The 22nd Annual Third-Party Logistics Study shows that shippers and 3PLs have, in general, built solid, mutually beneficial relationships, but opportunities for improvement still remain.
For many organizations, successful supply chain operations depend on there being strong and positive relationships between shippers and their third-party logistics providers (3PLs). Those partnerships are crucial for enabling the supply chain to improve service and innovation. Shippers and 3PLs alike should be heartened then by the overall results of the 2018 22nd Annual Third-Party Logistics Study, which show that these relationships are indeed strong.
The Annual Third-Party Logistics Study is produced by Infosys Consulting, Penn State University, Korn/Ferry International, and Penske Logistics. It examines the global marketplace for logistics outsourcing, surveying both shippers and third-party logistics providers.
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[Figure 1] Information technology (IT) outsourcing servicesEnlarge this image
The survey found that shippers are relying on their 3PL partners for a broad range of logistics and supply chain services. The most frequently outsourced activities are domestic transportation (83 percent), warehousing (66 percent), international transportation (63 percent), customs brokerage (46 percent), and freight forwarding (46 percent).
Less frequently outsourced activities continue to be those that are more strategic and customer-facing. Examples include: service-parts logistics (18 percent), inventory management (17 percent), supply chain consulting services (15 percent), customer service (11 percent), lead logistics provider/4PL services (11 percent), and fleet management (10 percent).
In general, both shippers and 3PLs said they are satisfied with the quality of the services being provided. Among respondents of the 2018 study, 81 percent of shippers and 98 percent of 3PL providers agreed that the use of 3PLs has contributed to improving services to the ultimate (or end) customers. In addition, 73 percent of 3PL users and 92 percent of 3PL providers agreed that 3PLs provide new and innovative ways to improve logistics effectiveness.
Opportunities for improvement
There still remain, however, many opportunities for both 3PLs and shippers to improve on these relationships. For example, achieving effective and efficient relationships requires open and transparent communication between 3PLs and shippers. In the study, 98 percent of shippers and 99 percent of 3PLs agreed that there is an increased need for 3PLs to respond to customers more quickly and with complete, accurate, and consistent information. Both parties also agreed there is a need for improvement, with just over half of shippers—51 percent—and half of 3PLs reporting that 3PLs communicate well in responding to risks and executing operating objectives.
This need for complete, accurate, and consistent information means that the importance of data continues to increase. Both shippers and 3PLs can experience a range of consequences when information at the shipper-3PL interface is not complete, accurate, or consistent. These consequences include creating frustration at the organization (74 percent of shippers and 68 percent of 3PLs) and project delays or cancelation (54 percent of shippers and 51 percent of 3PLs).
Given the importance of collecting, centralizing, and analyzing information, an increasing number of shippers, 27 percent, said they were utilizing information technology (IT) outsourcing services from 3PLs, up from 17 percent in the 2017 study. However, the percentage of shippers satisfied by 3PL IT outsourcing dropped to 56 percent in 2018, down from 65 percent in 2017. (See Figure 1.) C. John Langley, a professor at Penn State University and the founder of the report, said this could be due to higher expectations among shippers as technology continues to make gains. Shippers could also be looking for enhanced analytical capabilities to help drive more effective supply chain decisions, he said.
Indeed, there is increasing interest among 3PLs and shippers in big data analytics. According to the survey, 41 percent of 3PLs are currently use big data analytics, compared to 25 percent of shippers. However, 67 percent of 3PLs and 69 percent of shippers said they will invest in big data analytics in the future.
The future in tech
Big data analytics is not the only technology that 3PLs and users are interested in. The majority of respondents—70 percent of shippers and 77 percent of 3PLs—reported that they are currently using core supply chain technology, such as transportation and warehouse management systems, and 68 percent of shippers and 64 percent of 3PLs reported that they plan to invest in the technology in the future.
Those within the supply chain are also adapting to emerging technologies, such as blockchain, which breaks each movement down into a block and documents transactions every time a shipment changes hands. Among respondents, 30 percent of 3PLs and 16 percent of shippers said they view blockchain as potential application. Automation solutions and equipment are also generating a great deal of interest. The survey shows that 62 percent of 3PLs and 57 percent of shippers investing in automation/digitization.
Third-party logistics providers that take the opportunity to be early adopters of emerging technologies could gain a significant competitive advantage from this expertise. For example, more than half of shippers (67 percent) and 3PLs (62 percent) said they don't know enough about blockchain to be able to fairly rate its potential future benefits to their business. Those that seize the opportunity now could benefit from a head start.
