The trend is part of a move by Europe's third-party logistics (3PL) companies to expand their operations, technological capabilities, and their services to meet the increasing number and complexity of demands by their customers, according to the survey by EyeonTransport.
Food processors and other industries contract 3PL providers to broker transportation and other supply chain management services. As such it is a form of outsourcing supply chain management so that the processor can concentrate on in-plant operations and even reduce costs. The survey provides an insight for processors into the evolving nature of that relationship.
"As businesses diversify and their supply chains become increasingly complex and fragile, more and more of them are outsourcing their logistics in order to ensure economical, reliable and efficient deliveries from their suppliers and to their markets," the analyst stated. "It has become almost a maxim of commerce that a 3PL should be not merely a contractor, but in many senses also a business partner."
In recent years, co-operation between manufacturers, shippers and logistical service providers has become more long-term in nature and has been combined with a high level of integration in the organisational structures and informatics, a development that is being termed as "4PL".
While 3PL providers manage and execute a particular supply chain function, using their own assets and resources, a fourth-party logistics provider (4PL) describes a relationship that involves more integration between the client and the supplier, at the data exchange level and in the analysis of that data.
"Companies in the global marketplace are finding that supply chain engineered logistics is not a commodity, and understand it is a vital means to boost their cost savings, enhancing their cash flow and improving servicing levels for getting their products to market," EyeonTransport stated on its website.
Another trend is for companies to increasingly require contract logistics providers to be able to supply a fuller range of services, including the traditionally outsourced second-tier functions such as warehousing and freight forwarding. These services are provided by what are being called lead logistic providers (LLPs), which provide full supply chain management, from sourcing to consumption, providing consulting services, re-engineering the supply chain as well as executing operations.
An LLP, as opposed to a 3PL would be a single point of contact for logistic services, as the LLP selects and manages the logistic services providers required to perform the necessary logistic services.
The EyeonTransport survey found that 74 per cent of 3PL providers believe that an increased level of supply chain visibility is either a ‘significant’ or the ‘most relevant’ advantage.
About 73 per cent gave their highest ranking to increasing the control over complex multicountry, multi-contract logistics requirements, and 67 per cent gave their vote to ability to respond to customers’ need for supply chain innovation.
Only 11 per cent considered increased business relationship and alignment of their businesses beyond the normal 3PL relationship to be the most relevant advantage.
Meanwhile 42 per cent of the 3PLs surveyed said one of their biggest challenges is the emergence of 4PLs and LLPs, compared to 37 per cent who viewed the emerging competition as a threat to their market share in 2005.
Providing management, technology, management solutions and consultancy were identified as greater growth opportunities than physical services such as freight carriage or warehousing in the 2006 survey.
Providing technology and information technology services was rated a ‘good’ or ‘best’ opportunity by 77 per cent of respondents, up from 65 per cent in 2005.
Other most promising opportunities in 2006 were seen to be supply chain consultancy and design (68 per cent), reverse logistics (68 per cent) and global freight management (72 per cent)
Nearly 31 per cent of 3PL companies had no current plans to provide RFID support. By contrast, 20 per cent were already providing RFID. Another 49 per cent of all the respondents said they intend to provide RFID capabilities within two years.
The 3PL providers surveyed believe that all of the major sectors have at least moderate growth potential. Even the food sector, which is considered to have less potential now than a year ago, received a rating from 63 per cent of respondents, down from 68 per cent in the 2005 survey.
Respondents were asked to rate the vertical markets that they consider to have the greatest growth possibilities for their companies within the next two to three years.
According to the survey, about 77 per cent of Western European firms are using 3PLs.
Competition in the 3PL market remains intense as demand for their services grow. Many have resorted to consolidation so that they can expand their capabilities across sectors and regions, EyeonTransport stated.
Consolidation may help the larger 3PLs to overcome fragmentation and claim a bigger slice of the market. For smaller companies, consolidation may be crucial to their very survival.
About 40 per cent of respondents say they have expanded into new geographical areas after their customers have decided to go there. About 21 per cent said they anticipate customers’ expansion plans by venturing into new territory before there is an actual demand from their customers for services in the new regions.
A variety of ‘other’ reasons are listed by 16 per cent of respondents. Some may have entered into joint ventures with companies that operate in areas beyond the respondent’s normal sphere of operations.
Respondents were asked to rate the geographic regions that they consider to have the greatest growth possibilities for their companies within the next two to three years.
China has lost some of the appeal it held a year ago, although it is still considered to be the most promising region for expansion. In 2006, 37 per cent of respondents believed China had the most growth potential, compared to 50 per cent who gave it their highest rating a year ago.
However, 70 per cent still believe China has either the most ‘most’ or ‘very good’ growth potential.
In the combined perception of ‘most’ and ‘very good’ potential, 56 per cent chose India and 65 per cent say Eastern Europe.
Russia, Brazil and the rest of Asia were all chosen by 50 per cent of respondents for their ‘good’ or ‘most’ growth potential.
European 3PLs see maintaining profits under price pressures from customers is still seen as the biggest challenge, although to a lesser extent than in last year survey. Maintaining a relationship with customers is perceived as a big or very big challenge by 78 per cent f 3PLs.
Globalisation of the 3PL market and delivering services in new geographic regions was rated a big or very big challenge by 68 per cent of respondents, up from 64 per cent in 2005.
The next highest ranked factor was consistently delivering the latest cutting edge technology to customers, considered a big or very big challenge by 59 per cent, significantly more than the 44 per cent in 2005.
The European 3PL market survey was conducted during May and June 2006. About 400 logistics professionals from 3PLs, freight forwarders, carriers, warehouse operators, shippers, consultants and technology providers responded to the survey.
The EyeonTransport survey backs up findings by an European Commission study of the bloc's evolving transportation system, published this year.
More and more EU -based companies are outsourcing their logistics requirements to 3PL providers, according to the Commission study.
“There are a number of trends, some of which are contradictory,” the Commission stated. “On the one hand, centralisation of logistics organisation in European and regional distribution centres is taking place, and, on the other, decentralisation is emerging in the light of saturation on the European roads, enabling quick response from local warehouses or buffer storages to customer requirements.”
Competition in the European logistics sector is intense, due to the low concentration rate of third-party logistics in Europe, the Commission stated. The top 20 companies have a market share of 33 per cent, a relatively low share.
Logistics covers the planning, organisation, management, control and execution of freight transport operations in the supply chain.
On average, logistics costs account for 10 per cent to 15 per cent of the final cost of a finished product. The European Commission estimate includes costs such as transportation and warehousing.
Spending on logistics amounts to about €5.4 trillion or 13.8 per cent of the global gross domestic product, GDP a year. Annual logistics expenditure in Europe amounts to about €1 trillion, about the same as in North America, the Commission stated in its policy outline
The overall logistics spend in the European retail market is set to increase by 10 billion by 2010, Datamonitor forecasts in a report published in January this year.