Logistics Execs Expect Business Growth, More Consolidation in Coming Years

Logistics executives expect their businesses to grow in the coming years, partly because of mergers, and are increasingly confident in their abilities to meet the expectations of shippers and carriers who are demanding a growing range of services.

They also still expect to achieve cost savings despite a shortage of truck drivers.

A survey of executives of third-party logistics providers found that they expect revenue growth of 5.92% annually over the next three years in North America, followed by 5.75% in the Asia-Pacific region and 4% in Europe. Issued last week at the Council of Supply Chain Management Professionals annual conference in San Diego, the study also found that more than 80% of companies surveyed were profitable in 2014.

“Last year, the logistics industry experienced one of its best years in many years, and 2015 is on track to be a good year as well,” said Marc Althen, president of Penske Logistics. “The 3PL industry continues to deliver value, savings and efficiencies by collaborating with customers and adjusting to rapidly changing economic conditions, business challenges such as capacity and talent shortages as well as consumer online shopping needs that demand new and agile supply chain and fulfillment models.”

Some of the expected growth will come from an increase in mergers and acquisitions, according to executives of 30 large logistics companies interviewed by Robert Lieb, a professor at Northeastern University, and Kristin Lieb, an associate professor at Emerson College.

Since early 2014, there have been 10 major acquisitions of logistics companies, mostly in North America.

Executives cited pressure to expand service offerings and to provide one-stop solutions to customers, as well as the desire to expand into new geographic regions, as key reasons for the merger trend.

Rapid growth of online sales is also fueling demand for logistics expertise, especially with regard to next-day deliveries and international shipping, logistics executives said.

On average, e-commerce accounts for nearly 12% of revenue for logistics companies in North America, and executives surveyed predicted that it will grow to more than 20% in three years.

“Amazon’s recent actions are impacting e-commerce in a major way,” Robert Lieb said. “The company’s market dominance and huge popularity with customers creates a great opportunity for 3PLs to assist Amazon and ensure customers get the goods they need — especially during peak e-commerce seasons.”

The online retailer is building a network of regional distribution centers and works with many delivery companies, including the U.S. Postal Service, to provide same-day delivery to customers. Likewise, ride-sharing companies, such as Uber, could alter the logistics marketplace by providing last-mile delivery and taking business away from traditional freight carriers and couriers.

Other issues of concern for logistics executives surveyed included the potential for future disruptions at ports, the shortage of truck drivers and a slowdown of economic growth in China.

Another survey, conducted by Mary Holcomb at the University of Tennessee and Karl Manrodt of Georgia College, found that while reducing transportation costs remains the most important priority for shippers, current market conditions in which capacity is tight and freight rates are rising make it harder to achieve cost savings.

Many shippers were able to negotiate substantial reductions in transportation rates during the recession and, according to Holcomb and Manrodt, that led to a “cost-savings addition” that shippers “now need to break.”

To better leverage transportation spending, survey respondents identified shipment visibility as the top priority, followed by increased use of dedicated contract carriage, extended delivery windows, increased use of trailer drop-and-hook operations, intermodal transportation and shipment consolidation.

A bigger portion of transportation spending is going to shipping products directly to consumers, rather than to stores or other distribution centers. Of $22.5 billion in annual transportation spending by 443 companies in the survey, 53.6% went to pay for transportation direct to consumers.

One other survey on the state of logistics outsourcing, conducted by John Langley, a professor at Pennsylvania State University, found a high level of satisfaction in relationships between shippers and third-party logistics companies, with more than 90% of both parties reporting “positive” results.

“This suggests 3PLs and their customers are becoming more proficient at what they do, individually as well as together, which is improving the quality of their relationships,” Langley said, based on a survey of 267 shippers and logistics companies.

The ways in which shippers and 3PLs work together are changing, though, as consolidation reduces the number of competitors in the market and tighter capacity leads to higher freight rates.

Among shippers, 29% said assets have not been available to move shipments when needed, and 29% of firms surveyed have engaged with a larger number of 3PLs to get access to capacity.

CSCMP, based in Lombard, Illinois, has 8,500 members who are logistics and supply chain management professionals.