How To Manage Global Logistics

(1)

Global

and

Regional

Infrastructure,

Logistics

Costs,

and

Third

‐

Party

Logistics

Market

Trends

and

Analysis

January,

2014

Phone:

+1

‐

800

‐

525

‐

3915

Website:

www.3PLogistics.com

Email:

Dick@3PLogistics.com

(2)

ABOUT ARMSTRONG & ASSOCIATES, INC.

Armstrong

&

Associates,

Inc.

is

a

supply

chain

management

market

research

and

consulting

firm

specializing

in

strategic

planning,

logistics

outsourcing,

competitive

benchmarking,

mergers

and

acquisitions,

3PL

service/cost

benchmarking,

and

supply

chain

systems

evaluation

and

selection.

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&

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Who’s

Who

in

Logistics

and

Supply

Chain

Management

–

The

Americas

and

Who’s

Who

in

Logistics

and

Supply

Chain

Management

–

International

.

Recent

research

papers

include

"Slow

Dance

‐

2012

3PL

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Analysis

and

2013

Predictions,"

"3PL

Brand

Recognition,

RFP

Activity

and

Expected

Profit

Margins

for

3PLs

‐

2013,"

"Mexico:

Trucking,

Railroads

and

Third

‐

Party

Logistics

Market

Report,"

"The

Business

of

Warehousing

in

North

America

‐

2012

Market

Size,

Major

3PLs,

Benchmarking

Costs,

Prices

and

Practices"

and

"Trends

in

3PL/Customer

Relationships."

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Armstrong

&

Associates,

Inc.

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publication

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Please

note

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the

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conclusions

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Armstrong

&

Associates

delivers

will

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and

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(3)

Table of Contents

Global and Regional Infrastructure

...

4

Brazil ... 5 India ... 6 China ... 7

Global Logistics Costs and Third‐Party Logistics Revenues

...

8

Third‐Party Logistics Market

...

12

3PL Revenue and Growth Rates Analysis

...

16

Major Region 3PL Market Growth Trends

...

19

Major Players in Third‐Party Logistics

...

24

Global Logistics Costs by Mode or Function

...

35

Appendix A ‐ Global Logistics Costs and Third‐Party Logistics Revenues 2010‐2014E

...

38

Appendix B ‐ APAC Market Comparisons

...

44

Appendix C ‐ Related 3PL Case Studies

...

47

Menlo Refines its China 3PL Model and Gains Business ... 48

DHL Supply Chain – What I Learned in China ... 55

UPS – What I Learned in China ... 61

UTi India – Emphasis on Growth ... 65

Chinese NVOCCs – Moving From Tactical to Strategic ... 76

Round The World Logistics & Supply Chain Management Ltd. ... 80

(4)

Global and Regional Infrastructure

Supply

chain

management

capabilities

vary

greatly

between

countries.

Differences

fall

into

two

major

categories:

1.)

information

flow

and

controls

2.)

physical

limitations.

Advanced

economies

generally

have

better

highways,

ports

and

railways

as

well

as

better

communication

systems

and

high

‐

tech.

Political

changes

can

especially

complicate

the

latter

but

normally

are

limited

to

emerging

market/developing

economy

countries.

As

a

general

rule,

logistics

costs

as

a

percent

of

gross

domestic

product

(GDP)

are

lower

in

advanced

economies

and

higher

in

emerging

market/developing

countries.

Table

1

presents

basic

infrastructure

results

for

15

countries.

Table 1. Global Transporta on ̶ Infrastructure (US$ Billions)

Country Rank by 2012 GDP¹ Size Roadways Rank Roadways km Railways Rank Railways km Waterways Rank Waterways km Pipelines Gas km 2012 3PL Revenue United States 15,650.0 1 6,506,204 1 224,792 4 41,009 1,984,321 141.8 China 8,227.0 3 4,106,387 3 86,000 1 110,000 48,502 118.4 Japan 5,964.0 6 1,210,251 11 27,182 45 1,770 4,456 53.2 Germany 3,401.0 11 645,000 6 41,981 19 7,467 26,985 31.5 France 2,609.0 8 1,028,446 9 29,640 16 8,501 15,322 26.0 United Kingdom 2,441.0 16 394,428 17 16,454 32 3,200 28,603 22.5 Brazil 2,396.0 4 1,580,964 10 28,538 3 50,000 17,312 25.0 Italy 2,014.0 14 487,700 13 20,255 37 2,400 20,223 20.8 India 1,825.0 2 4,689,842 4 63,974 9 14,500 13,581 16.6 Canada 1,819.0 7 1,042,300 5 46,552 78 636 100,000 16.6 Australia 1,542.0 9 823,217 7 38,445 43 2,000 30,054 16.5 Spain 1,352.0 10 683,175 19 15,293 65 1,000 10,481 13.0 Mexico 1,177.0 17 377,660 16 17,166 34 2,900 18,074 12.8 South Korea 1,156.0 44 104,983 52 3,381 51 1,600 2,216 11.5 Indonesia 878.2 13 496,607 35 5,042 6 21,579 11,702 6.8 ¹CIA official exchange rate GDPs (www.CIA.gov) ‐ The World Factbook ‐ 12/5/2013 Source: www.CIA.gov

