2006 conference ceo survey

3 PL CEO Survey 2006 | Apr 10, 2023 1

North American, European andAsia-Pacific Markets for 3PL

Services:The 3PL Provider CEO Perspective

Dr. Robert C. Lieb, Professor of Supply Chain Management,

Northeastern University

Karen V. Butner, Associate Partner, IBM

3 PL CEO Survey 2006 | Apr 10, 2023 2

Discussion Topics

Introduction to the Surveys and the Report Findings

Summary of Major Regional Findings

- Americas

- Europe

- Asia-Pacific

Comparative Key Findings

Conclusions and Expectations

3 PL CEO Survey 2006 | Apr 10, 2023 3

The 2006 Third-Party Logistics Provider CEO Surveys

America22

EMEA11

APAC11

This is the 13th year that the annual 3PL CEO Surveys have been conducted.

Forty-four CEOs of the world’s leading 3PLs participated in our three regional surveys. The regions examined were North America, Europe, and the Asia-Pacific region.

Collectively their companies generated nearly $50 billion in 3PL revenues in those markets in 2005.

The surveys provide a global overview of the 3PL industry from the perspective of the CEOs.

The data generated not only give insight into the specifics of the regional markets, but also allow comparisons across geographies.

The survey data also provides an industry benchmark, and has been used by 3PLs in their strategic planning efforts.

3 PL CEO Survey 2006 | Apr 10, 2023 4

North American SurveyCEOs of 22 of the largest North American 3PLs participated in the survey

Cardinal Logistics Caterpillar Logistics Services DSC Logistics Exel Logistics Genco Kuehne & Nagel Logistics, Inc. Landstar Maersk Logistics Menlo Logistics MeridianIQ NAL

NYK Logistics Panalpina Penske Logistics Pittsburgh Logistics Ryder Schenker Schneider Logistics TNT Logistics Transplace.com UPS Supply Chain Solutions UTi

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North American Survey3PL operating revenues in North America continue to grow

$1.045,00

$883,00$846,00

$752,00$823,00

0

200

400

600

800

1000

1200

2001 2002 2003 2004 2005

Operating Year

Op

erat

ing

Rev

enu

e ($

M)

Average Annual Revenues of Participating Companies

3 PL CEO Survey 2006 | Apr 10, 2023 6

North American SurveyDuring the past three years, these companies have become more successful in meeting their regional revenue growth projections

0 10 20 30 40 50 60 70

Exceeded

Met

Failed

2004

2005

2006

North American 3PL Performance in Meeting Growth Projections

3 PL CEO Survey 2006 | Apr 10, 2023 7

North American SurveyThe majority of CEOs indicated that their companies and the North American 3PL industry had been moderately profitable in 2005

Company Profitability

0 20 40 60 80 100

Unprofitable

Break even

Moderatelyprofitable

Veryprofitable

For the third straight year, none of the participating CEOs reported that their North American business unit failed to record a profit during the year.

Industry Profitability

0 20 40 60 80

Moderateunprofitable

Break even


Veryprofitable

3 PL CEO Survey 2006 | Apr 10, 2023 8

North American SurveyIndustry dynamics again highlighted continued pricing pressures, growing demand for 3PL services, and increased pressure to internationalize service offerings

0 5 10 15 20 25 30 35

Entrance of large foreign based 3PL providers into theU.S. market

Increasing customer expectations with respect to ITsupport

Large-scale mergers of 3PL providers

Increased pressure to internationalize service offerings

Growing interest in outsourcing broader array of services

Continuing downward pressure on pricing

2005

2006

Total points

3 PL CEO Survey 2006 | Apr 10, 2023 9

North American SurveyFor the second straight year, the CEOs saw the greatest industry opportunities in the possible expansion of their international services

0 5 10 15 20 25 30

Expansion of transportationmanagement services

Offering enhanced ITsolutions

Expansion of internationalservices

2005

2006

Total points

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North American SurveyFinding/keeping management talent is the region’s top problem, followed by the high-cost/ low return on IT investments, and steadily increasing customer expectations

0 5 10 15 20 25 30 35 40

Pressure to globalize serviceofferings

Continuing downwardpressure on prices

Steadily increasing customerexpectations

High-cost, low return on ITinvestments

Finding and keepingmanagerial talent

2005

2006

Total points

3 PL CEO Survey 2006 | Apr 10, 2023 11

North American SurveyRising fuel prices have impacted 3PL costs, but contract provisions have allowed most of those increases (86%) to be passed on to customers

0 10 20 30 40 50 60

No impact

Moderate impact

Substantial impact

The Impact of Increasing Fuel Costs on 3PL Costs

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European SurveyCEOs of 11 of the largest European 3PLs participated in the survey

