Third-party logistics (3PL) is where a manufacturer outsources logistics and distribution activities. Likewise, many of today’s 3PL providers offer specialized services such as inventory management, cross-docking, door-to-door delivery and packaging services. That’s why the 3PL market is expected to witness growth at good pace, according to a study produced by Allied Market Research, Portland, Ore. Moreover, the demand is expected to rise due to increase in the focus of manufacturer and retailers on their core business (known as core competencies) and subcontracting activities, such as logistics where they have less expertise.
The study, “World Third Party Logistics (3PL) Market - Opportunities and Forecasts, 2014-2022,” shows an increase in the globalization has helped in setting up a worldwide network of manufacturing activities. To maintain efficiency, the demand of 3PL companies is expected to rise. The scope of 3PL services is also expected to increase, as productivity gains in supply chain in terms of cost and reliability can be derived with the help of managerial and information technology expertise provided by 3PL companies. Increase in the e-commerce industry and reverse logistics operations are also driving the market of 3PL industry.
However, loss of direct control on the logistics service and potential loss of reputation are the most critical factors, which are likely to restrict growth. The 3PL market is still fragmented, with plenty of room for growth.
The report segments the 3PL market on the basis of mode of transport, service type and geography. On the basis of mode of transport, the market is segmented into roadways, railways, airways and waterways. On the basis of service type, the market is segmented into dedicated contract carriage (DCC), domestic transportation management, international transportation management, warehousing and distribution and others (IT services and logistics software). Geographical breakdown is done as North America (United States, Mexico and Canada), Europe (UK, France, Germany, Italy and rest of Europe), Asia-Pacific (China, India, Japan, South Korea, Australia and rest of Asia-Pacific) and LAMEA (Latin America, Middle East and Africa)
Increase in global trading activities
The 3PL market is experiencing an increase in the number of trading activities due to globalization. The major force driving this growth is the influx of global economy and relaxation of trade barriers. Corporations worldwide are increasing manufacturing, sourcing, warehousing and distribution at global scale, making supply chains complex to manage.
Increase in the focus of manufactures and retailers
3PL providers are increasing their focus of retailers and manufacturers to promote the respective specialization in production and distribution, therefore increasing sub-contracting activities such as logistics.
Difference in country policies and regulations
Awareness about rules and regulations of different countries is difficult to maintain. Therefore, 3PL service providers are becoming more aware about policies and regulations in order to increase efficiency.
Evolution of e-commerce industry
The increase in the technological advancement has led to the growth of e-commerce industry around the globe. Many e-commerce service providers have expanded their services by integrating shipping service with public and contract warehousing as well as freight management.
Increase in reverse logistics operations
The increase in demand for repairs, re-manufacturing, returns etc. have increased over a period of time, as a result of manufacturers and retailers not being able to cope effectively with reverse logistics. Therefore, they outsource to 3PL service providers to effectively and efficiently provide this service.
Reduction in control on logistics service
Manufacturers rely on core competencies, reliability and honesty of 3PL service providers and its staff. The mode of communication between manufacturers and 3PL service providers remains through phone or email.
Risk in potential loss of reputation
As there is no direct control over the logistics service, it is difficult to keep check on a particular service provider. Any delay or damage from their side will create negative impact on customers, so they find that it’s the sole responsibility of the manufacturer to deliver the quality order they placed.