Not

surprisingly,

the

countries

with

the

largest

economies

dominate

infrastructure

statistics.

The

United

States

has

the

most

kilometers

of

highways,

railways

and

pipelines.

China,

with

the

second

largest

economy,

has

the

third

largest

amounts

of

highways

and

railways.

India

is

second

in

the

total

kilometers

of

roadways.

However,

only

2

‐

3%

of

India's

roadways

are

modern

highways.

Even

some

of

these,

like

Highway

9

from

Mumbai

to

Pune,

have

uneven

surfaces

and

transportation

obstacles.

India

and

Brazil

both

have

railway

systems

with

different

gauges

making

railcar

and

locomotive

interchanges

impossible.

As

a

result,

the

rail

and

intermodal

abilities

are

compromised.

(5)

Pipelines

are

the

most

inexpensive

and

environmentally

friendly

methods

of

transportation.

The

U.S.

and

Canada

have

the

largest

amounts.

Some

small

countries/regions

like

Singapore,

Hong

Kong

and

the

Netherlands

have

high

‐

quality

infrastructure

for

all

transportation

modes.

They

are

also

key

crossroad

locations

for

global

trade,

transportation

and

storage.

In

addition

to

physical

infrastructure

limitations,

most

emerging

market/developing

economy

countries

have

various

forms

of

information

controls

which

seriously

disrupt

freight

flows

and

the

ability

to

do

business.

Most

of

the

disruptions

increase

cost

and

lower

efficiencies

within

their

host

countries.

Here

are

some

examples:

Brazil

In

Brazil,

the

governmental

challenges

to

managing

transportation

are

substantial.

A

third

‐

party

logistics

provider

(3PL)

can

manage

carriers,

handle

proof

of

delivery

(POD)

management

and

settlement,

plan

routings,

handle

rates

and

develop

solutions.

Sounds

like

routine

transportation

management

except

for

the

consequences

of

governmental

activity.

First

among

these

is

the

impact

of

Agência

Nacional

de

Vigilância

Sanitária

(ANVISA)

or

The

National

Health

Surveillance

Agency.

In

addition

to

controlling

production

and

marking

of

drugs,

devices

and

services,

the

agency

has

authority

over

transportation

infrastructure

used

for

the

movement

of

drugs,

devices,

etc.

As

a

result,

the

carriers,

trucks

and

warehouses

used

by

a

3PL

have

to

be

approved

by

ANVISA.

To

comply,

a

3PL

can

keep

track

of

truck

licensing,

inspection

and

insurance

and

has

ultimate

responsibility

for

compliance.

In

addition

to

the

ANVISA

requirements,

states

require

individual

facility

licenses

under

the

Visa

program.

Much

more

problematic

for

transportation

management,

however,

is

the

value

‐

added

tax,

ICMS.

ICMS

is

the

tax

on

the

circulation

of

goods,

interstate

and

intercity

transportation,

and

communication

services,

even

when

the

operation

is

initiated

abroad.

The

ICMS

rates

vary

on

average

from

7

‐

19%

by

state

in

Brazil.

Certain

states

create

initiatives

for

particular

industries

by

reducing

ICMS

rates

on

products.

For

example,

Goias

has

a

special

incentive

for

manufacturing

drugs

and

devices.

In

Manaus,

in

the

Amazon

region,

there

is

a

free

trade

zone

filled

with

brand

name

manufacturers

of

electronic

gear

and

motorcycles/scooters.

The

tax

free

merchandise

is

shipped

down

the

river

in

road

containers

on

barges

(about

700

miles

over

three

to

four

days).