Caterpillar Logistics Services Exel Logistics Geodis Kuehne & Nagel Logistics, Inc. Maersk Logistics Menlo Logistics Penske Logistics Ryder Schneider Logistics TNT UPS Supply Chain Solutions

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European SurveyAverage annual 3PL operating revenues in Europe were reported at approximately the same level as the previous year

$1.39$1.41

$1.25$1.31

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2002 2003 2004 2005

Operating Year

Op

erat

ing

Rev

enu

e ($

M)

Average Participating European 3PL Company Revenue

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European SurveySome European 3PLs continue to have problems meeting their revenue growth projections

0 10 20 30 40 50

Exceeded

Met

Failed to Meet

2006

2005

European 3PL Performance in Meeting Revenue Growth Projections

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European SurveyThe majority of European CEOs indicated that their companies and the European 3PL industry had been moderately profitable in 2005


0 20 40 60 80 100

Unprofitable

Break even


Veryprofitable


0 20 40 60 80 100

Unprofitable

Break even


Veryprofitable

2005 2004

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European SurveyDuring the past several years European 3PLs have responded to the 2004 expansion of the EU in a number of ways

0 2 4 6 8 10 12 14

Closed Western European facilities and opened facilitiesin new EU member countries

Acquired 3PLs already operating in those countries

Developed alliances with 3PLs already operating in thosecountries

Made significant infrastructure investments in thosecountries

Followed existing customers into those countries

2004

2005

2006

Total points

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European Survey Industry dynamics again highlighted pricing pressures, growing demand for 3PL services, and large-scale mergers of 3PL providers in the region

0 5 10 15 20 25 30

Increased pressure tointernationalize

Large-scale mergers of 3PLproviders

Growing interest inoutsourcing broader array of

services

Continuing downwardpressure on pricing

2005

2006

Total points

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European SurveyAccording to the European CEOs their companies face a number of important management challenges in Europe. These include:

Effectively integrating recent acquisitions into their companies Accessing adequate funds to support IT expansion efforts Development of adequate resources to support company moves into Eastern

Europe and Russia Hiring and retaining high quality human resources Effectively managing company growth in Europe Developing good implementation skills with respect to new accounts Building a Pan-European platform from which new services might be

launched Improving processes to lower costs

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Asia-Pacific Region SurveyCEOs of 11 of the largest Asia-Pacific Region 3PLs participated in the survey

Caterpillar Logistics Services DHL Eagle Global Logistics Exel Logistics Kuehne+Nagel Logistics Landstar Logistics Maersk Logistics Menlo Logistics MeridianIQ UPS Supply Chain Solutions UTi

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Asia-Pacific Region Survey3PL operating revenues in Asia continue to grow

$565,00

$361,00

$433,00

0

100

200

300

400

500

600

2003 2004 2005

Operating Year

Op

erat

ing

Rev

enu

e ($

M)

Average Annual APAC Operating Revenues of Participating 3PLs

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Asia-Pacific Region SurveyOn average, China will still remain the region’s most important 3PL revenue source in 2008, but India’s share of regional revenues will have tripled between 2004-2008

51,6%

14,0%16,0%

6,0%

28,0%

37,0%

14,0%12,0% 13,0%

24,0%

12,5%

9,0%

21,8%

4,0%

36,0%

0%

10%

20%

30%

40%

50%

60%

China Japan Australia India Other countries

2004 2005 2008 projected

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Asia-Pacific Region SurveyThe majority of APAC CEOs indicated that their companies and the regional 3PL industry were at least moderately profitable in 2005


0 20 40 60 80

Unprofitable

Break even


Veryprofitable


0 20 40 60 80 100

Unprofitable

Break even


Veryprofitable

3 PL CEO Survey 2006 | Apr 10, 2023 23

Asia-Pacific Region SurveyIndustry dynamics highlighted pricing pressures, large-scale merger activity, and increased pressure to internationalize company service offerings

0 2 4 6 8 10 12 14 16

Entrance of large foreign based 3PL providers into theU.S. market

Increasing customer expectations with respect to ITsupport

Growing interest in outsourcing broader array of services

Increased pressure to internationalize service offerings

Large-scale mergers of 3PL providers

Continuing downward pressure on pricing

Total points

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Asia-Pacific Region SurveyMany providers have established operations in China, but their success in meeting various goals in China varies widely among these companies

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Establishing the companybrand in the market

Penetrating the Chinese 3PLmarket

Generating operating profits inChina

Attracting “local” accounts

Very Successful

Successful

Unsuccessful

Very Unsuccessful

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Asia-Pacific Region SurveyIn identifying regional growth opportunities, some CEOs focused on specific countries, while others emphasized opportunities related to specific services

