Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Editor at CSCMP's Supply Chain Quarterly. and Senior Editor of SCQ's sister publication, DC VELOCITY. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
With Europe's economy in a tailspin, the Middle East in turmoil, and costs rising everywhere, it comes as no surprise that CEOs of third-party logistics service providers (3PLs) worldwide have scaled back their expectations for growth.
Despite that somber outlook, the respondents to an annual survey of third-party CEOs in North America, Europe, and Asia-Pacific also plan to strengthen their chances of survival by revising their traditional operating models and services to reflect their economically battered customers' changing requirements.
The 19th Annual Survey of Third-Party Logistics Providers was conducted by Dr. Robert C. Lieb of Northeastern University and Dr. Kristin Lieb of Emerson College and is sponsored by Penske Logistics. The 31 respondents represented some of the world's largest 3PLs, collectively generating some $45 billion in revenues in 2011.
For the first time in the survey's history, the CEOs didn't project industry growth in the double digits for any of the three regions. Respondents in North America forecast average growth of 8.3 percent for the next three years, slightly higher than the 8 percent growth predicted in 2011. CEOs in Asia-Pacific forecast 8 percent growth over the next three years, down from last year's prediction of 10.3 percent.
Those projections seem upbeat compared to the European CEOs' projection of 5.1 percent growth, down from an already low 6.3 percent. One reason for the subdued global outlook is that economic woes have cut exports between the regions, causing "a ripple effect" worldwide, said Northeastern's Robert Lieb in an interview.
Individually, more than one-third of the participating companies failed to meet their own revenue-growth projections in 2011, although only three—two in Europe and one in Asia-Pacific—were unprofitable.
The CEOs reported industry dynamics common to all three regions. Increasing cost pressures on customers and continuing economic uncertainty mean less pricing power and lower margins for 3PLs worldwide, thus raising the risk of further industry consolidation.
However, only North American respondents cited tightening capacity and unpredictable fuel costs as having major impacts on their businesses. Europeans often mentioned the economy and a resulting decline in demand for 3PL services. In Asia-Pacific, respondents said growing domestic consumption in China, increasing competition from "local" 3PLs, and slower growth in China and India were important industry dynamics.
In response, 3PLs made some significant changes over the past year. Many entered new industry verticals, most notably health care, and providers tended to expand through alliances rather than by direct investment in new assets. In Asia-Pacific, 3PLs responded to the slowdown in exports and the growth of domestic consumption by increasing their involvement in domestic transportation and intra-Asian business.
In Europe, meanwhile, some 3PLs changed business models because customers wanted more flexible relationships in uncertain times. Providers also had to cope with lower, erratic volumes, and the economic slowdown led to overcapacity and poor asset utilization. In response, some 3PLs have been consolidating their European operations.
The CEOs say they are seeking ways to take advantage of changing economic conditions. For example, 3PLs in all three regions plan to provide more services to higher-growth international markets. They also see opportunities as more manufacturing shifts closer to consuming markets.
An increase in "nearshoring"—a trend that's emerging worldwide, not just in North America—could have a huge impact on the way 3PLs serve their customers, said Joe Gallick, senior vice president, sales for Penske Logistics.
"Providers would need the ability to be agile and flexible to adjust to changes in customers' supply chain requirements," he said in an interview. "For example, nearshoring can mean not just geographic change but also a change in customers' replenishment strategies, and different warehouse locations may become more important."
Regionally, North American 3PLs said they would increase the breadth of their service offerings, support further integration of customers' supply chains, and develop more collaborative relationships with key customers. Opportunities in Asia-Pacific focus on domestic consumption and supporting the region's rapidly growing e-commerce and e-fulfillment activities.
In Europe, CEOs plan to follow a pragmatic course: In addition to servicing new industry verticals and expanding business with existing customers by bundling services, they also are targeting companies that are trying to shed assets and people and trying to gain business as other 3PLs fail.
