The cautious optimism prevailing among third-party logistics providers since the Great Recession is slowly becoming less cautious. Growth in emerging markets — and hoped-for recovery in the U.S. and Europe — is driving companies to expand globally.
To keep up, 3PLs are investing in supply chain technologies, training and human resources. To be viable end-to-end providers, they must be flexible and transparent, and capable of integrating with multiple supply chain partners.
For providers that want to grow with their biggest customers, anything less than continuous improvement in supply chain management isn’t an option. Providers must innovate continually with new services and technologies and provide more flexibility, said Kim Wertheimer, executive vice president of the global industrial sector at CEVA Logistics.
In early 2011, CEVA announced five strategic priorities to meet growing demand for integrated, end-to-end supply chain services. One is CEVA’s Century Account Program, which seeks to expand the services the company provides to its 100 biggest customers.
CEVA’s goal is for Century customers to account for 57 percent of revenue by the end of 2013, up from 52 percent in 2011. “We are bringing a broader, more integrated portfolio of services to drive long-term relationships and expand with our customers,” Wertheimer said.
CEVA is working more collaboratively with its customers around supply chain design, network rationalization and minimizing transportation and inventory costs. “Customers are more willing to engage with us, not only in terms of execution but in bringing planning tools and information to the table,” Wertheimer said.
Underpinning the Century initiative are analytics and business intelligence tools designed to provide actionable information for network redesign and supply chain execution. CEVA also is taking a more consultative role with customers, who expect strategic input and want 3PLs to bring fresh ideas to the table for driving supply chain performance.
“As large as we are, we still have a small share of the global 3PL market,” Wertheimer said. “There are opportunities for us if we are proactive in bringing solutions to the table.”
2012 was characterized by small upticks and slowdowns in business, with uncertainty the prevailing mood. The ongoing eurozone crisis, a slowdown in China and slow recovery in the U.S. are causing many companies to wait before investing or committing to new projects, said Essa Al-Saleh, president and CEO of global integrated logistics at Kuwait-based 3PL Agility. “It’s a risk-averse environment,” he said.
Agility reported third quarter profit of $34.7 million, up 21 percent from a year earlier.
Agility is well-established in emerging markets, with some 22,000 employees in more than 100 countries. Agility’s oil and gas, specialty chemicals and project logistics businesses are robust. Containerized volumes are healthy in a number of Middle Eastern, Latin American and Asian trade lanes.
Damco, the logistics arm of A.P. Moller-Maersk Group, posted revenue growth of 11 percent for the first nine months of 2012 compared to the same period in 2011. Western Europe remains weak, but most of Damco’s markets performed well in 2012. The company expects overall growth to continue into 2013, and is especially bullish on Africa, India, and the U.S. “Our plan calls for further growth next year even though we’re not as optimistic about the economy,” CEO Rolf Habben-Jansen said.
With pressure growing to cut costs, more shippers are looking to hold inventory at origin. Lead times are shorter, lending urgency to the need for flexible, transparent supply chains. The challenge in 2013 is to develop and deliver new, value-added solutions to address changing needs.
Damco is looking to increase its presence in the e-commerce and consumer retailing sector and completed the acquisition of Pacific Global Networks last fall, boosting its position in Australia and China.
Fuel costs ranked among the top shipper concerns in 2012, and they pressured 3PLs to squeeze carriers on rates as much as possible, said Greg Umstead, president of LMS Logistics. Based in St. Louis, LMS primarily serves the chemical industry but has retail and pharmaceutical customers.
To help reduce fuel costs, LMS focused on intermodal, freight consolidation and pool distribution. The company also turned to the spot market in all modes and urged customers to do the same. “There’s a lot of space on planes these days,” Umstead said. “We have gotten some big time savings on the spot market.”
LMS initiated a small dedicated carriage operation to reduce empty miles, which it plans to expand this year. The company also pushed to improve inbound transportation management capabilities. “When the economy is down, people are much more open to dedicated, especially on the inbound side,” Umstead said.
Although 2012 was another year of strong growth for Echo Global Logistics, CEO Doug Waggoner primarily sees it as a year for investments. The Chicago-based 3PL made a significant acquisition in 2012, hired more than 100 employees and instituted a robust training program.
The acquisition of Calif.-based Sharp Freight Systems gives Echo new opportunities with drayage and rail carriers serving West Coast markets. It provides access to freight moving between the U.S. and Mexico and through the Port of Houston, and gives Echo new multimodal freight management capabilities.
Spurred by concern over high turnover rates for new employees, Echo implemented a six-month training program in 2012 for all new hires. The goal is immersion in all aspects of the business. When employees find out what they’re good at and what they enjoy doing, they’re more likely to hit the ground running, and to stick around.
“We believe the training will produce happier employees with greater productivity and less turnover,” Waggoner said. “We think it will pay dividends in 2013, as we have much better trained people, and new capabilities in expedited and intermodal.”
Germany’s Dachser is expanding its global network, particularly in Southeast Asia, Africa, India and South America, despite economic weakness in Europe and China that is creating uncertainty for international trade prospects. A bright spot has been the U.S., where growth is strong, said Frank Guenzerodt, president and CEO of Dachser USA.
The U.S. is a top priority for Dachser, a $5 billion global 3PL that entered the U.S. market eight years ago. Dachser USA now has 200 employees and more than $100 million in revenue, up from $11 million in 2004.
Customers in the U.S. who were once mainly concerned with freight rates are now demanding broader supply chain efficiencies. “We’re trying to do more with supply chain engineering as opposed to competing on freight rates,” he said.
Priorities for Dachser in 2012 included lean initiatives and improved customer interfaces. The company expanded its project logistics team. Consulting on compliance and security matters was another big growth area..
Menlo Worldwide Logistics is prepared to handle pent-up demand, whether it’s unleashed in 2013 or later, with new levels of innovation and creativity, said Carl Fowler, senior director of operations.
A lot of global companies re-evaluated their networks in 2012, and there was some near-sourcing, especially in the automotive sector. Companies also are prioritizing disaster preparedness as never before. Menlo developed disaster-simulation tools that it runs for public sector clients, among others.
With the U.S. presidential election settled, Menlo expects an increase in business investments and demand for products and services in 2013. Demand for logistics services could skyrocket as companies roll out initiatives that were sidelined and reconfigure supply chains to meet changing customer demand.
2012 was a record-setting year for Kenco Logistics, largely because of growth with existing customers, said Sean Coakley, senior vice president.
Companies are re-evaluating their networks as they emerge from the recession, opening up opportunities for bids. Growth was strong in 2012 in transportation services, especially dedicated services. Kenco also brought some new customers on board.
Demand is growing for analytics and business intelligence tools for fast, actionable transportation decision-making. Kenco made major investments in IT staffing, networks and strategic applications in 2012.
Coakley isn’t convinced the “control tower” approach to logistics management always provides the value some say it does. On a global, end-to-end basis, it’s a somewhat grandiose idea that one party can optimally manage everything. For many shippers, a functional, regionalized approach works fine.
“We are seeing customers recognizing that (end-to-end) strategy is not viable, either because of technology or data limitations,” Coakley said.
Contact David Biederman at email@example.com.