use customer data and combine it with their own to address problems in innovative ways.
For example, data-driven tools allow companies to apply the automotive industry’s just-in-time and just-in-sequence technique to the foodservice industry. Analytics also helps shippers create potential scenarios to determine their impact on shipping cost and delivery times. 3PL providers that can help their clients address problems in creative ways using data analytics tools will outperform those that stick to the traditional way of doing things.
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