Trends in 3PL/Customer Relationships 2013 July, 2013

Transcription

1 Trends in 3PL/Customer Relationships 2013 July, 2013 Phone: Website:

2 ABOUT ARMSTRONG & ASSOCIATES, INC. Armstrong & Associates, Inc. is a supply chain management market research and consulting firm specializing in strategic planning, logistics outsourcing, competitive benchmarking, mergers and acquisitions, 3PL service/cost benchmarking, and supply chain systems evaluation and selection. Armstrong & Associates publishes Who s Who in Logistics and Supply Chain Management The Americas and Who s Who in Logistics and Supply Chain Management International. Recent research papers include "Slow Dance PL Market Analysis and 2013 Predictions," "3PL Brand Recognition, RFP Activity and Expected Profit Margins for 3PLs 2013," "Mexico: Trucking, Railroads and Third Party Logistics Market Report," "The Business of Warehousing in North America 2012 Market Size, Major 3PLs, Benchmarking Costs, Prices and Practices" and "Dedicated Contract Carriage New Life in a Mature Market." All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Armstrong & Associates, Inc. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Armstrong & Associates delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Armstrong & Associates can accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect. Copyright 2013 Armstrong & Associates, Inc. 2 P age

3 Introduction Each year we analyze our research database of third party logistics provider (3PL) customer relationships to gain insights into customer logistics outsourcing trends and overall market dynamics. This report is based on an analysis of 6,398 current 3PL customer relationships in our database. Many of these relationships are explained in detail in the cases section of our Who s Who in Logistics 3PL guides. 3PL Value Added Services Value added services differentiate 3PLs from transactional transportation companies and basic warehousing operations. Figure 1 includes some of the primary 3PL value added services and capabilities. The major changes since 1995 have been an increase in the degree and clustering of these services. Several of the largest 3PLs (APL Logistics, CEVA Logistics, DB Schenker Logistics, DHL Supply Chain & Global Forwarding, and UTi Worldwide) offer all or most of these services to their largest customers. Figure 1. Third Party Logistics Value Added Services and Capabilities The key competitive differentiators between 3PLs include supply chain management systems capabilities, operations management skills, and logistics engineering expertise. Most tier one 3PLs have implemented integrated systems platforms to support global transportation and warehouse management operations. These platforms offer Internet visibility and exception handling capabilities combined with transportation management functionality for the daily management of orders, customer inventory, and the optimization of thousands of shipments across large geographical areas. The same 3PLs can run value added warehousing operations, perform supply chain network analysis and design, and manage call center and fulfillment operations. Several 3PLs have expanded their global scope to provide significant coverage in those countries which make up the majority of the world s gross domestic product. With the continued expansion of major 3PLs, often via acquisition, integrating operational pieces they Copyright 2013 Armstrong & Associates, Inc. 3 P age

4 have is a significant initiative. Approximately 12 3PLs have built the network scale required to offer single source global solutions to large multinational companies. These Global Supply Chain Managers (GSCMs) can be expected to become increasingly dominate over the next few years. The size of 3PL accounts varies in net revenue from a few hundred thousand dollars to over $500 million. Major 3PL contracts with Fortune 100 companies regularly exceed $50 million per year. Most of these $50 million and greater accounts are with automotive and high tech companies. Traditionally, large 3PLs steer away from accounts of less than $5 million in purchased transportation, or warehousing and distribution management. Smaller accounts with transportation management needs often turn to freight brokerage centric 3PLs such as Conway Multimodal, Coyote Logistics, Echo Global Logistics, or XPO Logistics. Our experience shows that these small accounts tend to be more profitable on a margin percentage basis and change 3PLs less often. Table 1. Top Global Fortune 500 Buyers of 3PL Services # of 3PLs Company 53 Procter & Gamble 51 Wal Mart Stores 50 General Motors 45 Nestlé 42 Volkswagen 41 Ford Motor 40 PepsiCo 37 Hewlett Packard, Unilever 33 BMW, Royal Philips Electronics 32 Daimler, Siemens 30 General Electric, Samsung Electronics 27 Johnson & Johnson 26 Toyota Motor 25 Honda Motor 24 Home Depot, Kraft Foods, LG Electronics, Sony 23 Coca Cola, Sears Holdings 21 Deere, Panasonic, Pfizer 20 Nissan Motor, Robert Bosch 19 BASF, Bayer, Dell, DuPont, Royal Dutch Shell, Target 18 Danone, IBM 17 Abbott Laboratories, Dow Chemical, Goodyear Tire & Rubber, International Paper, Volvo 16 Johnson Controls, Kroger 15 Michelin, United Technologies 14 Caterpillar, Continental, L'Oréal, Sanofi 13 Bridgestone, Emerson Electric, Exxon Mobil, Honeywell International, Novartis 12 Anheuser Busch InBev, Best Buy, GlaxoSmithKline, Hitachi, Merck, Renault 11 BP, Canon 10 3M, Amazon.com, Carrefour, Chevron, Safeway Copyright 2013 Armstrong & Associates, Inc. 4 P age