Payloads,

especially

for

healthcare

products,

are

often

limited

by

insurance

limits

on

the

value

of

(6)

The

value

of

goods

and

tax

requirements

are

important

considerations

for

managing

transportation.

The

main

freight

bill

document,

the

CTRC,

includes

extensive

information

on

the

value

of

merchandise,

financial

negotiation,

the

tax

on

freight

charges

and,

yes,

information

on

the

shipper,

consignee,

weight,

pieces,

etc.

The

transportation

manager

juggles

it

all

to

find

the

best

solution.

Along

the

way

he

must

get

government

approval

for

the

shipment

and

two

PODs

‐

one

on

the

CTRC

and

one

for

the

accompanying

invoice.

India

1

The

major

challenges

in

India

include

lack

of

highways

between

and

within

cities,

over

capacity

ports

and

India's

famously

cumbersome

and

large

governmental

bureaucracy.

Traditional

corruption

complicates

business

and

everyday

life.

However,

GDP

growth

will

be

respectable

again

this

year

and

India's

establishment

is

changing.

During

our

visit,

Anna

Hazare

was

leading

an

effort

to

force

governmental

reform

of

corruption.

Hazare

was

on

an

extended

Gandhi

style

fest.

In

India,

most

large

retailers

have

many

(20

‐

24)

smaller

distribution

centers

to

avoid

heavy

goods

services

taxes

incurred

in

moving

product

across

states

lines.

There

are

30

states.

Currently,

there

is

a

movement

to

make

the

goods

and

services

tax

(GST)

uniform

across

the

states

which

would

allow

most

companies

to

reduce

their

number

of

distribution

centers.

In

addition,

major

highways

are

being

built

for

the

"golden

quadrangle"

that

will

connect

the

major

cities

and

regions.

The

major

areas

are

the

North

Central

based

on

New

Delhi

(population

22

million),

the

Western

region

with

Mumbai

(population

20

million),

the

nation's

economic

center

and

major

port

as

its

hub,

the

Northeast

around

Kolkata

(population

15

million)

and

the

South

including

the

key

city

of

Bangalore

(population

7

million)

and

the

second

largest

port

of

Chennai

(population

7

million).

Traditionally,

Colombo

at

the

north

tip

of

Sri

Lanka

has

been

a

key

port

of

call

for

major

shipping

lines.

Much

of

the

Indian

East

Coast

container

movement

is

reloaded

to

larger

vessels

there.

In

addition,

Kolkata

is

a

shallow

water

port

and

Chennai

is

over

capacity.

A

fourth

port

is

being

built

in

Mumbai

to

handle

its

current

over

capacity

situation.

Most

inland

linehaul

between

major

ports

and

markets

is

performed

by

container

or

trailer

on

flat

car

(COFC/TOFC).

For

truckers,

operations

are

complicated

nearly

everywhere

by

lack

and

quality

of

the

road

network.

Restrictions,

such

as

the

limitation

on

truck

traffic

in

Mumbai

between

6

a.m.

and

6

p.m.

make

for

additional

operating

challenges.

1 Based on 2011 visit.

(7)

China

China's

provinces

exercise

extensive

authority

over

border

crossings.

Disruptions

are

normally

based

on

licenses

to

operate.

Having

the

right

national

and

local

governmental

licenses

is

imperative.

While

you

can

have

national

authority

to

operate

in

China

for

warehousing

and

road

transportation,

you

must

have

local

licenses

to

bill

and

collect

for

services.

DHL

Supply

Chain

is

a

wholly

‐

owned,

national

operation

with

local

business

licenses

in

19

major

cities.

Specific

hygiene

licenses

for

food

warehousing,

co

‐

packing

and

transport

are

held

in

Shanghai,

Beijing

and

Guangzhou.

Regional

road

transportation

licenses

are

held

for

Beijing,

Tianjin,

Shanghai,

Hefei

and

Suzhou.

Obtaining

the

necessary

licenses

in

China

is

doable,

but

requires

working

through

tedious,

bureaucratic

challenges.

Often

you

need

to

obtain

a

local

business

license

and

then

a

second

local

license

for

transport

or

special

warehousing

operations.

Once

issued,

licenses

are

not

transferrable.

Infrastructure

challenges

create

opportunities

for

modern,

sophisticated

3PLs.

