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1 Global 3PL & Logistics Outsourcing Strategy A brief analysis of eyefortransport s recent survey 2011 For further details, please contact: Katharine O Reilly eyefortransport world phone: +44 (0) US Toll Free: Ext Canada Toll Free: Ext koreilly@eft.com

2 Table of Contents I. Introduction... 4 II. Methodology and Approach... 5 III. Profile of Respondents... 5 IV. Financial Outlook... 7 V. Shipper views of 3PLs VI. Industry Challenges VII. Conclusions & About eyefortransportt VIII. About MercuryGa ate

3 List of Charts Annual Revenue... 5 Business Type... 6 Shipper Vertical Industries... 6 Environmental Performance... 7 Effects of the Economic Slowdown... 7 Impact of Economic Situation on Growth... 8 Timescale for Global Economy to Return to Pre-Crisis Levels... 8 Expected Shape for Rebound Measures Taken to Combat Economic Conditions Regions Providing Greatest Opportunities What 3PLs think Shippers Look For when Choosing a New 3PL What Shippers Look For when Choosing a New 3PL Key Reasonss why Shippers do not Renew Existing 3PL Contracts Change in Bargainingg Strength for Shippers PL Performance Recent or Planned Change of 3PL Change in Use of 3PL services Number of 3PLs Used Use of 4PLs Biggest Challenges for Shippers in Horizontal Collaborative Distribution Impact of the CSA 2010 Legislation

4 I. Introduction 2010 has been a time of challenges and opportunities in the supply chain and logistics industry. On the one hand the fall out from the recession continues to impact all industries, yet on the other hand the recovery and the opportunity to gain new market share and develop new, innovative strategies and relationships has opened up sectionss of the industry that weree previously closed due to the relative stability. This year s annual 3PL & Outsourcing Logistics survey focuses on the core issues at the heart of company revival plans. Where are the opportunities for profit and innovation? What are the recession- beating strategies that can be carried over into the revival? Where is the need for innovation and new, more strategic relationships most pressing, and most beneficial? se are the kinds of questions we asked hundreds of the industry s thoughtt leaders. answers are sophisticated, in some places surprising, and overalll paint a picture of an industry much changed, and still in transition. Our hope is that this insight will contribute to the success of the industry s journey towards new stability, growth and opportunity. main themes from the survey and report will be discussed and debated amongst 3PL CEOs and senior supply chain executives at the 3PL Summit & Chief Supply Chain Officer Forum in Atlanta, June 21-23th, 2011, and in Brussels, November For details visit and I hope you find the report useful to your work this year, and please get in touch with any questions about the survey or the conference. For further details, please contact: Katharine O Reilly Executive Director eyefortransport world phone: +44 (0) US Toll Free: Ext Canada Toll Free: Ext koreilly@eft.com 4

II. Methodology and Approach This survey was conducted in September/October

association memberships, various related-industry databases and other targeted

No individual responses were analyzed, but rather all responsess were

Of the remaining respondents, 8% represented companies with annual revenues

revenues between $50 million and $500 million, and 32% represented companies

Annual Revenue 35% 3 25% 15% 1 5% Over $1 billion $500 million billion $1 $50

logistics service providers (hereafter referred to as 3PLs), while 24%

5 II. Methodology and Approach This survey was conducted in September/October 2010 with responses solicited from targeted lists, select trade association memberships, various related-industry databases and other targeted methods. majority of respondents were key figures, representing major companies. No individual responses were analyzed, but rather all responsess were consolidated. III. Profile of Respondents Of the respondents to the recent eyefortransport survey, 35% represented companies with annual revenues above $1 billion. Of the remaining respondents, 8% represented companies with annual revenues between $500 million and $1 billion, 25% represented companies with annual revenues between $50 million and $500 million, and 32% represented companies with annual revenues below $50 million. Annual Revenue 35% 3 25% 15% 1 5% Over $1 billion $500 million billion $1 $50 million $500 million Under $50 million 68% of the respondents represented logistics service providers (hereafter referred to as 3PLs), while 24% represented manufacturers, retailers, or other 3PL users (hereafter referred to as shippers), 6% represented other transportation servicee providers (pure freight forwarders, air/ocean n/road/rail carriers), and 2% represente ed others. 5