5 While our database does not include every 3PL customer relationship, it is large enough to identify how and to what extent customers are using 3PL services. Table 1 lists the top Global Fortune 500 3PL customers utilizing 10 or more 3PLs within their supply chain operations. Procter & Gamble ranked first in 3PL use with 53 3PL relationships. Globally, APL Logistics, DHL Supply Chain & Global Forwarding (DHL SC & GF), MIQ Logistics, and Yusen Logistics are significant players in P&G s supply chain. Domestically, it utilizes the services of Jacobson Companies and Verst Group Logistics for a host of services from transportation management to value added warehousing. Top retailer Wal Mart Stores is the third largest company in the 2012 Fortune 500 Global and ranks second in 3PL use with 51 3PL relationships. Key global 3PLs servicing Wal Mart include Damco, DHL SC & GF, Kuehne + Nagel, and Yusen Logistics. With extensive import, warehousing, and transportation management needs, Wal Mart leans heavily upon 3PLs in managing its global operations. General Motors ranks 19 th in the Global Fortune 500 and third in overall 3PL use with 50 3PL relationships identified. 3PLs CEVA Logistics, Menlo Worldwide Logistics, Penske Logistics, Ryder Supply Chain Solutions, and UTi Worldwide are managing significant parts of GM s farflung supply chain. Not all Fortune 500 companies have business models that would require the services of a 3PL. We have excluded most Advertising, Financial, Insurance, Real Estate, Utilities and Waste companies for our use analysis. After removing 3PL relationships from our database for intracompany and industry exclusions, we have 6,398 distinct 3PL customer relationships for analysis. The results after the exclusions are shown in Figure 2. Figure 2. Domestic Fortune 500 Use of 3PLs % 90% 80% 70% 93% 96% 96% 96% 96% 80% 83% 84% 86% 88% 75% 77% 86% 82% 78% 77% 79% 81% 77% 79% 80% 74% 71% 71% 65% 60% 50% 40% 30% 20% 10% 0% Fortune Ranking Copyright 2013 Armstrong & Associates, Inc. 5 P age

