Shippers and 3PLs re-evaluate their relationships
By: Karen Thuermer | Jun 09 2010 at 08:00 PM | Channel(s): Logistics
By Karen E. Thuermer, AJOT Both shippers and third party logistics providers (3PLs) have faced significant challenges during this global downturn. While surveys indicate 3PLs, generally, have more reason to feel optimistic about their future than shippers, Dr. C. John Langley Jr., professor of Supply Chain Management at the Georgia Institute of Technology (Georgia Tech), comments that 3PLs are also not out of the woods. “Shipper – 3PL relationships are being impacted significantly by the prevailing uncertainty and economic volatility in global markets,” Dr. Langley says. According to the 14th annual 3PL study from consulting firm Capgemini, Georgia Tech, Oracle and Panalpina, 82 percent of shippers are employing cost-cutting measures and 60 percent are rethinking their supply chains and relationships with 3PLs. It’s important times for the industry. Meanwhile the Council of Supply Chain Management Professionals (CSCMP) in its 14th Annual 3PL study which, for the first time surveyed both 3PLs and with shippers in its survey, concurs that 3PLs are pulling out of the recession with more optimism. In fact, 3PLs ranked their relationships with shippers more positive than those reported by shippers. The reason, the CSCMP survey says: shippers have been re-evaluating their logistics needs and implementing more services from 3PLs. Think to Rethink Supply Chain Both studies concur that key factors responsible for this successful relationship between shipper and 3PL include: openness, transparency and good communications; the ability to create personal relationships on an operational level; the flexibility of 3PLs to accommodate customers’ needs; and the ability to achieve cost and service objectives. “As a provider of outsourced logistics services, we know that openness, transparency and good communication, flexibility and the ability to achieve cost and service objectives are key to the success of our customer relationships,” says Kai Peters, head of Supply Chain Development for Panalpina. Panalpina, which specializes in intercontinental air freight and ocean, is one of the world’s leading providers of global transport and logistics services. The Capagemini study indicates, however, that there is a disconnect between how 3PLs evaluate their role in the supply chain and how they are viewed by shippers. Only 59 percent of the shippers surveyed feel their use of 3PLS has a positive effect on customer service compared to 88 percent of 3PL respondents. While 3PLs seem the most optimistic about their future relationship with shippers, economic volatility has challenged shippers and 3PLs alike to contend with factors such as unpredictable demand, instability in fuel costs and currency valuations, and excess inventory. “Companies worldwide are still dealing with the effects of the economic downturn,” says Jim Morton, senior manager within Capgemini Consulting’s Supply Chain practice. “It’s very important for 3PLs to mitigate or reduce any financial risk or service level impact [the financial downturn] may [have] caused,” Dr. Langley adds. If the CSCMP is any indication of where the 3PL industry is heading, shipper respondents say that they expect to increase 3PL expenditures in the next five years. Currently, shippers devote on average 47 percent (in North America) to 66 percent (in Europe) of their total logistics expenditures to outsourcing. When using a 3PL, shippers generally outsource logistics activities that are more transactional, operational and repetitive. Shippers are more likely to keep customer-facing and IT intensive activities in house. But CSCMP survey results suggest that shippers may be receptive to outsourcing strategic services in the future. The economic downturn can be attributed to this change of view. That’s because these trying times have caused shippers to deal with a number of difficult factors such as unpredictable demand, volatility in fuel costs and currency valuation, and excess inventory.