It’s been a real rollercoaster ride for third party logistics providers over the past year, with the downs and ups of the recession, mergers, acquisition, rising fuel costs, and the change in government – with spending cuts still looming. But those that have survived, and even prospered, have been the ones who have been able to adapt and respond to changing market conditions quickly. Lucy Tesseras reports.
There are renewed signs of optimism among third party logistics operators following a turbulent few years made complicated by recession, mergers, acquisitions, rising fuel costs, and government spending cuts.
“After a tough couple of years I believe that in 2011 we will start to see signs of recovery with customer volumes increasing from last year,” says Ian Smith, chief executive officer of Nightfreight.
“While the public sector cuts will, undoubtedly, result in uncertainty I expect to see UK growth continuing throughout the year. This growth will lead to opportunities for logistics organisations, but I expect to see service level requirements increasing, with wider service offerings to meet the consumer demands.”
Kuehne + Nagel’s Glenn Lindfield, senior vice president contract logistics, North West Europe, agrees suggesting that while times have been tough prospects are slowly beginning to improve.
“Against the background of economic uncertainty customers have been reluctant to accept the risks of change without a compelling or critical reason to do so.
In the last two to three years this resulted in more benchmarking on larger transactions and greater completed activity in smaller tactical contracts.
“There has since been a noticeable increase in activity levels and the size of tender opportunities over the past few months. Many customers are now considering their own longer-term growth strategies rather than purely focusing on cost reduction.”
However, not all are so confident. Iain Speak, chief executive officer of Bibby Distribution reckons that in the short-term “pressure will be felt across the industry with rising costs of fuel, general inflation, and clients’ demands to reduce supply chain costs to remain competitive in challenging market conditions.”
And he is keen to point out that not all companies will be prepared to face the challenges that lie ahead, adding: “A number of operators who, having survived the recession, may now face an uphill battle to remain profitable.”
However, while Paul Kelly, group marketing manager of Allport expects there to be a slow down in the first two quarters as overstocks from 2010 work through customer inventory, he anticipates a modest recovery to begin in the third quarter.
Risk will continue to be an issue over the next three to five-year planning horizon though as many companies are less certain of future markets, according to Paul Brooks of Unipart Logistics. “The market will continue to be focused on cost and risk, so the cost benefit of any initiative or project will have to be quite large to gain approval…However, those companies that are confident, that have a vision for the future and that are set on strategic change will move ahead with those plans – whether they be consolidating three warehouses into one or changing manufacturing strategy, and service providers will have to be highly agile and responsive to those demands.”
As things begin to stabilise many believe shared-user logistics will become amore attractive option.
Steve Winwood of Culina says: “There is a continual need to drive costs out of the supply chain and promote environmental responsibility, therefore shared-user logistics will provide an evermore attractive and suitable logistics solution tomore and more manufacturers.”
Keith Forster, managing director of Boughey reckons the same is true of the food sector. He thinks customers have become less precious over sharing resources across multiple grocery retailers and their suppliers as they strive for higher service levels coupled with more competitive service rates.
Investment in new technology and IT infrastructure is set to be high on the agenda as companies try to stay ahead of the curve. Customer service is also being looked at as operators look to retain customers.
Hellmann’s Matthew Marriott reckons that we will see changes to the 3PL arena over the next 12 months, namely owing to the retail sector driving costs through challenging 3PL structures.
“More pressure will be placed on consumer sectors in the UK in 2011/12 due to the austerity budget and reduction in household spending. Consumer business will have to react to protect margins through either the current incumbents removing specific processes from the supply chain and reducing costs through lean thinking practices or the consumer company placing business out to bid. Either way, margins in 3PL companies will be challenged due to the increasing pressure on the high street,” he says.
Companies are also looking to invest in new markets. Norbert Dentressangle’s chief executive officer, François Bertreau, reckons: “Customers, especially in the retail sector, are increasingly looking to international markets and need logistics partners that can offer a complete range of services in these markets, the ability to ‘join the dots’ to deliver the most efficient end-to-end supply chain solutions, and the resilience and stability to enter into long-term, strategic partnerships.”
Paul Brooks of Unipart Logistics says: “The growing markets of the BRICS countries are where we are investing a lot of our time and effort. We have experienced significant overseas growth over the last year, with expanded contracts and additional sites coming on-stream. We now have five warehouses in China where we only had two at the start of last year.”
Similarly, Ian Veitch, managing director of Yusen Logistics (UK), says: “It is envisaged that there will be more emphasis on global sourcing for customers and therefore a requirement for transparent IT solutions and the ability to manage in the world’s sourcing centres, eg China, India and Indonesia efficiently and effectively.
Equally, the need for efficient pan-European networks continues to grow, with companies increasingly exploring sourcing opportunities nearer to consumers to maximise flexibility.”
The rise of e-commerce has also had a huge impact on the 3PL sector with many realigning their business to accommodate these requirements.