6 In 2012, 86% of the Domestic Fortune 500 companies worked with at least one 3PL. This is a significant increase from our initial tracking in 2001 when only 46% of the companies had 3PL relationships and reiterates the ongoing trend for companies to outsource logistics functions to 3PLs in order to control costs and increase supply chain efficiency. As Figure 2 shows, company size continues to be a good predictor of 3PL use. The larger the company, the more likely it will have at least one relationship with a 3PL. In addition, larger companies utilize more services from 3PLs than smaller ones, which we detail later in this report. In our analysis of 3PL use, there is some inter year variation due to changes in the mix of customer relationships being reported by 3PLs and shifts in the Fortune rankings. There is also some underreporting of customer relationships in all categories; this is usually attributed to confidentiality agreements preventing 3PLs from naming customers. However, the overall trend shows a significant increase in the penetration of all Fortune 500 companies by 3PLs since These increases are largest in groupings and The increase from 2008 to 2012 is smallest in the Fortune group which has maxed out at 96%. The overall pattern of increases in each ranking group indicates a significant trend of smaller companies outsourcing more functions to 3PLs over the last few years. In a shift of earlier sales strategies which emphasized developing relationships with the largest accounts, most 3PLs are now more inclined to pursue smaller accounts offering the potential for longer strategic relationships with better profit margins. Menlo Worldwide Logistics is a good example of this trend adding global warehousing business with IT network security company Blue Coat Technologies and GPS/positioning company Trimble Navigation on top of long standing Fortune 100 Global customers Hewlett Packard and General Motors. These trends indicate that the awareness to the benefits from using 3PLs among Fortune 101 1,000 companies is continuing to grow and this growth should hold over the foreseeable future. For their part, 3PLs continue to develop business at approximately three times the rate of growth in the U.S. economy. Even in the current slow growth global economy, overall U.S. 3PL market growth was 6% in 2012 and is forecasted to be just over 4% in North America is benefiting from a slowly improving U.S. economy with increasing manufacturing levels, the nearshoring of some manufacturing to Mexico, and newly addressable oil and gas operations in Canada and the U.S. U.S. consumers bounced back from the great recession of 2009 and started to spend more. All of these factors are driving a slightly improved 3PL market. The increased 3PL usage described above is consistent with information from our other ongoing 3PL market research. Our estimate of 3PL penetration of the total potential U.S. 3PL market is 21%, up from 10% in This compares to current 3PL market penetration rates of 22% in Europe and 16% in the Asia Pacific. Consistent with the increased U.S. market penetration is our estimate of total U.S. 3PL revenues increasing from $65.3 billion in 2001 to $141.8 billion in Copyright 2013 Armstrong & Associates, Inc. 6 P age

7 We have developed estimates of 3PL revenues derived from the Domestic Fortune 1,000 companies. These are shown in the figure below. The total estimated 2012 revenues for this group are $113 billion and account for just under 80% of total U.S. 3PL market. Figure 3. 3PL Revenue by Industry from E for the Fortune 1,000 Domestic (US$ Billions) $120 3PL Revenue ($ Billions) $100 $80 $60 $40 $20 $0 $22.9 $24.8 $20.5 $25.5 $20.9 $24.2 $18.7 $22.2 $21.3 $19.6 $19.5 $17.8 $12.8 $18.2 $12.4 $16.3 $11.9 $11.6 $11.1 $12.3 $11.0 $12.3 $10.5 $8.5 $9.9 $11.3 $8.9 $9.5 $8.1 $9.9 $10.2 $10.5 $7.4 $8.3 $6.8 $8.9 $9.3 $9.0 $8.6 $8.0 $6.5 $7.2 $7.1 $8.0 $8.7 $9.3 $7.8 $5.6 $6.0 $5.2 $4.9 $5.4 $5.9 $6.6 $7.5 $8.0 $8.2 $8.6 $6.3 $5.0 $5.5 $5.9 $6.0 $4.6 $5.6 $5.8 $6.1 $6.2 $4.1 $4.6 $4.9 $5.2 $4.6 $5.2 $5.4 $5.6 $ E Year $24.6 $25.3 $27.1 $28.7 Retailing Technological Automotive Food, Groceries Elements Industrial Healthcare Other Consumer Goods In reviewing Figure 3, it is important to remember that these major industry segments/categories are broad. For example, Technological includes aerospace and defense companies. We utilize the Fortune company categories (names) to develop sub segment estimates which we roll up into the major industry segments. Table 2. Compound Annual Growth Rates (CAGRs) by Industry for the Fortune 1,000 Domestic Major Industry CAGR E CAGR Industrial 7.6% 7.5% Healthcare 7.6% 7.3% Food, Groceries 6.4% 6.2% Technological 5.8% 5.8% Retailing 5.4% 5.5% Consumer Goods 4.6% 4.4% Elements 3.9% 3.8% Other 2.9% 2.7% Automotive 1.3% 1.6% Copyright 2013 Armstrong & Associates, Inc. 7 P age

