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State of Logistics Outsourcing: Plenty of Room for Growth as Shipper Dissatisfaction & Technology Expectations Increase

logistics outsourcing

The 3PL industry is currently at a juncture where stakeholders are being forced to reconsider the way they do business. The year on year increase in customer dissatisfaction of logistics outsourcing has pushed many players into a defensive corner. But the picture is not all that bad. The costs of logistics and inventory are decreasing, contract renewal rate for logistics outsourcing remains good, and the emergence of cutting-edge technologies like 3D printing, drone delivery and augmented reality is opening up a wide vista of opportunities.

The coming few years are likely to be decisive for the future of 3PL. The industry is going through a quiet revolution, which makes it an exciting time to be in the logistics outsourcing business. An increasing number of companies are embracing advanced technologies to ensure a faster, better and more reliable service. The road ahead is not without risks, as is the case with every new development, but for those who are willing to adapt to the changing market, there are opportunities galore.

Cautious Optimism Abound in the Logistics Outsourcing Outlook

After a lackluster 2014, optimism is back in the market. A recent survey conducted by ETF has revealed that 3PL service providers are quite optimistic regarding their company’s business prospects in the next 12 months. They are also optimistic regarding the general economic situation in the next 12 months. In 2015, the US economy has been projected to grow by 3.5%. From 2016 until 2019, the growth rate is projected to average 2.5% annually. This bodes well for the 3PL industry as a sound economy means higher volumes of shipment.

But in order to catch the market, logistics outsourcing companies need to look where things are happening or are going to happen. This means investing in emerging markets and new technologies. And this is exactly why it is so exciting to be in this business in 2015.

Markets, Markets, Everywhere……But Where do you Focus? 

New markets are opening up everywhere. China has been the fastest-growing market in the last decade and it continues to lead the pack. After China, other regions that have growth potential, according to 3PL and supply chain executives, are North America, Asia (not including China and India) and Western Europe, in that order. Other emerging markets include South America (not including Mexico), India, Eastern Europe, the Middle East, Africa and Mexico.

China, despite its high level of complexity, including a difficult regulatory environment and stiff competition from local providers, still has the potential to become the biggest 3PL market in the world. But other regions are also growing fast and although they are not going to be as big as China, they still offer plenty of opportunities for those who are well positioned to exploit these emerging markets. Even North America and Europe, which are well-established markets, have plenty of room for growth.

Most 3PL companies still conduct the biggest amount of their business in Europe (38.5%) and North America (35.8%). But at the rate the emerging markets are growing, the picture is likely to change significantly within the next few years. Always on the lookout for new opportunities, large logistics outsourcing executives know this and many of them are already investing in those regions. When the time comes to reap the rich rewards, these companies will no doubt become the “early birds”. It’s why at Cerasis, although we are mainly focused on North American transportation management, we’ve already identified affiliate partners to serve our current customers and future prospective customers’ needs. Further, we have put into our 10 year vision to offer more and more services in these emerging markets. It’s simply our core value to continuously improve. Markets clearly change, and as a leader, we must have flexibility to even change our own strategies to meet the demands of customers.

Technology in Logistics Outsourcing: The Ultimate Enabler & Transformative Force which Cannot be Ignored

Technology has always been the driving force behind the growth of the 3PL industry. Some of the technologies that are likely to transform the market in the near future include 3D printing, internet of things (IoT), drone delivery, driverless vehicle and augmented reality. Many of the emerging technologies are still in the testing phase, but there can be little doubt that they will have significant roles to play in the future. And the future is not very far down the road; it’s just around the corner.

These and other new technologies are expected to cut transportation, storage, labor and other costs significantly. They are also expected to ensure faster and higher quality service, resulting in increased customer satisfaction. For example, drones can be used to deliver merchandise to remotely located customers within a fraction of the time it takes to deliver the same by road and at a significantly lower cost. Similarly, driverless vehicles will cut the costs associated with the driver.

Some cutting-edge technologies are already busy transforming the market. Large logistics outsourcing providers have been using sophisticated and expensive systems like global positioning systems (GPS), warehouse management systems (WMS) and transportation management systems (TMS) for several years now. These applications are continually being improved to provide faster, better, more reliable and cheaper service. The latest versions of WMS and TMS are designed to allows companies to respond to the dynamic market in real time, saving cost and time. And as the Internet of Things gets built out, those systems will seamlessly talk and offer the end user actionable insights or simply execute autonomously those logistics functions which the systems together know need to get done.

Technology: Proven to Get ROI in Logistics, However….Adoption is Not Quite What You’d Think

However, not all companies have been so enthusiastic about adopting new technologies. Smaller companies are taking their own sweet time to embrace these technologies. The reason is simple enough: they have been deterred by high costs of implementation and maintenance. But the more they procrastinate, the further they will fall behind. Today’s highly competitive market has no room for those who refuse to change; they will be wiped out. But for those who are willing to invest in cutting-edge technologies, there are plenty of opportunities.

It is not hard to understand why. Today’s technology-savvy customers (manufacturers and retailers) are more favorably predisposed towards logistics outsourcing companies that are technologically advanced. Advanced technologies ensure higher quality service. The ETF survey has found that 32% of manufacturers and retailers interviewed expect their 3PL companies to have at least some expertise or knowledge of augmented reality. Similarly, 30% expect their 3PL to have at least some expertise or knowledge of drone delivery.

And 3PL companies are starting to rise to meet the challenge. Already, a number of 3PL companies are using augmented reality and a few have even started experimenting with drone delivery. Considering the emerging markets, availability of technologies and the need to increase customer satisfaction, there is plenty of room for growth in the 3PL industry. The companies that are quick to invest in those markets and  technologies have the highest potential for growth and the future belongs to them.