Choosing the best 3PL
The recent acquisition of Tibbett & Britten (TBL) by Exel has raised no regulatory issues nor does it seem to have upset TBL customers in the main. It triggers a few questions in my mind about the long-term winners in the third-party logistics (3PL) provider sector. In particular, I wonder which 3PLs will still be around in 10 years' time?
Total demand for 3PL services continues to rise and the bigger players are growing both by grabbing a share of rising demand and by acquisition: eg Exel, Deutsche Post, Danzas. However, only Kuehne & Nagel have a record of rising market value per euro of sales. The others have seen declining value and earnings before interest, tax, depreciation and amortisation (EBITDA), probably the result of some smart procurement policies by the big 3PL users.
The last bit of the market jigsaw is user satisfaction. Under 60% of users are satisfied with the performance of their 3PL and under 45% of term contracts are renewed. That must be of equal concern to users and providers since the cost of change is enormous. So, how do you, the user, decide where to place your business? The historical answer seems to have been heavily focused on price, but what else is there to judge by?
There is some high ground for the biggest 3PLs: they have, without exception, invested significantly in information technology and communications support systems to the extent that there is rarely much to choose between them today. The winners will therefore be those that take today's scarce profits and invest them in a culture that will encourage the best managers from industry to join and make the essential difference between mediocre and world class performance.
It is clear that Exel and Kuehne & Nagel have spotted this and are very active in this area, albeit with quite a mountain to climb. I reckon their rewards will be seen in clear daylight between the results they can produce and the results of the also-rans.
So, expect continuing polarisation and globalisation. But also expect some real improvements in value for money as 3PLs clearly articulate and then deliver, using their high quality people and systems, a measurable value add! Perhaps the renewals and satisfaction registers will then start to rise.
Tim Knowles is Director, ProActive http://www.proactive21.com