Technology is also reframing the demands on the workforce. Companies are increasingly looking for supply chain employees who have experience with automation, digitization, and data collection. The 2018 study found that workforce innovation and agility, which would allow those within the supply chain to create and redefine positions as the industry changes, will be particularly important for the 3PL industry as the industry changes. These needs will not be limited to entry-level employees or mid-level managers. Supply chain and logistics executives will need to increasingly shift from being focused on the supply chain's physical efficiency to being focused on its data efficiency.
Looking ahead
The 2019 study, which will be released in October 2018, will take a deeper dive into several of these subject areas. Researchers talked with shippers and 3PLs about the need to keep the supply chain relevant, effective, and nimble, which is taking on greater significance given the increasing level of complexity within the supply chain. This is particularly relevant as retailers and manufacturing locations work to keep inventories low, respond to faster shipping demands, and react to changes in demand patterns within the global economy.
For example, the last mile, which generally refers to the final segment of a delivery process, has taken on enhanced significance with the growth in e-commerce and omnichannel distribution. As part of this year's upcoming study, researchers have taken the last-mile concept one step further to look at the "last yard," which is what happens to a shipment once it is delivered to a customer or consumer and how it is routed to the specific location where it may be needed or used. Last-yard logistics can be chaotic, but seamless execution is needed to drive customer service.
The 2019 survey will also look at how retailers are continuing to emphasize an "always-on, always-open" shopping experience that provides seamless interaction across all retail sales channels. Omnichannel retailing is forcing shippers and their logistics partners to be fluid and move quickly. The 3PL study last asked those within the supply chain about omnichannel retailing in 2015. This year's responses demonstrate that many shippers and 3PLs are still struggling to create a true, omnichannel retailing experience.
The 2019 study is also revisiting the topic of supply chain disruption, which it last visited in 2013. Supply chain disruptions are a major area of concern because they can result in increased costs, missed deliveries, and downed production lines. The 2019Annual Third-Party Logistics Study is expected to show that shippers and 3PLs are placing greater importance on mitigating supply chain disruption.
The final version of the study will be presented during the CSCMP EDGE Conference in Nashville, Tennessee, on October 1, at 10:30 a.m.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
While the overall commercial real estate industry is under duress with banks and other lenders seizing control of distressed commercial properties at the highest rate in 10 years, there are signs of recovery in the industrial market. Supply is abating, and demand and rental rates are increasing in most U.S. markets. Leading this rebound is the logistics sector which, by and large, has avoided the worst fallout brought about by high interest rates and economic uncertainties.
On the financing front as interest rates stabilize, investors who have been sitting on mountains of cash are starting to spend their money, and the logistics sector continues to be the favored sector of commercial real estate. By contrast, lending volumes across most other real estate assets, especially the ailing office market, have dropped significantly. Rental rate growth in the warehousing sector has also remained relatively strong, adding to its appeal for investors. While more modest than last year’s 20.6% jump in warehouse rental rates, this year’s increase is projected by BizCosts.com to be 7.9%, translating into a national average asking rate of $10.49 per square foot.
New leases, new construction, and improved financials by several key logistics players are clear signs that the warehousing sector is well in the lead of the industrial real estate comeback. Here are some key logistics players and what they are doing to signal that warehousing’s rebound is well underway.
Amazon is back in the market in a major way and is again buying and leasing warehousing properties after undertaking a pause in expansion over the past 18 months. The e-commerce giant has leased, bought, or announced plans for some 20 million square feet of new warehouse space in the U.S. this year, including deals for two distribution warehouses of 1.0 million square feet each in California’s Inland Empire, where vacancy has been on the rise.
Walmart, now the nation’s largest grocer, is constructing a series of new high-tech warehouses around the country as part of a strategy to grow and make its online grocery business more efficient using robotics. Store pickup of groceries and home delivery drove the company’s 22% e-commerce gains in the U.S. during its latest quarter.
Prologis—the San Francisco-based developer—serves as another indicator that warehouse demand is on the upswing. The world’s largest warehouse operator has increased its financial outlook for the year on the heels of a surge in new leasing activity, including major deals with Home Depot and with Amazon.
Warehousing growth sectors
While demand in general is up for warehouses and distribution centers, there are two notable growth areas: the pharmaceutical industry and retail and office conversions.
The pharmaceutical industry is experiencing a major increase in the approval of cell and gene therapies, which require an entirely new level of control and speed in shipment and storage. Many of these therapies have a shorter lifecycle than traditional pharmaceuticals and require a controlled environment to protect them from temperature fluctuations, humidity, light exposure, and contamination.