6 Business Type 24% 6% 2% Logistics Service Provider 3PL/4PL Manufacturer r, Retailer or other user of 3PLs 68% Other Transportation Service Provider Other shipper respondents represent a variety of vertical industries, including consumer packaged goods/fmcg (19%), hi- tech/electronics/telecommunications (19%), food (11%), health care/pharmaceutical (1), chemicals (9%), retail (7%), and automotive (7%). Shipper Vertical Industries Consumer Packaged Goods/FMCG Hi Tech/Electronics/Telecommunications Food Health Care/Pharmaceutical Chemicals Retail Automotive Defence/Aerospace Other Industrial 2% 4% 6% 8% 1 12% 14% 16% 18% 6

When the entire respondent pool was asked to rate their company

were seen when compared to last year s report.

last year, with many more rating it as good this year.

experiencing the economic slowdown within their business

While last year the majority of respondents (71%) reported being

affected but that things are improving for them.

7 When the entire respondent pool was asked to rate their company s current environmental performance, far more positive results were seen when compared to last year s report. majority of respondents rated their performance as satisfactory last year, with many more rating it as good this year. Environmental Performance Awful Below Average Satisfactory Good Excellent IV. Financial Outlook All respondents were asked how they have been experiencing the economic slowdown within their business operations during the last year. While last year the majority of respondents (71%) reported being affected, this year a majority (62%) report to have been affected but that things are improving for them. Effects of the Economic Slowdown Have been affected, and still are Have been affected, but things are improving Have not been affected Have not been affected, but we expect to soon 7

number of total respondents (43%) expected

previously predicted, though 5 anticipate a

se results again show great contrast when

much lower number anticipated strong growth

3 1 Growth will be as strong as previously

previously predicted Not likely to show any

asked to predict a timescale for the global

results were more negative than last year.

not anticipate this scenario until 2012 or

year anticipated recovery taking this long.

8 Looking at the impact of the worldwide economicc situation on growth, a notable number of total respondents (43%) expected their company s growth to be as strong as previously predicted, though 5 anticipate a slower rate of growth than predicted. se results again show great contrast when compared to those from last year, where a much lower number anticipated strong growth and a higher number expected revenues to decline. Impact of Economic Situation on Growth Growth will be as strong as previously predicted Growth will be slower than previously predicted Not likely to show any growth Revenues expected to decline When asked to predict a timescale for the global economy to return to pre-crisis levels, results were more negative than last year. majority of respondents this year (58%) do not anticipate this scenario until 2012 or later, while only 16% of respondents last year anticipated recovery taking this long. Timescale for Global Economy to Return to Pre Crisis Levels Now By the beginning of 2011 During and beyond 8

Expectations for the shape of the economic rebound weree only marginally more

recovery as opposed to a W- shaped or L-shaped recovery.

'square root' shaped Our survey also looked at the measures being taken by 3PLs to

most popular responses were reducing costs through internal efficiencies (81%),

selective with new customer accounts (46%), ceasing to work on existing unprofitable

9 Expectations for the shape of the economic rebound weree only marginally more positive than last year, with a larger number of respondents expecting a V-shaped recovery as opposed to a W- shaped or L-shaped recovery. Expected Shape for Rebound 4 35% 3 25% 15% 1 5% V shaped W shaped U shaped L shaped 'square root' shaped Our survey also looked at the measures being taken by 3PLs to combat the continually challenging global economic conditions. most popular responses were reducing costs through internal efficiencies (81%), concentrating on core markets (51%), diversifying product offering (49%), being very selective with new customer accounts (46%), ceasing to work on existing unprofitable accounts (44%), asking contractors for lower prices (41%), and looking for strategic mergers and acquisitions (38%). results were broadly similar to those seen last year, although this year saw notably fewer respondents cutting jobs or asking contractors for lower prices, and slightly fewer reducing expansion plans. 9

