3PL survey reveals threats, opportunities

Executives at third-party logistics service providers (3PLs) agree that international expansion is the biggest opportunity within their marketplace, but they worry that a talent shortage might prevent them from expanding as rapidly as they'd like.

Those are two key points from the annual 3PL CEO survey conducted by Dr. Robert Lieb, professor of supply chain management at Northeastern University's College of Business Administration in Boston. The 40 CEOs interviewed for the study have also scaled back their growth predictions, although double-digit sales gains still appear to be the industry norm. Average three-year company growth projections are 13.2 percent for North American 3PL providers, 15.1 percent for those in Europe, and 26.7 percent for those in the Asia-Pacific region.

As for the looming labor shortage, 3PLs are keenly aware of the problems they're likely to face in the United States as baby boomers begin to retire. The situation is actually worse in Europe, which is why CEOs in all regions of the world identified the talent shortage as the most significant problem faced by 3PL service providers. "Their difficulties in recruiting, training, and retaining talented managers have been well documented in our previous annual surveys," says Lieb. The new study documents several initiatives taken by 3PLs to combat the threat, including launching new recruiting initiatives, expanding training programs, and developing new retention programs. Many of the companies have expanded their involvement with universities in an effort to increase the pool of potential employees.

As for the ongoing consolidation of the industry, the 3PL executives interviewed generally agreed that it would continue. But they were evenly divided when it came to their views on the growing involvement of private equity companies in the industry, which is driving the consolidation. Those who see it as a positive development pointed to the private equity companies' ability to create scale. Those who view it in a negative light said they were concerned that the investors' short-term focus on costs would have an adverse effect on service quality.

Executives from all regions surveyed also indicated that pricing pressures continue to be one of the industry's top challenges. Lieb says the problem has been exacerbated by the growing involvement of procurement professionals in the 3PL selection process. As a result, nearly all of the companies surveyed have taken steps to respond to pricing pressures, with customer selectivity being the most common response. If a customer is not deemed profitable enough, 3PLs may very well walk away from that business. Survey respondents also reported that they have placed increased internal focus on cost control measures to protect margins.