Sharon Davies, director of corporate affairs, UK & Ireland at DHL, says: “Our industry was also one of the first to profit from the rise of multi-channel and in particular the surge in online retail investment we have seen over recent years.”
And it doesn’t look like the trend is set to change. Kate Willard, head of fund and stakeholder management at Stobart Group, says: “We see a real potential for growth in the B2C market with the ongoing increase in internet shopping. This is likely to have a parallel increase in modal shift traffic due to the sustainability agenda.”
Peter Nielsen, managing director of DSV Solutions, continues to see e-commerce as a bigger proportion of DSV’s overall business, and K+N’s Lindfield anticipates growth in its e-commerce related products, e-fulfilment and reverse logistics following investment.
Who wields the most influence?
DHL Supply Chain’s Graham Inglis is our reader’s choice as most influential person in third party logistics.
Inglis, whose full title is chief executive of DHL in the UK, Ireland, France, Eastern Europe, Middle East and Africa, joined Exel Logistics in 1995 and subsequently joined DHL following its acquisition of Exel in 2005.
Last year DHL joined its Supply Chain, Global Forwarding/Freight, Express and Global Mail divisions. The company plans to target new industries such as publishing, fashion, life sciences, technology and automotive next year, as well as emerging markets including Asia.
Inglis topped a strong field of nominees including Stobart chief Andrew Tinkler, CILT chairman Paul Brooks, Tim Scharwath of Kuehne + Nagel, and TV dragon Hilary Devey of Pall-Ex.
Andrew Tinkler, chief executive of the Stobart Group was a popular choice. Since buying the company with Edward Stobart’s brother William in 2004, he has been credited with turning it around, returning it to profit. Earlier this year he was named North West Business Leader of the Year by the CBI North West. He attributes his success to knowing his customers, understanding costs and keeping a tight rein on them, and never being complacent.
Unipart sales director Paul Brooks, who is also chairman of the CILT and Transport UK and a board member at Skills for Logistics, also figured strongly. One voter said: “[Brooks] is a well known figure who influences the entire sector with regard to skills and the profile and status of the entire logistics and transport profession.”
It has been a busy year for Norbert Dentressangle CEO Francois Bertreau, who played a significant role in the acquisition of TDG to form one of the biggest players in the UK 3PL market.
Hilary Devey has also been in the public eye after joining BBC TV show Dragons’ Den as its latest investor and raising the profile of women in logistics.
There was strong support for a number of other individuals who have made a significant impact on the industry this year including: Eric Born, CEO of Wincanton, John Pattullo, CEO of Ceva Logistics, Theo de Pencier, CEO of the Freight Transport Association and former Tibbett & Britten chief John Harvey who is now chairman of Keswick Enterprises and has just launched Tibbett Logistics.
Dos and don’ts of choosing a third party logistics provider
Selecting the right 3PL can be a difficult and lengthy process, but there are a number of key things to remember when beginning the tendering process to help things run more smoothly.
Firstly, it is important to be clear as to why you are outsourcing and what you want to achieve. “This will direct the contractor selection criteria, scope of contractors’ responsibilities, contract format, performance measures, etc,” says independent logistics consultant David Hindson. “If you lack clarity in why you are outsourcing, you will probably get these things wrong which will later result in frustration and possibly conflict.”
He also warns that the process should not be rushed to meet an arbitrary timescale and that the time spent on each step should be proportionate. “For example, don’t allocate six months to prepare tender documents and then give contractors three weeks to respond,” he advises.
Chris Sturman, chief executive of the Food Storage and Distribution Federation, says it is imperative to ensure that the 3PL understands your business and your corporate vision and objectives.
He also advises companies to get references from similar organisations which the 3PL is already working with “to ensure that there is a complete knowledge and integration of the services supplied and full customer satisfaction”.
Both Sturman and Hindson recommend checking the capabilities of the team that will be responsible for the implementation making sure their capabilities, experience and knowledge fit the needs of your business.
Hindson also warns companies not to invite large numbers of contractors to bid in the hope of getting the lowest possible price. He says: “This will damage your reputation such that you may find it difficult to attract bidders in future exercises. If you want to test the market more widely, undertake a prequalification exercise perhaps involving questionnaires, site visits, references, or interviews.”
Plus, Sturman says don’t expect every 3PL to respond to your invitation to tender as proposals cost time and money to prepare and 3PLs will oftenmake a value judgement as to the likelihood of winning.
From a 3PL’s point of view,Tony Leach, director of Virtualized Logistics, the consultancy armof SBS Worldwide, says: “The more information the potential suppliers have, the more likely they are to be able to provide a realistic tender reply.”
He reckons it is also important to consider how important your business will be to the potential supplier. “Will you be a major customer, receiving high level attention…Or will you be just one of many smaller customers? Do you care – and, more importantly, how much is it worth to get themore personalised service?”