jobs Reducing expansion plans Outsourcing

Eastern Europe, and the notable increase

Regions Providing Greatest Opportunities

10 Measures Takento Combat Economic Conditions Reducing costs through internal efficiencies Concentrating on core markets Diversifying product offering Being very selective with new customer accounts Ceasing to work on existing unprofitable accounts Asking contractors for lower prices Looking for strategic mergers and acquisitions Cutting prices for your customers Cutting jobs Reducing expansion plans Outsourcing company owned warehousing space Other Respondentss representing 3PLs were also asked to identify the geographical regions that provide them with the greatest opportunities, with China (59%) and India (43%) being the most common responses. most notable change here was the large reduction in 3PLs seeing opportunities in Eastern Europe, and the notable increase in opportunities seen in North America. Regions Providing Greatest Opportunities China India South America Asia Pacificc (not China or India) North America Eastern Europe Russia Africa Western Europe

think shippers are looking for when choosing a

majority of 3PLs thoughtt lowest price and

importance to their customers, with slightly

Choosing a New 3PL Lowest Price Best Quality

Reputation/Testimonials Geographic expertise

Least Important Shippers were then asked to

choosing a new 3PL, with results showing a

While 3PLs thoughtt most importance would be

placed most importanc ce on best quality

11 V. Shipper Views of 3PLs & Logisticss Outsourcing Our survey asked 3PLs what they think shippers are looking for when choosing a new 3PL. majority of 3PLs thoughtt lowest price and best quality service were the factors of most importance to their customers, with slightly more importance being placed on lowest price than best quality service. What 3PLs think Shippers Look For when Choosing a New 3PL Lowest Price Best Quality Service Sector expertise Reputation/Testimonials Geographic expertise Size and scope of 3PL 4 Most Important Least Important Shippers were then asked to identify what they are looking for when choosing a new 3PL, with results showing a marked difference. While 3PLs thoughtt most importance would be placed on lowest price, shippers actually placed most importanc ce on best quality service (58% considering it most important, as opposed to 18% for lowest price). What Shippers Look For when Choosing a New 3PL Best Quality Service Lowest Price Size and scope of 3PL Geographic expertise Sector expertise Reputation/Testimonials 4 Most Important Least Important 11

Respondentss representing shippers weree also asked to identify the key

representing 3PLs were asked what they thought the cause was.

service (38%), alternativee 3PLs offering a better service (38%), hidden

underestimating the importance of cost creep, and overestimating the

management issues, inefficient management by 3PLs, unrealistic

Poor servicee Alternative 3PL offering better servicee Hidden costss

Inefficient management by 3PL Loss of logistics innovation capacity

12 Respondentss representing shippers weree also asked to identify the key reasons why they do not renew existing 3PL contracts, while respondents representing 3PLs were asked what they thought the cause was. most important reasons given by shippers included cost creep (56%), poor service (38%), alternativee 3PLs offering a better service (38%), hidden costs (31%), alternative 3PLs offering a cheaper price (28%), and relationship management issues (27%). results from 3PLs showed a marked variation, with respondents underestimating the importance of cost creep, and overestimating the importance of alternative 3PLs offering a cheaper price, relationship management issues, inefficient management by 3PLs, unrealistic expectations of 3PLs from customers, and problems at evaluating 3PL performance. Key Reasons why Shippers do not Renew Existing 3PL Contracts Cost Creep Poor servicee Alternative 3PL offering better servicee Hidden costss Alternative 3PL offering cheaper price Relationship management issuess Inefficient management by 3PL Loss of logistics innovation capacity Clashing firm cultures Unrealistic expectations of 3PL from customer Too high a dependence on the 3PL Problems at evaluating 3PL performancee Loss of control over the 3PL Latent information asymmetryy Other Shippers 3PLs 12

Our survey examined the change in bargaining strength for shippers,

contracts, or a decrease due to shortage of carriers & capacity.

