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Bangkok Shipowners and Agents Association
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Home News BSAA Activities Stability Amid Instability
Stability Amid Instability PDF Print E-mail
Tuesday, 20 September 2011 14:23
JOC 19/9/11  Third-party logistics providers are undergoing a reinvention that allows  them to thrive in a transportation market dominated by uncertainty  Rick Blasgen is a confident man. The president and CEO of the Council of  Supply Chain Management Professionals sees the same dark clouds of  uncertainty that others up and down the freight shipping world see - global  economic uncertainty that is stifling trade, employment growth, and  investment in innovation.  But he also sees a third-party logistics industry that is showing strength  and resilience in the face of that uncertainty, navigating a complex,  highly regulated trade environment with new technologies and collaborative  strategies that are bringing greater efficiency to a turbulent supply chain. That resilience is built on the backs of reinvention, as 3PLs evolve from  providers of fixed services to single parties to purveyors of  information-based supply chain management services across global networks  of interconnected partners.  Blasgen is upbeat about the U.S. 3PL market for the rest of the year as the  industry grows through mergers, acquisitions and organically, and as new  customers turn to outsourcing so they can focus on core competencies.  "The industry is doing a much better job of reaching out to companies,"  Blasgen said in an interview leading up to the CSCMP's Annual Global  Conference in Philadelphia Oct. 2-5. "Most warehousing is still done  privately, so there are good growth opportunities."  Logistics providers improve the value equation for shippers by bundling  value-added services such as light manufacturing and bar-coding to reduce  supply chain costs. They are embracing sustainable logistics to reduce  waste. Shippers and 3PLs, seeking to mitigate high fuel prices, costly  regulation and driver shortages, are broadening and deepening collaborative  relationships to optimize routes and networks.  And, although 3PLs certainly share some of the uncertainty enveloping  shippers and transportation providers, there is also an upside for  intermediaries: As companies focus on their core competencies to navigate a  troubling market, they are increasingly turning to logistics outsourcing to  streamline operations and lower costs.  "Companies are focused on doing what they are already doing, but doing it  better," Blasgen said.  t's been a good year for 3PLs, and the industry should continue to see  growth for the remainder of 2011, said Evan Armstrong, president of  Armstrong & Associates, a Stoughton, Wis., research and consulting company  specializing in third-party logistics.  4effd0.png   Armstrong estimates revenue generated by the U.S. 3PL industry will reach  $142 billion in 2011, up 10.9 percent over 2010. That's only slightly below  the 12.7 percent compound annual average growth rate of the industry since  1995, when Armstrong first began tracking the U.S. and global 3PL markets.  The industry also is thriving because of its stability in an era of  instability: The long-term structural underpinnings of 3PL markets,  outsourcing and global trade are strong enough to compensate for  recessionary periods and economic uncertainty. Eighty-two percent of  domestic Fortune 500 companies use 3PLs, up from 54 percent in 2004. Top  users of 3PL services include Johnson & Johnson, Wal-Mart, General Motors,  General Electric, BMW, Daimler, Philips, Pepsico, Unilever and Procter &  Gamble.  "Companies will continue to turn to 3PLs in order to focus on their own  core competencies," Armstrong said.  Advances in technology also have greatly simplified logistics and global  trade management. New capabilities in automated data handling, managing  business intelligence and Web and mobile connectivity are making possible  deeper levels of collaboration between shippers and 3PLs and enabling  redesigned processes for increased supply chain efficiency.  Last year was an anomaly in the U.S. 3PL market as industry revenue jumped  18.9 percent over 2009, when recession-battered companies slashed  inventories and spending. 2009 marked the first annual decline for the  domestic 3PL market since Armstrong & Associates began tracking results in  1995.  Net revenue is projected to rise in 2011 in all four 3PL market segments:  non-asset-based domestic transportation management, 11 percent;  non-asset-based international transportation management, 13 percent;  asset-based dedicated contract carriage, 11 percent; and asset-based  value-added warehousing and distribution, 8 percent.  The retail industry spent the most on 3PL services in 2010, $25 billion,  followed by technology, $20 billion; automotive, $11 billion; food and  groceries, $10 billion; elements, $9.4 billion; and health care, $7.7 billion.  Key trends this year in the 3PL sector include collaboration, bundling of  services and a strong focus on transportation rates and the factors that  affect them, including fuel costs, driver shortages and regulations, said  Dan Singer, vice president of operations for supply chain service at  Averitt. The Cookeville, Tenn-based provider of freight transportation and  supply chain management is the nation's 16th-largest provider of dedicated  contract carriage.  