Even as they adopt those strategies, 3PLs will have to contend with persistent problems. At the top of every list was the difficulty of attracting and retaining qualified management and operational talent. The CEOs also included economic uncertainty, difficulty in managing demand and capacity, and inadequate technology and infrastructure in developing markets among their most persistent problems.
All of these developments point to "a rather unsettling period" for the 3PL industry in 2013 that "could be worse than anticipated," the researchers said. Traditional forecasting methods are being challenged by global economic uncertainty, making it more difficult to plan capacity and market expansion, they noted.
The researchers warned that all the innovation 3PLs can muster may not keep them all in business if macro-economic conditions remain subpar.
"If global economic activity fails to improve," the professors warned, "3PL earnings and stock prices will likely fall, making a wave of failures and acquisitions very probable."
To hear Dr. Robert Lieb's analysis of the findings of the 19th Annual Survey of 3PL Providers, go to Penske Logistics' YouTube channel.
A hefty 42% of procurement leaders say the biggest threat to their future success is supply disruptions—such as natural disasters and transportation issues—a Gartner survey shows.
The survey, conducted from June through July 2024 among 258 sourcing and procurement leaders, was designed to help chief procurement officers (CPOs) understand and prioritize the most significant risks that could impede procurement operations, and what actions can be taken to manage them effectively.
"CPOs’ concerns about supply disruptions reflect the often unpredictable nature and potentially existential impacts of these events," Andrea Greenwald, Senior Director Analyst in Gartner’s Supply Chain practice, said in a release. "They are coming to understand that the reactive measures they have employed to manage risks over the past four years will not be sufficient for the next four.”
Following supply disruptions at #1, the survey showed that the second biggest threat to procurement is seen as macroeconomic factors, which include economic downturns, inflation, and other economic factors. While more predictable, those variables can substantially influence long-term procurement strategies.
And the third-most serious perceived risk was geopolitical issues, including tariffs and regulatory changes, and compliance issues, including regulatory and contractual risks.
In addition, the survey also revealed that “leading organizations” are 2.2 times more likely to view energy availability and cost as a top risk; indicating a focus on future emerging risks. As electrification drives demand for power, brittle grid infrastructure raises concern about whether the energy supply can keep pace. Therefore, leading organizations recognize that access to energy will become a significant future risk.
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.
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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.
Imports at the nation’s major container ports should continue at elevated levels this month despite the strike, the groups said in their Global Port Tracker report.
To be sure, the strike wasn’t without impacts. NRF found that retailers who brought in cargo early or shifted delivery to the West Coast face added warehousing and transportation costs. But the overall effect of the three-day work stoppage on national economic trends will be fairly muted.
“It was a huge relief for retailers, their customers and the nation’s economy that the strike was short lived,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a release. “It will take the affected ports a couple of weeks to recover, but we can rest assured that all ports across the country will be working hard to meet demand, and no impact on the holiday shopping season is expected.”
Looking at next steps, NRF said the focus now is on bringing the International Longshoremen’s Association (ILA)—the union representing some 45,000 workers—and the United States Maritime Alliance Ltd. (USMX) back to the bargaining table. “The priority now is for both parties to negotiate in good faith and reach a long-term contract before the short-term extension ends in mid-January. We don’t want to face a disruption like this all over again,” Gold said.
By the numbers, the report forecasts that U.S. ports covered by Global Port Tracker will handle 2.12 million twenty-foot equivalent units (TEU) for October, which would be an increase of 3.1% year over year. That is slightly higher than the 2.08 million TEU forecast for October a month ago, and the strike did not appear to affect national totals.
In comparison, the August number was 2.34 million TEU, up 19.3% year over year. The September forecast 2.29 million TEU, up 12.9% year over year, November is forecast at 1.91 million TEU, up 0.9% year over year, and December at 1.88 million TEU, up 0.2%. For the year, that would bring 2024 to 24.9 million TEU, up 12.1% from 2023. The import numbers come as NRF is forecasting that 2024 retail sales – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – will grow between 2.5% and 3.5% over 2023.
Global Port Tracker, which is produced for NRF by Hackett Associates, provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.