Inside Logistics

Existential angst

3PL companies and customers facing uncertainties


February 27, 2012
by Carolyn Gruske

FROM THE MM&D JANUARY/FEBRUARY 2012 PRINT EDITION:

The third-party logistics industry is suffering from an identity crisis this year. Service providers are facing changes in the types of services customers demand and challenges in how to communicate with them. Simultaneously, 3PLs are trying to figure out how to best deploy new and existing resources to support evolving business models.

Numbers and data
According to International Warehouse and Logistics Association (IWLA) Canada Council executive director David Long, “the industry just doesn’t know enough about itself”. The association has embarked on a data collection project it hopes will shed accurate light on 3PL statistics, and avoid the estimates typically used when speaking about the industry.

“They do extrapolations. There may be some economist in the US who says X percent of the GNP is supply chain and logistics, so we take ten percent of that number and call it ours. Then somebody else says, ‘that’s not true. We’re a completely different logistics operation. We’re thin ribbons of populations.’ So this is getting at Canadian data realistically.”

The project will look at six key areas: revenue of the Canadian 3PL market, revenue of specific 3PL services, average size of deals or contracts, length of the contract, revenue per square foot of warehouse operations, and 3PL revenue by sector.

Growth and contraction
Many 3PL companies are finding themselves torn in opposing directions. Mario La Barbera, president of Pival International Inc, says the dichotomy between spending money to expand and keeping costs low by focusing on the current, core business models is an issue both 3PL providers and their customers will need to examine this year.

“We’re going to see a cautious approach to growth, which many companies are planning, but with a certain nervousness. We’re fresh off a serious recession. There is pressure to grow, but there is still a huge focus on costs. I think it will have to be a watershed year for companies to decide how much they want to invest in their growth. And if they want quality services, they’ll have to approach their supply chain a little differently.”

Even if 3PL companies decide they want to expand and grow their service offerings, it will be difficult. First they’ll have to hire people, and Axsun Group president Steve Ramescu says this won’t be easy or cheap.

“The biggest challenge is a lack of qualified people in the transportation offices. That’s not just us. That’s any transportation company that is growing. The reality is through the recession a lot of people got laid off. A lot of people are gone. A lot of people re-oriented themselves. Over the last ten years, you’ve constantly heard about the driver shortage. Well, there is a huge shortage of qualified transportation people. As the world becomes more global in trading, there are lots of regulations and packing material rules that you have to be cognizant of when you’re handling people’s cargo. There is liability on all fronts.

“We have to understand that transportation, through the ’90s and early 2000s, has been not the most lucrative market to be in. You hear about bankruptcies all the time, from trucking to airlines. It’s always a cut-throat business and has always had that stigma of nickel-and-diming. So for the kids coming up, transportation is not what they’re looking for.”

Keeping up with the technological times
According to Ramescu, one of the keys to recruiting young employees is giving them access to the latest information technology and telling them they have free rein to make business improvements using that technology (which in Axsun’s case happens to be SAP, but could be any fully integrated system).

But it’s not just future employees who want to use the latest software and computer hardware. It’s also customers. Jim Ramsay, vice-president international freight forwarding for UPS Canada, says customers see the potential technology offers and are starting to make more demands of 3PLs. “We keep hearing that customers want to reduce the number of companies they’re dealing with, and they’re looking for companies that can handle both the small stuff and the big stuff. They tell us, ‘keep it simple for the supply chain, and let us know when the product is in transit.’”

While customers may call for simplicity, their supply chains are becoming more geographically complex. Ramsay says he’s seeing a lot of clients looking for ways to get into new markets, especially the BRIC (Brazil, Russia, India, China) countries, but also into Viet Nam and into South America. LaBarbera is also seeing growing international demand. This means there are growing opportunities to enter into new contracts, but it’s also forcing 3PLs to diversify and to re-invent what services they offer to the market. For example, he says Pival is seeing a “lot more LTL and parcel shipments than ever before, which makes the work more complex.”

Of course, 3PL professionals thrive on the complexities and the challenges of the industry. “In this business it’s never a dull moment,” Ramsay says.

For a customer’s view of the changing 3PL world, visit www.canadianmanufacturing.com/?p=54357 to read how Ihor Stech, vice-president of global operations for Christie Digital Systems sees the changing relationship between 3PLs and their clients.