Servicing the continued growth of the domestic markets in China and India Supporting global sourcing efforts of manufacturers of all sizes Supporting increasingly complicated supply chain solutions in the region Provision of freight management services or reliable ground transportation

options in China Expansion of the visibility tools offered to clients Building and operating shared-use of facilities Expansion of value added services Provision of customs clearance services

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Asia-Pacific Region SurveyThe CEOs identified a wide range of regional problems

Human resources management issues - Competition for skilled human resources is intense - It is hard to match the available labor skill set to client requirements- Managers tend to have single or dual country expertise, but tend to lack

“theatre-wide” knowledge

Compliance with national and local regulations within the region is difficult

Operating costs continue to rise with wage increases

There is a lack of political stability in the region

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Key Comparative Findings: Mergers and Acquisitions (M/A)The industry consolidation movement continues in all three regions

Twenty-three of the 44 CEOs involved in the regional surveys reported their companies had been involved in significant M/A activity in their regions during the past year

Two-thirds of the CEOs ranked continuation of the consolidation movement among the most important regional changes they expect during the next three years

CEOs in all regions expect a significant percentage of their revenue growth in the next three years to come from M/A activity: North America—15.4%; Europe—17%; and, Asia-Pacific Region—22.5%

To date, the impact of the M/A movement on the 3PL marketplace has varied substantially by region

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Key Comparative Findings: Mergers and Acquisitions (M/A)There are typically a variety of post-acquisition issues to be addressed

Integration of operations, reporting and IT systems

Addressing a wide-range of people issues including blending different “cultures,” handling redundancy, and compensation issues

Maintaining customer relationships throughout the transition period

Blending sales and marketing strategies

Presenting a “single-face” to the marketplace

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Key Comparative Findings: Managing Customer RelationshipsIn all three regions 3PLs are increasingly customer-selective, and have generally been successful in developing more collaborative relationships with key customers

0 20 40 60 80 100

Verysuccessful

Moderatelysuccessful

Unsuccessful

EMEA America APAC

0 20 40 60 80 100

Yes

No

EMEA America APAC

More customer selectivity over the past several years

Success in developing collaborative working relationships

with key customers

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Key Comparative Findings: Managing Customer RelationshipsCEOs identified many barriers to improved collaboration including:

Lack of top management commitment to the concept in client companies Client perception that 3PLs provide a service not a strategic partnership Lack of necessary resources in one or both organizations to support true

collaboration Too many contact points within the client organization at different

organizational levels Lack of client willingness to share critical information with the 3PL Increased use of consultants to manage the bid process—”they get in the way” Lack of trust in one or both organizations Internal conflicts within the client organization The short time horizon of many clients

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Key Comparative Findings: Managing Customer Relationships3PLs have made many organizational changes to promote collaborative relationships with key accounts, including formation of:

Executive sales teams to focus on key accounts New business development organizations Customer advisory teams and consumer councils that are involved in strategic planning exercises A larger customer solutions group Industry-specific groups to focus on the dynamics of particular industries Focused account leadership groups A key account management organization A restructured customer service organization to assure that key accounts receive a uniform quality

of service around the globe A new customer care organization A global account management program that focuses on key accounts Positions for key customers on the company’s board of directors

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Key Comparative Findings: Managing Customer Relationships3PLs have made many operational changes to promote collaboration with key accounts. These have included:

A commitment to longer-term contracts with key customers The use of consultative selling techniques Regular operations reviews Support for collaborative transportation planning among customers Co-development of new SCM capabilities with key customers More frequent customer visits, and investment in more contact people Investments in more sales and relationship management training for employees More customer involvement in analytical projects More aggressive linkages between the company’s sales and customer service

activities The use of more individual incentives related to key accounts A commitment to constantly evaluating customer requirements Presentation to key accounts of more strategic proposals with larger potential

payoffs to both parties Focus on value creation for customers even in areas in which the company doesn’t

directly provide the service.

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Key Comparative Findings: Managing Customer RelationshipsMany of these companies are also using technology to support collaboration

0 20 40 60 80 100

Yes

No

EMEA America APAC

Use of technology in attempting to build collaborative working

relationships with key customers CRM software

Supply chain visibility tools

Supply chain integration software

Software that supports analytical projects for customers

Customer performance portals (not CRM)

EDI linkages to customers

Technology used

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Key Comparative Findings: Market Differentiation FactorsMost Frequently Cited Differentiation Factors by RegionWe found similarities and differences in what these companies emphasize in attempting to differentiate themselves from competitors in the regional markets

A commitment to high-quality customer service

The company’s global reach

Breadth of company service offerings

The company’s superior IT support capabilities

The company’s excellent operational execution

North America

The talent of company employees

The company’s global reach


The company’s superior IT support capabilities

The company’s non-asset based approach to 3PL

EMEA

The company‘s long-term presence in the region

The company‘s global reach


The company‘s superior IT support capabillities

The company‘s experience in particular industry verticals

APAC

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Key Comparative Findings: The Use of 4PLs or LLPsMany CEOs in all three regions believe there is increased customer interest in the possible use of 4PLs or Logistics Lead Providers (LLP)

APAC

YES45%

NO55%

Europe

YES70%

NO30%

America

YES59%

NO41%

Question: Many industry observers believe that there is growing interest in the use of 4PLs or LLP to manage multi-company relationships. Do you agree?