Most

major,

international

companies

find

it

expedient

to

let

DB

Schenker

Logistics,

UPS

Supply

Chain

Solutions

or

a

similar

3PL

address

the

problems

and

offer

uniform

solutions

around

the

globe.

(8)

Global Logistics Costs and Third‐Party Logistics Revenues

Armstrong

and

Associates,

Inc.

(A&A)

has

developed

logistics

cost

and

third

‐

party

logistics

revenue

estimates

for

the

period,

2010

‐

2014.

The

tables

include

the

major

regions

of

North

America,

Europe,

Asia

Pacific

and

South

America

as

well

as

breakdowns

for

28

countries.

The

complete

tables

are

in

Appendix

A.

Global

logistics

costs

have

increased

from

$6.1

trillion

in

2006

to

$8.4

trillion

in

2012.

We

have

projected

global

logistics

costs

and

third

‐

party

logistics

revenues

through

fiscal

year

2015.

Figure 1. Global Logistics Costs and Third‐Party Logistics Revenues (US$ Billions)

Globally,

modern

industrially

developed

and

post

industrial

countries

have

the

lowest

relative

logistics

costs

as

a

percent

of

GDP.

For

example,

for

2012,

North

America's

logistics

cost

as

a

percent

of

GDP

was

8.8%

and

Europe's

was

9.2%.

Asia

Pacific's

estimate

was

12.8%

and

South

America's

was

12.3%.

This

is

a

function

of

logistics

(road/rail/port)

infrastructure,

the

lifecycle

deployment

of

leading

logistics

practices,

and

influence

of

ongoing

process

improvements

including

eliminating

unnecessary

governmental,

bureaucratic

obstacles.

$‐ $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 2006 ₂₀₀₇ 2008 ₂₀₀₉ 2010 ₂₀₁₁ 2012 _2013E 2014E _2015E Year

2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 3PL Revenue $471 $489 $507 $507 $631 $662 $685 $704 $727 $753

(9)

Figure 2. 2012 Logistics Costs by Region and Key Countries (US$ Billions)

For

a

single

country,

China’s

logistics

cost

is

the

highest

in

the

world

at

$1.5

trillion

per

year

(in

comparison,

U.S.

logistics

cost

is

$1.3

trillion)

and

equivalent

to

more

than

half

the

Asia

Pacific

region.

Globally,

the

Asia

Pacific

(APAC)

is

the

largest

logistics

market

accounting

for

34%

of

total

global

logistics

costs

and

35%

of

total

global

3PL

revenues.

Figure 3. 2012 Logistics Cost by Region (as a % of GDP)

$1,640 $1,546 _$1,505 $1,335 $757 $509 $507 $‐ $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800

North America Greater China Europe United States Asia Pacific (ex. Greater China

and Japan)

South America Japan

17.2% 12.3% 10.9% 9.2% _8.8% 8.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Greater China South America Asia Pacific

(ex. Greater China

and Japan)

(10)

In

terms

of

logistics

cost

as

a

percent

of

GDP,

developing

economies

normally

run

11

‐

15%,

while

Greater

China

is

at

17%.

The

distribution

of

logistics

cost

percentages

is

similar

to

that

for

logistics

performance

index

(LPI)

numbers

developed

by

The

World

Bank.

Figure 4. Distribution of Logistics (GDP %), 3PL Revenue % and LPI numbers

Figure 5. Logistics Cost Growth (CAGR by Region)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Me xi co C ana da Un it e d Sta te s It al y Sp ai n Fr an ce Un it e d K ing do m N e th e rl ands Ger m an y In d ia Ch in a Sou th Ko re a Ta iw an A u st ra lia Ja p an Ho n g Ko n g Si n ga p or e Ve n e zu el a C o lo m b ia Pe ru Ar ge n ti n a Bra zi l C h ile North America

Europe Asia Pacific South America

Lo gis tics Pe rf o rm an ce In d e x (L P I)

Logistics (GDP %) 3PL Revenue % LPI

10.8% 6.7% 5.9% 4.6% 3.5% 2.1% 8.2% 5.8% 3.4% 1.6% 2.1% 0.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Greater China Asia Pacific

(ex. Greater China

and Japan)

South America Japan North America Europe

(11)

Greater

China

and

Asia

Pacific

(excluding

Japan)

are

expected

to

be

the

fastest

growing

regions

in

terms

of

logistics

cost

during

the

period

from

2012

to

2015.