Today, about one-third of all pharmaceuticals are transported by air, and that amount is on the upswing. This trend is not going unnoticed by warehouse developers, who are planning new and expanded logistics parks serving the aviation and pharmaceutical sectors. In Southern New Jersey, the Los Angeles-based Industrial Realty Group is breaking ground on a 3.5-million-square-foot logistics park next to the Atlantic City International Airport with great demand expected to come from the hundreds of major pharmaceutical companies operating in New Jersey and Eastern Pennsylvania. Similarly, in North Carolina, the state recently allotted $350 million of taxpayer funds to the NC TransPark in Kinston. This facility is planned to complement the state’s huge $41.8 billion pharmaceutical industry, which relies heavily on climate-controlled warehousing and air transport.
Other high-growth warehousing sectors include retail and corporate campus conversions. In particular, former regional mall sites and outdated suburban office parks are being redeveloped into warehouse facilities, leveraging their good highway access and shovel-readiness in terms of utilities and site preparation.
Corporate campus conversions are being seen in states with transitioning economies. For example, many of the pharmaceutical companies located in Connecticut have migrated to New Jersey or the Carolinas. Their former signature corporate sites—like Bristol Myers Squibb’s campus in Wallingford and Sanofi’s research and development center in Meriden—are now slated for major warehouse conversions.
Geographic shifts
Source: BizCosts.com, 2024
Another key trend affecting the warehousing market is a geographic shift in terms of where companies are looking to locate new facilities.
For example, companies, job creators, and wealth are continuing to exit California at record levels due to the state’s high taxes and difficult regulatory climate—all of which have an especially big impact the warehousing sector. The state’s new $20 minimum wage for fast-food workers is only the latest bill to create challenges for warehousing operators, who are being forced to increase wages and benefits to remain competitive. Regulators fined Amazon nearly $6 million under California’s Warehouse Quotas Law for failing to give written notices to its warehouse workers of any productivity quotas that apply to them, as well as explanations of any discipline they may face in failing to meet them.
California’s difficult business climate along with a significant shift of cargo back to West Coast ports due to disruptions from the Suez Canal and Panama Canal is generating a high level of interest in alternative warehouse locations in the Western United States.
A 2024 Boyd Co. site selection report identified a series of top warehouse sites in 11 Western states. Selected locations are smaller market cities on or proximate to major interstate highways, which have attractive industrial sites and a precedent for successful warehouse operations. Annual operating costs for these 20 Western cities are ranked in the Figure 1 and range from a high of $15.6 million in Otay Mesa, California, near San Diego, to a low of $12.3 million in Minden, Nevada. Minden is a popular landing spot near Lake Tahoe for companies leaving California’s costly Bay Area that has prime, shovel-ready warehouse sites.
Another geographic shift involves responding to the rise in nearshoring, as companies from around the globe move their operations closer to the U.S. to minimize extended supply chain risks. Mexico has become the top destination for nearshoring, and, for the first time in more than 20 years, has passed China as the leading importer of goods into the United States. Nuevo León, bordering Central Texas, has become the leading destination in Mexico for nearshoring. The state has attracted some $50 billion during the past year in new manufacturing investment, most near its capital of Monterrey.
The SH 130 Corridor in Central Texas—which links the high-growth Austin and San Antonio markets with Monterrey via superior highway and rail access—houses one of the hottest logistics markets in the country. Texas’ State Highway 130 was built as a high-speed alternative to I-35—one of the most congested interstates in the U.S. and notorious within the logistics community for heavy traffic, frequent accidents, and costly delays. Central Texas counties served by SH 130 are attracting significant new warehouse investment spurred by nearshoring as well as by demand generated by massive new investments by Tesla’s Gigafactory and numerous other new plant startups in the region.
These geographic shifts and developing growth markets are indicative of the dynamic and constantly evolving nature of the warehousing market. The sector’s strategic responses to nearshoring, regulatory pressures, and economic uncertainties are setting the stage for continued growth and transformation. Investors and industry stakeholders alike would be wise to keep a close eye on the market.
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Peter Weill of MIT tells the audience at the IFS Unleashed user conference about the benefits of being a "real-time business."
These "real-time businesses," according to Weill, use trusted, real-time data to enable people and systems to make real-time decisions. By adopting that strategy, these companies gain three major capabilities:
Increased business agility without needing a change management program to implement it;
Seamless digital customer journeys via self-service, automated, or assisted multiproduct, multichannel experiences; and
Thoughtful employee experiences enabled by technology empowered teams.