Especially in Europe the respondents believe there is an increased customer interest in 4PLs or LLP

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Key Comparative Findings: The Use of RFIDThe percentage of 3PL customers either “committed to RFID” or conducting pilot studies of RFID remains quite limited in all three regions

4%

13%

7%

0%

2%

4%

6%

8%

10%

12%

14%

AMER EMEA APAC

4%

14%

16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

AMER EMEA APAC

Percentage of 3PL customers “already committed to the use

of RFID”

Percentage of 3PL customers conducting pilot studies of the

technology

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Key Comparative Findings: Revenue growth projectionsNorth AmericaCEOs still bullish about regional company growth prospects

North American CEO Projections of Their Company’s Growth Rate

Next year

Next three years

0%

5%

10%

15%

20%

25%

30%

'98 '99 '00 '01 '02 '03 '04 '05 '06

Projectedgrowth rate

North American CEO Projections of Their Company’s Growth Rate

Survey year

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North American CEO Projections of Industry Growth Rate

0%

5%

10%

15%

20%

'98 '99 '00 '01 '02 '03 '04 '05 '06

Survey year

Projectedgrowth rate

Next year

Next three years

Key Comparative Findings: Revenue Growth Projections North America CEOs continue to project solid growth for the North American 3PL industry

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Key Comparative Findings: Revenue growth projectionsAPAC CEOs project substantially higher company and industry growth rates than their European counterparts

APAC and EMEA CEO Projections ofCompany and Industry Growth Rates

Projection 2005 2006 2005 2006

1 year - Company 18% 30.9% 16% 15%

3 year - Company 18% 23.3% 13% 17%

1 year - Industry 20% 16.5% 9% 9%

3 year - Industry 16% 14.8% 9% 9%

APAC EMEA

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Where do we find similarities across the regions? Company profitability—nearly all companies in the surveys were

profitable in 2005

Industry profitability—nearly all CEOs categorized the 3PL industry in their region as being profitable in 2005

Growth projections—3PL service demand was projected to grow substantially in all three regions over the next three years

Market dynamics—continued growth, price compression, M/A activity and pressures to expand internationally are major drivers in all three regions

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Problems similar across regions—they included depressed margins, talent shortages, rising customer expectations, post-acquisition integration issues

Customer relationship focus—in all regions 3PLs are becoming more customer-selective, more industry focused, and have made many changes to promote more collaboration with key customers

Consolidation will continue—will happen in all regions and impact will increase

4PL interest and potential—growing interest across regions, but few CEOs expect extensive use in the future

RFID “commitment” still low—this is the case in all regions, CEO consensus is that major impact is three-five years off

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Where do we find differences across the regions? Growth rate projections—the rates were high and nearly identical for NA and

Europe, but substantially higher for APAC

Realization of revenue growth goals—Only five companies didn’t meet their 2005 revenue goals; four were in Europe

Stage of industry development—in APAC the 3PL network is being built; in NA and Europe 3PLs are adjusting their networks and marketing mix

Growth rates of economies being served—highest in APAC, lowest in Europe

3 PL CEO Survey 2006 | Apr 10, 2023 43


Opportunities—service expansion highlighted in NA; CEOs in other regions often focused on specific geographies as the best opportunities

Regulatory complexity—this appears to be a much more significant problem in APAC than elsewhere

Scale issues—in APAC many 3PLs are still attempting to achieve marketplace scale; in other two regions many 3PLs are re-assessing their scale of operation—is bigger necessarily better?

3 PL CEO Survey 2006 | Apr 10, 2023 44


What do we expect? Continued solid revenue growth in all three regions

Increasing customer-selectivity and further customization by large 3PLs

Standardization of service offerings by niche players to increase their market share of small to medium size customers

Increased emphasis on risk-sharing and gain-sharing in 3PL contracts

More parent company board scrutiny of 3PLs if price compression and margin erosion continue

3 PL CEO Survey 2006 | Apr 10, 2023 45


Significant increases in 3PL industry investment in recruiting, training and retention efforts

Continuation of the consolidation movement in all three regions with post-acquisition integration issues demanding even more attention

Differentiation pressures will increase to counter “commoditization” within the 3PL industry

3 PL CEO Survey 2006 | Apr 10, 2023 46

Questions?

3 PL CEO Survey 2006 | Apr 10, 2023 47

2006 conference ceo survey

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