shippers feeling that there was an increase in bargaining strength for

decrease in bargaining strength for shippers.

bargaining strength Decreased bargaining for shippers due to fuel

shortage of carriers & capacity 3PLs Shippers levels of service

more shippers rating their 3PLs as being outstanding or higher than

13 Our survey examined the change in bargaining strength for shippers, whether thatt be an increase due to fuel prices and competition for contracts, or a decrease due to shortage of carriers & capacity. Opinion was divided on the matter, with 41% of 3PLs and 44% of shippers feeling that there was an increase in bargaining strength for shippers, and 59% of 3PLs and 56% of shippers feeling that there was a decrease in bargaining strength for shippers. Change in Bargaining Strength for Shippers Increased bargaining strength Decreased bargaining for shippers due to fuel prices strength for shippers due to and competition for contracts shortage of carriers & capacity 3PLs Shippers levels of service provided by 3PLs was examined, with shippers being asked to rate their performance. Results proved to be much more positive than last year, with notably more shippers rating their 3PLs as being outstanding or higher than expected, whereas last year s survey saw the majority of respondents rating their 3PLs as good. 3PL Performance Outstanding Higher than expected Good Lower than expected Poor 13

14 We also examined whether shippers have recently switched 3PL or are currently planning to switch to a different 3PL. Results proved interesting, with 47% of shipperss having changed or planning to change 3PLs. Of these, 31% were changing as a result of service while 16% were changing due to cost, however of those not changing 3PL, a greater number (34%) reported not doing so because of cost as compared to those not doing so because of service (19%). Recent or Planned Change of 3PL 35% 3 25% 15% 1 5% Yes because of cost Yes becausee of service No because of cost No because of service survey then looked at the likelihood of shippers increasing their use of 3PL services in the future. vast majority rated this as either being very likely (44%) or likely (53%), whereas last year s report saw a significantly higher number thinking an increase was unlikely (21%). Change in Use of 3PL servicess Very likely Possibly Unlikely 14

15 majority of shippers 58% use between one and three 3PLs, and the number of shippers using largerr numbers of 3PLs is lower than seen in last year s results. Number of 3PLs Used to 3 4 to 6 7 to 10 More than 11 This year s survey saw a smaller number of shippers using the servicess of 4PLs (18% this year compared to 31% last year), though this is as likely to represent a variation in the respondent pool as a genuine trend. Use of 4PLs Yes No 15

VI. Industry Challenges survey looked at the biggest challenges facing

A marked degreee of similarity was seen in the answers from the two groups

biggest challenge es by customer and logistics service provider alike.

face from demand forecasting, and capacity shortages.

fluctuations Managing freight rates Demand forecasting Supply chain

relationships Improving visibility or tracking Consumer/ customer optimism

sourcing practices Sustainability Supply chain security New product launches

16 VI. Industry Challenges survey looked at the biggest challenges facing shippers, and what 3PLs think those challenges are. A marked degreee of similarity was seen in the answers from the two groups of respondents, with the economy and cost control identified as being the biggest challenge es by customer and logistics service provider alike. Notable differences saw 3PLs overestimatee the scale of problems shippers face from demand forecasting, and capacity shortages. Biggest Challenges for Shippers in 2011 economy Cost control Fuel price fluctuations Managing freight rates Demand forecasting Supply chain globalization Legislation compliance Capacity shortages Maintaining relationships Improving visibility or tracking Consumer/ customer optimism Talent attraction/ retention Outsourcing logistics or distribution Changing sourcing practices Sustainability Supply chain security New product launches Merger or acquisition Outsourcing manufacturing Returns, recalls, repairs Managing assets & property Waste disposal Port congestion Other Shippers 3PLs 16

opinion of respondents was gauged regarding horizontal

semi-competitors, or shippers with complimentary trade flows).

