3PL Value Creation Asia Summit 2018

Key Takeaways from the 3PL Value Creation Asia Summit 2018

In May 2018, senior executives from global third-party logistics providers and industry investors met at the 3PL Value Creation Asia Summit to share cutting-edge concepts for achieving growth globally and across Asia.

The 3PL Value Creation Asia Summit represented a deep-dive into the operational, technological, and financial aspects of the global 3PL industry. For those who missed the Summit, A&A collected a summary of major trends.

E-commerce

  • As in 2017, e-commerce growth dominated much of the conversation at this year’s summit. Across regions, e-commerce is the fastest growing 3PL market sub segment. E-commerce logistics costs are anticipated to grow 16.3% in the Asia Pacific from 2017 to 2020 and e-commerce related 3PL revenues are expected to grow from $25.8B to $40.2B. In China, e-commerce business with 3PLs is being fueled by cross border and domestic shipments from the likes of Amazon, Alibaba, and JD.com.
  • E-commerce is boosting International Transportation Management 3PLs air freight volumes and revenues.
  • Amazon is building its operating infrastructure to support its fulfillment business and is encroaching on 3PLs.
    • The distribution infrastructure requirement to handle smaller, parcel quantity outbound orders versus buying goods from a brick-and-mortar store is much higher.
    • Amazon, and e-commerce in general, is tightening up air carrier capacity.
    • The markets are letting Amazon grow without generating a profit making it similar to competing with a state-run enterprise.
    • Amazon’s growth is raising wage and warehousing rates within local markets adding costs to 3PLs.
  • On-time fulfillment and delivery performance expectations continue to increase as part of the “Amazon Effect.”
  • Consumers have adapted a return from anywhere mentality and want to be able to return goods no matter where they were originally sourced.

3PL Growth

  • 3PLs identified China, India, and Southeast Asia as key growth countries and regions. This jibes with our current compounded annual market growth rate estimates of 11.4% for Greater China, 11.6% for India, and 9% for Southeast Asia from 2017 to 2022.
  • It was noted that North India and South India are very different, with the North having better logistics infrastructure and higher growth.
  • China’s Belt and Road Initiative (BRI) was mentioned as having significant potential to drive growth over the next 10 years.
  • The new China to Europe railway was identified as a positive tailwind for future growth.
  • Investors are driving much of the current M&A activity versus strategic buyers.
  • In Europe, which has a greater asset focus than the U.S., there are very few 3PLs of size worth buying and many are too small to be considered by strategic buyers.
  • The U.S. is still dominated by investors buying non-asset based 3PLs and investing in new technologies. Asia is seeing significant investment in cold-chain providers, e-commerce plays, and new logistics technologies.
  • Buying warehousing infrastructure is becoming a way for investors to participate in 3PL market growth without direct investment.
  • There is a general desire for more collaboration between 3PLs. As I have mentioned before, this is “coopetition” between 3PLs, where they partner with a logistics provider in some markets and compete with the same logistics provider in other markets is commonplace, especially in Asia.
  • Customer requirements are very diverse. The challenge is how to respond to this diversity and anticipate customer needs. Major 3PLs are stressing targeted customer acquisitions. The focus is on targeting vertical industries and playing to a 3PL’s strengths to deliver value for customers. Along with e-commerce, quality food distribution, and chemicals were growth areas for warehousing and distribution in China. Apparel and footwear business is also growing well in China and throughout Southeast Asia.
  • A tailored approach needs to be taken to achieve geographic growth. Depending on the country, expansion may mean making specialized approaches to working with governmental entities and with locals at many levels. Joint ventures and partnerships are commonplace.
  • People are key to creating value for customers and driving 3PL growth and profitability. Solid programs for talent acquisition and training are critical.

Technology and Automation

  • Artificial intelligence and machine learning were both seen as ways to replace routine clerical functions through automation and driving efficiency increases. A.I. could also permeate into some higher functions such as load matching and optimal carrier selection within the next five years.
  • Streamlining 3PL operations through the use of centralized system platforms was discussed.
  • Conversation around sensors and their use in managing visibility throughout the supply chain was discussed by 3PLs in KPI (key performance indicator) reporting, shipment/carrier visibility/tracking, and billing/back office functions.
  • Interest in Digital Freight Matching platforms such as Uber Freight and Manbang continues to drive investment. To stay competitive, 3PLs need to invest in technology and be so efficient they cannot be disrupted.
  • Blockchain types of applications are seen as a growing technology with a lot of interest.
  • 3PLs and systems providers are continually striving to innovate systems and applications.
  • Material handling robots are becoming more commonplace in high wage markets.
  • Autonomous trucks are hitting the road in Europe and the U.S. Regulatory questions abound.
  • “Big Data” is real and describes the process of quickly aggregating data from multiple sources into individual systems and applications.
  • There has been a proliferation of cloud-based systems and applications with specific functions. The focus of 3PLs is to integrate/interface all of these systems in developing value-creating solutions for internal operations and customers.

Domestic Warehousing and Transportation Management

  • E-commerce is driving growth. Cross border e-commerce is booming in China as consumers with more income are purchasing “real” goods.
  • India’s varying grades of warehouses continue to make it a challenging environment for growth.
  • With a fragmented trucking market, China’s investors are funding IT solutions such as Manbang which can aggregate capacity.
  • China’s BRI is driving road infrastructure development between China and its southern neighbors, and is a facilitator to growth in intra-Asia transportation management.
  • Warehousing growth is flat to double digit depending on the region. Where there is expansion, it tends to be driven by growth in e-commerce, or food related warehousing and distribution.
  • Food-grade cold-chain warehousing is a strong growth area in China as consumers focus demand on high-quality products.
  • Domestic transportation management to support manufacturing and e-commerce (last mile) has above average growth. Domestic tran
    sportation management is the strongest of all 3PL segments.

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