This

will

primarily

be

driven

by

strong

growth

in

private

domestic

consumption

on

general

merchandise,

including

a

range

of

fast

‐

moving

consumer

goods

for

daily

consumption,

as

well

as

luxury

items.

This

growth

reflects

a

number

of

factors

including

strong

economic

growth,

encouraging

demographics,

sustained

urbanization

and

growth

of

the

middle

class.

Figure 6. GDP Growth (CAGR by Region)

10.6% 6.4% 5.9% 4.6% 2.4% _2.1% 8.0% 5.5% 3.4% 1.6% 2.1% 0.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

(ex. Greater China

and Japan)

South America Japan North America Europe

(12)

Third‐Party Logistics Market

Logistics

involves

the

movement

and

storage

of

goods

between

different

locations

from

origin

suppliers

to

intermediate

points,

and

eventually

to

end

users.

In

the

logistics

industry,

logistics

service

providers

generally

focus

on

two

primary

service

functions:

1.)

transportation

by

different

modes

(ground,

ocean,

air,

rail)

and

2.)

warehousing

(storage,

consolidation/deconsolidation,

cross

docking).

The

breadth

of

value

‐

added

services

and

capabilities

a

logistics

provider

can

offer

customers

differentiates

3PLs

from

transactional

transportation

companies

and

basic

warehousing

operations.

The

table

below

includes

some

of

the

primary

3PL

value

‐

added

services

and

capabilities.

The

major

change

since

1995

has

been

an

increase

in

the

complexity

and

clustering

of

these

services.

Several

of

the

largest

3PLs

(DHL

Supply

Chain

&

Global

Forwarding,

DB

Schenker

Logistics,

Kuehne

+

Nagel,

Nippon

Express

and

UPS

Supply

Chain

Solutions)

offer

a

wide

array

of

these

services

to

their

largest

customers.

Table 2. Third‐Party Logistics Value‐Added Services

Both – 3PL/4PL

4PL/Lead Logistics Provider

Call Centers Consolidation/Deconsolidation Consulting/Process Reengineering EDI Handling Exception Handling Financial Services

Food Grade/Temperature Controlled

Hazmat Skills

ISO Certification

Inventory/Vendor Management

Lean Management Skills

Order Management

Pool Distribution/Cross Docking

Radio Frequency/RFID

Security Processes

Sourcing/Procurement Skills

Supply Chain Systems

Domestic & International Trans. Mgmt.

Cargo Insurance

Carrier Contracting/Brokering/Freight Payment

Customs Brokerage

Duty Drawback Processing

Freight Forwarding/NVOCC

lncoterms Management – EXW to DDP

Letters of Credit/Negotiable BOLs

Merge In Transit

Multimodal Transportation

Project Logistics

Transportation Execution

Transportation Network Planning/Optimization

Value‐Added Warehousing & Distribution

Bonded Facilities

Easily Deployable IT & Work Processes

Installation/Removal

JIT/Kanban

Kitting/Pick & Pack

Light Manufacturing/Assembly Order Fulfillment Reverse Logistics Subassembly

(13)

The

key

competitive

differentiators

between

3PLs

include

supply

chain

management

systems

capabilities,

operations

management

skills,

and

logistics

engineering

expertise.

Most

tier

‐

one

3PLs

have

implemented

integrated

systems

platforms

to

support

global

transportation

and

warehouse

management

operations.

These

platforms

offer

internet

visibility

and

exception

handling

capabilities

combined

with

transportation

management

functionality

for

the

daily

management

of

orders,

customer

inventory,

and

the

optimization

of

thousands

of

shipments

across

large

geographical

areas.

The

same

3PLs

can

run

value

‐

added

warehousing

operations,

perform

supply

chain

network

analysis

and

design,

and

manage

call

center

and

fulfillment

operations.

Several

3PLs

have

expanded

to

have

global

scope

for

all

services.

Most

often,

global

3PL

expansions

have

been

through

acquisitions.

The

following

table

provides

a

list

of

major

deals.