46% of shippers) seeing horizontal collaborative distribution

opportunity for 3PLs, while notable numbers consider it as

being a threat to the 3PL business model (9% of 3PLs, 8% of

Horizontal Collaborative Distribution 7 6 5 4 3 1 It's the next

It's all talk totally unrealistic It's a threat to the 3PL

evaluate impact of the CSA 2010 (Comprehensive Safety Analysis

Opinion was largely negative, with 16% considering CSA 2010, if

and 55% thinking it will contribute to the existing driverr

17 opinion of respondents was gauged regarding horizontal collaborative distribution (among competitors, semi-competitors, or shippers with complimentary trade flows). No clear consensus was seen, with a large number (6 of 3PLs, 46% of shippers) seeing horizontal collaborative distribution as the next step forward for the industry and a great opportunity for 3PLs, while notable numbers consider it as being either unrealistic (31% of 3PLs, 46% of shippers) or as being a threat to the 3PL business model (9% of 3PLs, 8% of shippers). Horizontal Collaborative Distribution It's the next step forward for the industry, and a great opportunity for 3PLs It's all talk totally unrealistic It's a threat to the 3PL business model 3PLs Shippers Finally, 3PLs were asked to evaluate impact of the CSA 2010 (Comprehensive Safety Analysis 2010) legislation. Opinion was largely negative, with 16% considering CSA 2010, if left unchanged, as a devastating legislation for the industry, and 55% thinking it will contribute to the existing driverr shortage. Impact of the CSA 2010 Legislation CSA 2010, if left unchanged, is a devastating legislation for the the industry CSA 2010 will contribute to the existing driver shortage CSA 2010 will not harm the industry 17

18 VII. Conclusions This year s Global 3PL & Outsourcing Logistics Strategy Report went beyond the scope of previous years to focus on the needs and challenges of multiple players in the industry. results paint the picture of an industry in transition, still rocked by the events of the past 2 years, but ready to re-emergee with new strategy and higher level, more in-depth and closer relationships. result is an industry that is coming together to face challenges head on, and those who best understand the market will be set to prosper in the upturn. main themes from the survey and report will be discussed and debated amongst 3PL CEOs and senior supply chain executives at the 3PL Summit & Chief Supply Chain Officer Forum in Atlanta, June 21-23th, 2011, and in Brussels, November For details visit and About eyefortransportt Established in 1998, eyefortransport has become one of the leading providers of business intelligence, independent research, news and executive level events for the supply chain & logistics industries. eyefortransport has two primary focuses: 1) To provide executive networking opportunities in the supply chain & logistics industries via the more than 15 events we annually organize and host in North America, Europe and Asia and online via the tens of thousands of users of events are designed to compliment and enhance the business connections available through our online network, and bring together the industry elite. Regularly attended by CEOs and senior management from the transport and logistics industry and Heads of Supply Chain of major companies, the events focus on current developments and latest trends, and are enhanced by high level, exclusive networking opportunities. 2) To deliver industry education through dozens of industry reports, surveys, newsletters, webinars and senior-level presentations at leading events. For the list of current research, news and conferences we produce please visit om 18

19 About MercuryGate International Global 3PL MercuryGate delivers solutions that allow shippers, carriers, freight forwarders and third party logistics providers to plan their transportation, execute their freight movements, and analyze the performance of all involved. Customers optimize loads, rate and route loads, spot quote through both private and public bid boards, tender freight, track movements, audit carrier freight invoices, and send customer invoices. Through a customizable workflow engine, MercuryGate customers are able to move the straightforward parcel, LTL (less than truckload), and truckload shipments as well as the more demanding multi-leg ocean, air, and rail movements. Customerss may then analyze the information gathered as they move freight to provide key performance indicators on their internal business as well as on carriers, suppliers, and all parties in the supply chain. For more information, visit 19

TruckIT Report. A brief analysis of eyefortransport s recent survey

TruckIT Report. A brief analysis of eyefortransport s recent survey TruckIT Report A brief analysis of eyefortransport s recent survey 2010 For further details, please contact: Ffion Thomson, eyefortransport world phone: +44 (0)207 375 7249 US Toll Free: 1 800 814 3459