Escalating fuel prices — along with health care insurance hikes and inflation — drove up United States logistics costs 7 percent in 2007, to a record-high of $1.4 trillion.

Still, harder times are predicted to come, says Rosalyn Wilson, an independent consultant and author of the Council of Supply Chain Management Professionals' (CSCMP) 19th Annual State of Logistics Report.

In 2007, transportation costs increased by 6 percent and diesel fuel went up 6.5 percent. "These days it costs over $1,100 to fill up a big rig with a pair of tanks that hold 250 gallons, compared to about $720 last year," Wilson points out to IndustryWeek. "Fuel is close to or has surpassed labor as a trucking company's top expense."

Due to the struggles of trucking companies to cover costs and stay afloat, Wilson sees third party logistics providers (3PLs) stepping up and emerging as important players for rendering a more economical logistics operation (source: Logistics Management). Wilson suggests that "this will be a long-term phenomena, not just something that is crisis driven."

As IMT described last year, 3PLs experienced double-digit growth domestically and internationally in 2006, and the number of logistics executives using 3PL services has continued to rise.

Though not all 3PLs found revenue success in 2007. Nearly 25 percent of 39 CEOs surveyed in this month's 2008 3PL Provider CEO Perspective said their organizations did not meet revenue targets. However, 90 percent reported profitability.

"Despite rising prices at the pump and a stagnating economy, these numbers indicate that global 3PL efforts to reduce costs, optimize networks through technological advances, and intensify the focus on customer selectivity are working — we will definitely see a continued focus in these areas well into 2009," commented Dr. Robert Lieb, Professor of Supply Chain Management at Northeastern University, who co-presented the study at the Council of Supply Chain Management Professionals Annual Global Conference in Denver.

For the study, sponsor Penske Logistics gathered the insight of 20 CEOs in North America, 10 in Europe and nine in the Asia-Pacific region. The CEOs also cited "greening" up the supply chain as an emerging trend.

Interestingly, though, while green supply chain initiatives have been melded into 3PLs' corporate visions, the CEOs noted that "green capabilities are relatively insignificant in winning new business or retaining existing customers."

A separate study by Capagemini, a consulting, technology and outsourcing services provider, in conjunction with the Georgia Institute of Technology, Oracle and DHL, second these findings. After interviewing 1,644 logistics executives from North America, Europe, Asia Pacific and Latin America, only 46 percent were found to factor in green capabilities when choosing 3PL partners.

According to the Capagemini survey, companies were almost unanimous in believing that sustainability and local sourcing as important elements of the supply chain but did not know how to move forward. The study also determined that 98 percent of respondents consider green initiatives to be essential for success yet a majority were "unwilling to invest any additional funds in the greening of the supply chain."

Says Dr. C. John Langley from the Georgia Institute of Technology:

More than three quarters of 3PL users rate consolidation, routing, and mode selection as the top services 3PLs can contribute to green strategies. However, just 31 percent indicate that their 3PLs currently offer these capabilities."

There was also a disconnect between 3PLs and their customers' expectations when it comes to security and technology, the Capagemini survey notes. Companies concerned about the costs of meeting compliance mandates and enhancing security turned to 3PLs for help. While 76 percent called their 3PLs secure, the survey also revealed a gap between customer expectations and 3PL security capabilities.

Technology was the other high-priority item for 3PL users, and 62 percent were dissatisfied with their 3PLs' information technology capabilities, according to the Capagemini survey.

"The gap between customers' expectations and the current IT capabilities of 3PLs is a significant challenge to the industry," Jon Chorley, vice president of product strategy for Oracle, said in a statement. "3PLs must standardize and modernize their applications and IT infrastructure so they can offer innovative, repeatable and cost effective services to the market. This applies particularly in the areas of green supply chains and supply chain security, where IT technology is a key enabler."

Despite the challenges of the economy, downward pricing strains and pressure from customers to green up and improve IT capacity, 3PLs are willing to meet them head on. As one CEO notes to Penske, "These are certainly exciting, yet challenging, times for third party logistics providers as we attempt to predict, analyze and adapt to the various forces that will affect our customers' supply chains in years to come."

Earlier/Related

Global 3PL Industry Swells

The State of Third-Party Logistics — 2007

Resources

Third—Party Logistics Providers Play Key Role in Integration, Sustainability and Security of the Supply Chain
Capgemini, Oct. 6, 2008

19th Annual State of Logistics Report (membership required)
by Rosalyn Wilson
Council of Supply Chain Management Professionals, June 18, 2008

U.S. Logistics Costs Hit Record High
by David Blanchard
IndustryWeek, Sept. 1, 2008

19th Annual State of Logistics Report: Under the Weather
by Patrick Burnson
Logistics Management, July 1, 2008

15th Annual CEO Survey Identifies Emerging Issues and Key Trends in Global Supply Chains
Penske, Oct. 6, 2008