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State of Logistics: Taking Collaboration to the Next Level?

By William DiBenedetto, CBN Feature Editor

Yes, the logistics industry is on the upswing, but there are some stubborn issues out there that could add a layer of uncertainty for even the top companies in 2016.

Those issues include pressures on margin and equipment performance due to environmental regulation, regional trade disparities, driver shortages, capacity issues, port congestion and the increasing and welcome realization that collaboration is a necessity—not just "nice to have."

According to the Council of Supply Chain Management’s 26th annual "State of Logistics Report," which was issued in mid-2015, the transportation sector of the logistics industry grew by 3.6 percent in 2014. "This is largely due to consistent new job creation, higher net income of individuals, and increasing household net worth, lower rates of inflation, and reduction in the cost of gas prices." As a result, "the link between the cost of crude oil, gas prices, and consumer spending comes back to the forefront of the transportation industry. As consumers spend less on personal and work-related travel, they have more money to spend on other items, which strengthens the logistics industry, especially the trucking sector."

If that sounds a somewhat fragile—due to the continuing "softness of the economy" said economist Rosalyn Wilson, who wrote the CSCMP report, and because faith in low gas prices seems to be a constant—it’s because it is. The message? Keep a tight and continuous rein on spending.

The 2016 20th Annual Third Party Logistics Study shows continued collaborative and positive relationships between shippers and third-party logistics providers. This survey suggests that 3PLs and their customers are becoming more proficient at what they do, individually as well as together, which is improving the quality of their relationships. Both parties—93 percent of 3PL users and 94 percent of 3PL providers—reported that their relationships are successful and that their work is yielding positive results.

The study revealed that 70 percent of those who use logistics services—shippers—and 85 percent of 3PL providers said the use of 3PL services has contributed to overall logistics cost reductions, and 83% of shippers and 94 percent of 3PL providers said the use of 3PLs has contributed to improved customer service.

In addition, the majority of both groups—75 percent of shippers and 88 percent of 3PL providers—said 3PLs offer new and innovative ways to improve logistics effectiveness.

That said, there’s a looming transportation capacity crisis, this has gone on for at least 20 years but could reach critical mass by 2017.

In addition, the truck driver shortage remains a

major concern for the logistics sector. The American Trucking Associations has estimated the current shortage ranges from 35,000 to 40,000 drivers. A key indicator of is driver turnover rate, which is running at more than 95 percent on an annualized basis.

The recent spate of huge mergers and acquisitions, such the $3 billion XPO Logistics purchase of Con-way late this year, is already in the rear view mirror, but the focus is likely to shift to deals involving smaller 3PLs in 2016. The hunt is apparently on for companies with IT and process capabilities to support e-commerce. In an article in Material, Handling and Logistics magazine, Frank F. Mountcastle III, managing director of the middle market M&A advisory firm Harris Williams & Co., was quoted saying, "2016 will be very busy but it will be the year of the smaller deal" as companies seek out add-ons to fill gaps in their transportation management and e-commerce capabilities.

The continuing climate of 3PL consolidation is seen as a defensive posture to preserve market share, become more tech-savvy, and better manage risk. A major watchword in this mix is collaboration.

As noted in a recent Amber Road white paper, many companies have not explored effective collaboration with supply chain partners because of a lack of trust. The lack of trust and control "prevented retailers from collaborating closely with suppliers, causing friction and redundancy when both parties duplicated the same tasks," Amber Road said. "With the transparency of shared data and mutual collaboration, retailers are more comfortable sharing responsibilities with suppliers."

But recent trends toward more open and bi-lateral communication have made this challenge a non-issue, the paper continues. "The trust factor is no longer a barrier for developing and maintaining collaborative relationships and most retailers have dismissed this as a concern."

A growing percentage of enterprises are also rethinking their supply chain execution software portfolios, and adopting cross-functional platforms that support integrated, end-to-end business processes. That sounds a lot like collaboration.

Does consolidation help spur even deeper collaboration, or vice-versa? Actually, the two should go hand in hand. What seems certain is that an M&A can’t be very successful without the willingness to collaborate.