Trends and Services Offered in the 3PL Industry

September 1, 2004 Staff

The third party logistics (3PL) provider industry is expanding as global companies are realizing the cost savings of outsourcing their logistics services (1). The 3PL market grew by 6.9 percent in 2002 even though total United States-based companies’ logistics costs declined from $957 billion in 2001 to $910 billion in 2002. Companies are focusing on their core competencies and outsourcing other aspects of their business, such as logistics (1).

Services Offered by 3PL Providers (3)3PL providers offer an increasing array of logistics services to their customers. More than 40 percent of survey respondents indicated that they used the following services.

Outbound transportation
Warehousing
Inbound Transportation
Freight Bill Auditing/Payment
Customs Brokerage
Freight Forwarding

Customs Clearance

Trends in the 3PL Industry (3)

Each year, several logistics studies that reveal trends in the industry are released. The annual State of Logistics report (2), the annual Third Party Logistics Study (3), and the annual Accenture/Northeastern University 3PL Industry Study (4) reveal trends across the entire logistics industry as well as the 3PL industry.

Seventy-eight percent of North American companies use 3PL services.
Ninety-four percent of Western European companies use 3PL services.
In North America, 43 percent of a company’s logistics dollar is spent on a 3PL service.
In Western Europe, 51 percent of a company’s logistics dollar is spent on a 3PL service.

Using a 3PL service provider reduces costs on average:

Logistics costs are reduced by 11.8 percent.

Logistics assets are reduced by 24.6 percent.

Order cycle length is reduced from 7.1 days to 3.9 days.

Inventory is reduced by 8.2 percent.

Using a 3PL service provider increases differentiation in these areas:

Flexibility/Special services

Unique delivery capability

Improved customer service

Improved reaction time to opportunities

Use of better technology

Supply chain management

Current 3PL Providers (1)

The 3PL marketplace contains many well-known companies that have logistics divisions. There are also large 3PL providers that focus solely on supply chain solutions and smaller 3PL companies that exist at the local and regional level.

Local 3PL Logistics Specialists

3PL Provider of the Future

The current annual revenues of United States-based 3PL providers are $60 billion (3). Researchers predict that this number will grow as 3PL providers increase their service offerings. To improve customer service, 3PLs must focus on management and relationship processes, global offerings, comprehensive solutions for the entire supply chain, and information technology (3). In the future, the customer will expect more IT-based services. 3PL providers will invest in electronic markets, supplier management systems, and supply chain planning systems to utilize web-based customer service (3).

Ninety percent of survey respondents say that logistics represents a strategic, competitive advantage for their company (3). The respondents also say, “giving up some control of your supply chain through a joint client-and-provider management structure will actually give you more control of your business (4).” 3PL providers representing the highest customer service will offer “integrated, end-to-end solutions that provide significant financial and operational performance improvements (3).”

References:

(1) Sullivan, Laurie. 3PLs on the Move – Manufacturers report favorable results from logistics outsourcing. EBN, November 23, 2003.

(2) Wilson, Rosalyn and Delaney, Robert. 14th Annual State of Logistics Report. June 2, 2003.

(3) Langley, John Jr., Allen, Gary, and Tyndall, Gene. 7th Annual 3PL Study. 2002.

(4) Clyde, Witt. Two Studies Reveal Trends in 3PL Services. Material Handling Management, January 2003.