The fate of many 3PL operators may be out of their control as wider economic factors combine to determine which industry sectors and geographic markets perform best in the months ahead, says Roger Williams, chief executive officer of UKWA
The spirit of optimism with which much of the business community entered 2011 is in danger of evaporating as the full extent of the European debt crisis begins to become known.
An estimated three million UK jobs depend on our trade with the European Union and the uncertainty that these people – and the businesses that employ them – now face thanks to the apparent incompetence of those responsible for allowing their national economies to drift towards the rocks, will impact on all areas of industry and commerce.
Clearly, the logistics sector will not escape the effect of any future economic turbulence and, with many commentators predicting that the Euro crisis will make the collapse of Lehman Brothers and its aftermath pale into insignificance, the present outlook is certainly not likely to induce a spirit of optimism.
But, arguably, it’s during times like these – when the economy is full of unknowns – that 3PLs can really prove their worth to pressurised customers.
Certainly, during the post-2007/8 gloom – when many manufacturers and retailers overhauled their logistics operations in an effort to cut costs and achieve greater efficiencies – the result was an increase in outsourcing.
And while companies have grown accustomed to using a 3PL provider for activities such as transportation and warehousing, the range of services that 3PLs offer has expanded tremendously. Logistics companies now undertake a broad range of value-added activities such as pick and pack; marking, tagging, and labeling; product returns and reverse distribution; packaging and repackaging; salvage and scrap disposal and even telemarketing.
That said, a 3PL’s primary business remains storing goods and shifting them from A to B, and if future economic pressures mean margins will be squeezed further companies in the sector will have little choice but to focus once again on cost reduction. As a result, investment in new equipment could be deferred and attention will focus on how best to manage labour most efficiently within warehouse operations.
However, having weathered the last global economic storm by cutting costs and becoming lean, many 3PLs may not feel they have much more ‘fat’ to trim from their operations.
While the full impact of the Euro crisis remains to be seen, it is clear that the 3PL sector will be increasingly influenced by changing consumer habits and the continued growth of multi-channel retailing, as the demands of ‘click and collect’ online shopping and home delivery challenge traditional logistic models.
Of course, the FMCG logistics market will always be closely aligned with the fortunes of the retail sector and recent market intelligence reports suggest that this market will continue to grow.
The pharmaceutical market too offers cause for optimism with the demands of an ageing population across Western Europe, allied to legislative requirements and pressure on manufacturers to bring products to market more quickly, likely to see ever greater reliance on outsourced contract logistics.
On the downside, the Automotive and hi-tech logistics sectors rely on consumer confidence and the outlook for the logistics companies in these spaces is likely to be somewhat unpredictable.
While individual 3PLs will have their own reasons for optimism or pessimism, for many operators their fate may, to an extent, be largely outside of their control as wider economic factors combine to determine which industry sectors and geographic markets emerge from the dreaded ‘double dip’ the quickest.
It is certainly true that 3PLs face challenging times: they will be expected to constantly re-evaluate their service propositions, the value they add to supply chains and their role in helping their customers meet their strategic and commercial objectives.
I am confident that members of the United Kingdom Warehousing Association (UKWA) are well placed to meet the challenges ahead.