Table 3. Select 3PL Acquisitions (US$ Millions)

Target Company Acquirer Acquisition Date Purchase Price Target Company Yearly Revenue Target Company EBIT or EBITDA EBIT* or EBITDA** Multiplier American Backhaulers C.H. Robinson Worldwide 12/1999 100 cash/36 stock 280 13 10.5* Tibbett & Britten Exel 12/2004 598 2,600 87.9 6.8** Ozburn‐Hessey Logistics Welsch, Carson, Anderson & Stone 6/27/2005 396 302 43 9.2** BAX Global Deutsche Bahn 1/31/2006 1,210 2,734 113 10.7* Barthco International Ozburn‐Hessey Logistics 7/7/2006 90 120 10 9* Jacobson Companies Oak Hill Capital 6/1/2007 500 375 45 11** EGL Apollo Management/CEVA 7/2007 2,200 3,200 152 14.5** Geodis SNCF 7/1/2008 1,735 7,043 181 9.6* Express Logistics Group Toll Holdings 10/23/2009 45 113 5.6 8* Summit Logistics International Toll Holdings 2/2/2010 70.3 261 7.6 9.3** ATC Technology Corporation GENCO Distribution System 7/2010 512.6 476 77.7 6.6** Total Logistic Control Ryder 12/31/2010 200 250 36 7** TDG Norbert Dentressangle 3/2011 320 1,100 55 5.8** Exel Transportation Services/Mode Transportation Hub Group 4/4/2011 83 717 4 20.8* Caterpillar Logistics Services Platinum Equity 5/11/2012 700 660 60 11* Turbo Logistics XPO Logistics 10/24/2012 50 124 6.2 8* Phoenix International C.H. Robinson Worldwide 11/1/2012 635 807 50.8 12.5**

Source: Primary, Company Information; Secondary, Armstrong & Associates, Inc. Estimates

(14)

International

transportation

management

(freight

forwarding

and

non

‐

vessel

operating

common

carrier

(NVOCC))

and

value

‐

added

warehousing

and

distribution

are

the

key

components

of

global

third

‐

party

logistics.

International

transportation

management

(ITM)

3PLs

have

a

core

competency

in

freight

forwarding

and

often

offer

a

host

of

additional

value

‐

added

services.

They

traditionally

act

as

intermediaries

arranging

for

international

and

transportation

between

their

customers

and

transportation

providers.

ITM

3PLs

arrange

and

oversee

all

aspects

of

the

transportation

of

products

and

materials,

from

origin

to

destination,

by

ground,

ocean,

air

and

rail.

An

ITM

3PL

will

typically

arrange

to

pick

up

goods

from

a

shipper,

consolidate

shipments,

procure

transportation,

and

provide

ancillary

value

‐

added

services

including

preparation

and

submission

of

documentation,

customs

and

other

clearance

processes,

and

warehousing

and

auditing

of

shipments.

In

addition,

they

will

have

systems

for

tracking

and

tracing

shipments

and

automating

processes

with

customs

officials.

Typically,

ITM

operations

are

non

‐

asset.

Value

‐

added

warehousing

and

distribution

(VAWD)

3PLs

manage

customers

warehousing

and

management

needs.

These

services

are

typically

performed

under

multi

‐

year

contracts

in

which

the

3PLs

systems

and

staff

take

over

responsibility

of

critical

logistics

functions.

Responsibilities

often

include

managing

and

optimizing

warehousing

operations,

transport

routes

and

providers–whether

inbound,

outbound

or

dealing

with

aftermarket

returns–kitting

and

sequencing

unassembled

parts,

providing

support

during

manufacturing,

picking

and

packing

finished

goods,

and

providing

quality

control

and

other

value

‐

added

services.

Europeans

tend

to

lump

VAWD

and

the

transportation

into

“contract

logistics.”

Traditionally,

this

3PL

segment

is

asset

‐

based.

(15)

Figure 7. Key Drivers of 3PL Market Growth

Traditionally

companies

outsourced

functions

to

3PLs

in

order

to

reduce

costs,

gain

operational

efficiencies,

and

focus

on

core

competencies

in

manufacturing.

Starting

in

the

early

1990s,

there

was

a

significant

increase

in

offshoring

of

manufacturing

operations

and

a

shift

from

domestic

supply

chains

with

domestic

logistics

management

needs

to

global

supply

chains

with

international

logistics

needs.

Doing

business

globally

is

more

complex

and

requires

increased

regional

and

local

market

expertise

in

managing

transportation

and

warehousing,

and

adhering

to

governmental

regulations.

These

increases

in

supply

chain

complexity

have

driven

many

companies

to

engage

the

help

of

3PLs

as

logistics

and

regulatory

specialists.