Rising fuel costs are driving more shippers to embrace dedicated contract  carriage, pressuring 3PLs to provide those services without dramatically  increased cost. That means they must make significant investments in  technology and improved processes for better collaborative capabilities.  "The 3PLs that can build a better mousetrap will bring better value to the  customer," Singer said.  Although great advances have been made in warehouse and transportation  management and other supply chain technologies, not all 3PLs implement it  properly or understand its full functionality. To maximize technology, 3PLs  must talk to their customers to understand what they want from it and  provide adequate training and resources to make sure it happens. "You have  to really kick the tires and delve into what technology can do," Singer said.  Mobile technologies are rapidly permeating supply chain management and are  light years ahead of the previous generation of gadgets. Load boards  accessed by mobile devices are already a huge factor in the trucking sector.  Averitt Express is an active user of onboard computers and satellite  technologies, and Singer believes it's only a matter of time before all  trucks are mandated to have onboard recorders.  Given the ups and downs of a shaky global economy, flexibility has become a  top priority for shippers in managing warehouses, inventories and dedicated  fleets. It's a departure from past practice when 3PL-shipper relationships  were locked down in terms of square footage and human and capital assets.  "Shippers don't want them to have a dedicated fleet that obligates them to  run units," Singer said. "They have to be able to scale up or scale down."  That flexibility also is paying off for Damco, the logistics arm of  Denmark's A.P. Moller-Maersk. Damco's profit climbed 9 percent to $361  million, and new business sales jumped 37 percent in the first half of the  year, despite a challenging freight market.  The growth is occurring as Damco and other 3PLs find new ways to  collaborate more closely with customers. Damco has essentially  re-engineered its account management and sales functions on the  customer-facing side of the business in a process called dynamic flow  control, said Martin Thaysen, Damco's global chief commercial officer.  Given today's volatile demand cycles and economic uncertainty, companies  need maximum flexibility to manage shipments at each stage in the supply  chain. Dynamic flow control enables Damco and its customers to utilize  predefined criteria for shipping and exception as well as dynamic  approaches to mode selection and precision in times to market.  The process grew out of development sessions with customers about two years  ago to identify key supply chain challenges. Within the past year, pilot  programs have been launched with a handful of major customers in the  retail, fashion and consumer electronics industries. To prepare for the  programs, Damco brought new people aboard and added resources from its  supply chain consulting team.  The success of flow control depends on Damco gaining deeper insights into  the nature of its customers' businesses. The process takes collaboration to  levels beyond the traditional ocean freight 3PL focus on the physical  transportation of goods.  "With our pilot customers, we found that we needed to change our focus from  TEUs and loads to talk about sales and purchase orders and how they were  evolving," Thaysen said.  As the pilot relationships expanded, so did the savings, including  substantial reductions in air freight and overall freight costs. Tighter  integration, enhanced visibility and greater insight into customer  inventory management practices enables Damco to shift modes more easily and  efficiently.  Domestically dynamic flow control means tighter control over the vast  amount of inventory that arrives at the U.S. West Coast. A key benefit is  more deliveries to cross-docking facilities and customer warehouses rather  than big-box import distribution centers.  "Traditionally, a lot goes to distribution centers whether the goods are  there for 12 hours or two months," Thaysen said.  Process flow control allows Damco to execute supply chain strategies based  on agreed-upon decision trees and the deeper insights it has acquired into  sales, purchasing and inventory management practices, leaving the customer  free to focus on core competencies.  "We can continuously optimize the supply chain without shippers having to  get involved," Thaysen said.  The rollout of process flow control is in its early stages as many shippers  lack the international infrastructure to make it feasible. Pilots are under  way with about 200 of Damco's largest customers.  Pervasive uncertainty has led companies to put off supply chain  initiatives, especially those with long-term payoffs. Damco has suspended  some its own flow control projects with customers who are waiting to  proceed until a semblance of certainty returns. "Flow control is a  longer-term approach to the supply chain, and some customers are reluctant  to do that now even if the payback is quite large," Thaysen said.  Flow control represents the biggest potential change to logistics in more  than 20 years. It involves significant process changes, such as who within  organizations makes supply chain decisions. Thaysen sees it as one of  several innovations that signify the end of supply chain management as a  series of fixed and planned steps subject to change by numerous parties.  "In my view, that makes things more interesting than just going to bid on a  low-cost TEU," he said.