For all the talk about globalization over the past decades, it's only recently that supply chains have become truly global. It's not that companies didn't have foreign operations in the past; they did. But only rarely did their logistics activities extend much beyond a single country's borders.
Today, that's changed. Everybody seems to be going global. Logistics people who once couldn't locate Zhongdian on a map suddenly find themselves arranging multimodal moves from the area. And they're expected to do it quickly and without running afoul of trade regulations, currency restrictions or documentation requirements. Small wonder that many end up turning to specialists for help.
The result has been soaring demand for third-party international services. When announcing the results of the latest third-party logistics survey at the Council of Supply Chain Management Professionals' annual conference, John Langley of Georgia Tech noted that among third-party logistics (3PL) service offerings in North America, customs brokerage/clearance had become the third most popular, behind outbound transportation and tied for second place with warehousing. A full 63 percent of the respondents reported that they outsourced customs-related functions, compared to only 42 percent in 2002. It's a similar story with freight forwarding, now number five on the list. Right now, 56 percent of survey respondents who use 3PLs outsource freight forwarding, up from 43 percent in 2002.
But that's only part of the story. The study also showed that when it comes to global trade services, shippers want more. Along with customs clearance and freight forwarding, they want a full menu of options: ocean transportation, import documentation, shipment tracking and warehousing, to name a few.
The market has taken note. The big 3PLs are expanding their menus and taking their message on the road. At the CSCMP annual meeting alone, attendees could hardly turn around without bumping into a representative from a full-service global service provider like BAX, UTi, Expeditors or UPS.
What's striking about this market sector is the level of foreign ownership. The top five global service providers are based overseas: Exel (Britain), Kuehne & Nagel (Switzerland), Schenker (Austria), DHL Danzas (Germany), and P&O Nedlloyd (Denmark). But wherever their headquarters may be, these companies are undeniably interested in the U.S. market. Several have already made significant inroads into the United States through acquisition and expansion. For evidence of that, you need look no further than UTi Worldwide's acquisition of Standard Corp. or Kuehne & Nagel's acquisition of USCO.
Where does this leave U.S. third-party providers? I asked several domestic warehouse companies at the CSCMP conference if they viewed the foreign-owned competitors as a threat. Though none termed them a serious threat, they've clearly given it some thought. Most said they would probably respond by joining forces with some kind of international service provider to form alliances of their own. But finding a partner may prove harder than they think.
A few of the domestic providers I talked with simply did not see the foreign infiltration as a problem. They believe if they stick to their niche and provide excellent service, they will survive and even thrive.
Given its explosive growth, the marketplace will no doubt have room for providers of all sizes and shapes for some time to come. But that doesn't mean the traditional domestic providers can safely ignore incursions onto their turf. Though logistics would certainly not be the first industry to be overwhelmed by foreign competition, there's no reason to send up the white flag. If 3PLs want to influence the battle's outcome, the time to start strategizing is now.
Gartner, Inc.