Third-party logistics (3PL’s) are responsible for the outsourcing of part or all of a company’s distribution and fulfilment services. Their specialist solutions have seen a sharp rise in demand due to the increasing volumes of global supply chains and interdependent economy. Currently, it is estimated that 86% of Fortune 500 and 96% of Fortune 100 companies use 3PL services.
The 3PL industry was born more than 50 years ago, but more recently, the sector has seen rapid expansion. In 2016 the global third party logistics market was reaching $800 billion revenues, it is expected to exceed $1.1 trillion in 2020 and around 25 3PL companies already have revenues exceeding $1 billion. In the last 4 years the 3PL market has seen 10 major acquisitions totalling $ 18 billion driven by the need to enlarge the array of services offered, expand the geographic footprint, and drive scale.
When first developed 3PL mainly meant transportation and warehousing. However, globalization, sourcing from new markets and shipper’s increasingly specific requirements have made it a necessity for the integration of other more sophisticated functions such as global services or information technology. This means 3PL’s now service almost all the aspects of the supply chain.
3PL value chain activities mainly include local and global transportation and warehousing, logistics management services, customized value added services and customer relationship management. However, even the most basic areas like transportation and warehousing, are growing at an annual rate of 5-6%.
Given an already existent customer to 3PL relationship, a logistics provider can become a 4PL, becoming a true partner with the customer, serving as a single point of contract for all the parties involved in the customer’s supply chain.
Third-party logistics companies also provide much of the infrastructure investment and diversification of services needed to supply B2B, B2C and e-commerce solutions. As a result, 65% of shippers are increasing their use of outsourced logistics services benefiting from time saving, continuous optimization, increased expertise and reduced costs. On average those using 3PL’s utilize 3 separate services.
As the global 3PL business continues to rise there are a growing number of challenges to deal with; constantly improving customer service, managing inventory, regulations, security, global fulfilment and strategy implementation to name just a few. However, the number one challenge perceived by 3PL remains the cutting of costs.
Unsurprisingly, in the last 3 years, 74.1% of shippers had to deal with at least one third-party related incident, and 20% of shippers faced a complete 3rd party failure. Investing in technology and analytics provides the capability to deliver enhanced customer service and ROI for 3PL’s. Intrinsically, 91% of shippers believe that IT solutions are a necessity for 3PL activities and that technologies providing more execution with transaction-based capabilities are among the most valued.
Currently, 60% of 3PL’s use technology in order to increase visibility, 40% for planning within transportation management, and 48% for scheduling within transportation management systems. Even though big data was clearly recognized as being vital in creating a smoother supply chain only 4 % of 3PL’s were found to actually invest in digitization and automation to collect and analyze data.
The future of logistics is shaped by cutting-edge technologies which are believed to dramatically change the way logistics companies will operate. The supply chain will become smoother, faster and sooner or later, self-orchestrated through the implementation of machine learning algorithms or self-driving cars. Similarly, the rise of e-commerce produced a huge change in how logistics is used to operate companies increasing need of 3PL services. E-commerce, that includes same-day delivery, is a necessity for some businesses in order to maintain customer satisfaction and retention. For increased visibility among the supply chain or a faster flow of information, existing solutions are slowly being integrated by those who wish to deliver smarter and more profitable logistics. So far, 65% of 3PL respondents would be interested in the potential of Blockchain technology in order to create visibility.
The Internet of Things (IoT), the technology allowing devices to communicate with no need of human interaction, is currently the most adopted technology by 3PL’s and is only expected rise. IoT is estimated to add a 15% productivity increase in the supply chain performance including tracking, delivery and real-time analytics. The shift from 15 billion interconnected devices to an expected 50 billion by 2020 will make the implementation of IoT a necessity for those wishing to improve business process or keep up with competitor trends. IoT is expected to generate a $1.9 trillion boost to supply chain operations and, globally, 96% of senior leaders confirmed their companies will be using some form of IoT technology in the next 3 years.
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