In

turn,

3PLs

with

expertise

in

international

transportation

management

and

warehousing

and

distribution

are

providing

economies

with

the

operational

“backbone”

for

global

trade.

Off‐Shoring &

Outsourced Mfg. Regulatory Compliance Focus on Core Competencies Expanding IT Requirements

Need Regional & Local

Market Expertise

Low‐Cost Country

Sourcing Cost Reductions Regulatory Compliance Increasing Supply Chain Complexity

(16)

3PL Revenue and Growth Rates Analysis

Figure 8. 2012 3PL Revenue by Region (US$ Billions)

Europe

continues

to

fluctuate

in

and

out

of

recession

with

ongoing

economic

austerity

which

is

negatively

impacting

its

output.

Based

upon

its

2012

regional

revenue,

we

estimate

that

3PLs

operating

in

the

Europe

region

have

penetrated

23%

of

the

total

potential

market,

so

the

trend

to

outsource

logistics

functions

to

3PLs

continues

to

provide

for

growth

over

and

above

the

overall

economy.

The

best

European

‐

based

3PLs

have

made

acquisitions

to

globalize

their

operations

and

participate

in

developing

markets

with

higher

rates

of

growth.

North

America

is

benefiting

from

an

improving

U.S.

economy

with

increasing

manufacturing

levels,

the

nearshoring

of

some

manufacturing

to

Mexico,

and

newly

addressable

oil

and

gas

operations

in

Canada

and

the

U.S.

Consumers

in

the

U.S.

bounced

back

from

the

great

recession

of

2009

and

started

to

spend

more

especially

on

large

ticket

items.

All

of

these

factors

are

driving

an

improved

3PL

market.

$171 $126 $158 $64 $44 $53 $‐ $20 $40 $60 $80 $100 $120 $140 $160 $180 $200

North America Greater China Europe Asia Pacific

(ex. Greater China

and Japan)

(17)

Figure 9. 3PL Revenue Growth (CAGR by Region)

The

geographic

region

with

the

highest

3PL

revenue

spend

and

the

highest

3PL

growth

rates

is

APAC,

where

growth

has

traditionally

been

driven

by

companies

outsourcing

or

offshoring

manufacturing

to

lower

cost

countries.

While

this

trend

still

continues

in

Myanmar,

Malaysia,

Indonesia,

Vietnam,

Cambodia,

and

to

a

lesser

extent

in

China,

Thailand,

the

Philippines,

and

Singapore,

increasing

domestic

consumption

and

demand

for

products

are

driving

the

need

for

modern

distribution

networks

in

the

Asia

Pacific

region.

The

emphasis

is

shifting

away

from

export

trade

and

ocean

or

air

freight

forwarding

to

intra

‐

regional

ground

distribution.

3PLs

providing

value

‐

added

warehousing

and

distribution

services

in

these

countries

are

experiencing

significant

growth.

10.8% 6.2% _6.0% 5.2% 4.6% 2.1% 8.1% 5.4% 3.4% 5.8% 1.6% 0.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

(ex. Greater China

and Japan)

South America North America Japan Europe

(18)

Figure 10. 2012 Asia Pacific 3PL Revenue Breakdown (%)

The

graph

above

shows

the

3PL

revenue

by

Asia

Pacific

countries

in

2012.

As

demonstrated,

China

accounts

for

48.8%

of

all

Asia

Pacific

3PL

revenues.

Our

estimate

of

3PL

penetration

of

the

total

potential

U.S.

3PL

market

is

21%,

up

from

10%

in

2002.

This

compares

to

current

3PL

market

penetration

rates

of

23%

in

Europe

and

only

17%

in

China.

As

a

result,

the

underlying

structural

market

dynamics

are

good

and

will

support

the

trend

for

continued

outsourcing

to

3PLs

in

Asia.

In

combination

with

its

above

‐

average

economic

growth,

we

anticipate

Asia

to

continue

to

realize

above

‐

average

growth

rates

for

third

‐

party

logistics.

China, 48.8% Japan, 21.9% India, 6.8% Australia, 6.8% South Korea, 4.7% Indonesia, 2.8% Taiwan, 1.9% Thailand, 1.2% Singapore, 1.1% Hong Kong, 1.0% Malaysia, 0.9% Philippines, 0.8% Others, 0.7% Vietnam, 0.5%

(19)

Major Region 3PL Market Growth Trends

Figure 11. 3PL Revenues by Major Geographic Region (