The benefits of this real-time focus are significant, according to Weill. In a study with Insight Partners, he found that those companies that were best-in-class at implementing automated processes and real-time decision-making had more than 50% higher revenue growth and net margins than their peers.
Nor is adopting a real-time data stance restricted to just digital or tech-native businesses. Rather, Weill said that it can produce successful results for any companies that can apply the approach better than their immediate competitors.
Weill's remarks came today during a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI" at at the “IFS Unleashed” show in Orlando, Florida.
For example, millions of residents and workers in the Tampa region have now left their homes and jobs, heeding increasingly dire evacuation warnings from state officials. They’re fleeing the estimated 10 to 20 feet of storm surge that is forecast to swamp the area, due to Hurricane Milton’s status as the strongest hurricane in the Gulf since Rita in 2005, the fifth-strongest Atlantic hurricane based on pressure, and the sixth-strongest Atlantic hurricane based on its peak winds, according to market data provider Industrial Info Resources.
Between that mass migration and the storm’s effect on buildings and infrastructure, supply chain impacts could hit the energy logistics and agriculture sectors particularly hard, according to a report from Everstream Analytics.
The Tampa Bay metro area is the most vulnerable area, with the potential for storm surge to halt port operations, roads, rails, air travel, and business operations – possibly for an extended period of time. In contrast to those “severe to potentially catastrophic” effects, key supply chain hubs outside of the core zone of impact—including the Miami metro area along with Jacksonville, FL and Savannah, GA—could also be impacted but to a more moderate level, such as slowdowns in port operations and air cargo, Everstream Analytics’ Chief Meteorologist Jon Davis said in a report.
Although it was recently downgraded from a Category 5 to Category 4 storm, Milton is anticipated to have major disruptions for transportation, in large part because it will strike an “already fragile supply chain environment” that is still reeling from the fury of Hurricane Helene less than two weeks ago and the ILA port strike that ended just five days ago and crippled ports along the East and Gulf Coasts, a report from Project44 said.
The storm will also affect supply chain operations at sea, since approximately 74 container vessels are located near the storm and may experience delays as they await safe entry into major ports. Vessels already at the ports may face delays departing as they wait for storm conditions to clear, Project44 said.
On land, Florida will likely also face impacts in the Last Mile delivery industry as roads become difficult to navigate and workers evacuate for safety.
Likewise, freight rail networks are also shifting engines, cars, and shipments out of the path of the storm as the industry continues “adapting to a world shaped by climate change,” the Association of American Railroads (AAR) said. Before floods arrive, railroads may relocate locomotives, elevate track infrastructure, and remove sensitive electronic equipment such as sensors, signals and switches. However, forceful water can move a bridge from its support beams or destabilize it by unearthing the supporting soil, so in certain conditions, railroads may park rail cars full of heavy materials — like rocks and ballast — on a bridge before a flood to weigh it down, AAR said.
The North American robotics market saw a decline in both units ordered (down 7.9% to 15,705 units) and revenue (down 6.8% to $982.83 million) during the first half of 2024 compared to the same period in 2023, as North American manufacturers faced ongoing economic headwinds, according to a report from the Association for Advancing Automation (A3).
“Rising inflation and borrowing costs have dampened spending on robotics, with many companies opting to delay major investments,” said Jeff Burnstein, president, A3. “Despite these challenges, the push for operational efficiency and workforce augmentation continues to drive demand for robotics in industries such as food and consumer goods and life sciences, among others. As companies navigate labor shortages and increased production costs, the role of automation is becoming ever more critical in maintaining global competitiveness.”
The downward trend was led by weakness in automotive manufacturing, which traditionally leads the charge in buying robots. In the first half of 2024, automotive OEMs ordered 4,159 units (up 14.4%) but generated revenue of $259.96 million (down 12.0%). The Automotive Components sector was even worse, orders 3,574 units (down 38.8%) for $191.93 million in revenue (down 27.3%). Declines also happened in the Semiconductor & Electronics/Photonics sector and the Plastics & Rubber sector.
On the positive side, Food & Consumer Goods companies ordered 1,173 units (up 85.6%) for $62.84 million in revenue (up 56.2%). This growth reflects the increasing reliance on robotics for efficiency in food processing and packaging as companies seek to address labor shortages and rising costs, A3 said. And the Life Sciences industry ordered 1,007 units (up 47.9%) for revenue of $47.29 million (up 86.7%) as it continued its reliance on robotics for efficiency and precision.