8 Since 2005 we have seen growth in 3PL revenues for the Fortune 1,000 Domestic from all industry segments. From 2005 to 2012 the Healthcare and Industrial segments had the highest rates of growth at 7.6%. Growth has come from increases in 3PL outsourcing levels, domestic healthcare spending, and more recently, domestic manufacturing levels. Over 45% of Industrial industry 3PL revenues come from Construction and Farm Machinery sub segment companies such as Caterpillar, Deere, and Cummins. The next largest sub segment is Industrial Machinery with Eaton, Timken, and SPX in its ranks. As domestic natural gas and oil production operations have dramatically increased in areas such as the Bakken Formation, so have 3PL revenues with Oil and Gas Equipment, Services sub segment companies. It is made up of companies including Halliburton, Baker Hughes, National Oilwell Varco, and Cameron International. The Healthcare industry includes Pharmaceuticals sub segment companies Pfizer, Johnson & Johnson, Merck, and Abbott Laboratories and accounts for 64% of industry revenues. While smaller in scale, 3PL revenue growth from companies in the Health Care: Pharmacy and Other Services and Wholesalers: Health Care sub segments have tallied above average segment growth rates through increased outsourcing activities with 3PLs. From 2005 to 2012, the "Automotive" industry, which is primarily made up of Motor Vehicles and Parts sub segment companies including General Motors, Ford Motor, Johnson Controls, and Goodyear Tire & Rubber, had the slowest rate of annual growth at 1.3%. The Automotive industry felt the greatest negative effect of the great recession of 2009 when year over year spending with 3PLs dropped over 27%. Since 2009, it has bounced back and Automotive finally surpassed its PL spending levels in Our estimate of the PL revenues from the Global Fortune 500 is $250.2 billion. This is a 67% increase from For 2012 these companies accounted for 39% of the $646.2 billion global 3PL market. This estimate is subject to our North American definitions and orientation to third party logistics. That is, we define segments as domestic transportation management (DTM), international transportation management (ITM), dedicated contract carriage (DCC) and value added warehousing and distribution (VAWD). The first two categories are non asset based; the latter two are traditionally asset based. Our definitions grew out of the regulatory framework for transportation and warehousing in the U.S. Our European colleagues tend to lump the VAWD and related outbound transportation into contract logistics. In the Asia Pacific, third party logistics has been growing at over 14% annually since Throughout the 1990s and early 2000s, the growth tended to be international transportation management (freight forwarding and NVOCC) focused. However, in the last five years there has been increased focus on domestic distribution (VAWD) to address consumer spending growth and the resultant demand for goods in developing countries including China, Indonesia, India, Singapore, and Thailand. Copyright 2013 Armstrong & Associates, Inc. 8 P age

9 Figure 4. 3PL Revenue by Industry from E for the Fortune 500 Global (US$ Billions) $300 $250 $37.4 $39.4 $41.9 3PL Revenue ($ Billions) $200 $150 $100 $50 $0 $26.8 $29.8 $32.4 $32.6 $23.9 $47.6 $48.5 $53.2 $50.4 $40.2 $47.8 $46.5 $35.8 $41.0 $40.1 $34.3 $16.3 $42.2 $14.4 $15.2 $39.1 $34.8 $13.1 $11.4 $12.5 $10.2 $36.8 $34.6 $35.2 $9.3 $8.4 $27.0 $28.9 $30.3 $27.0 $24.4 $12.1 $13.0 $14.3 $21.7 $6.7 $7.5 $8.1 $9.1 $10.1 $11.1 $12.6 $12.9 $13.6 $6.1 $7.0 $8.6 $10.1 $9.7 $10.3 $8.7 $9.7 $10.9 $11.6 $10.7 $11.7 $13.0 $13.7 $14.5 $3.8 $4.4 $4.8 $5.2 $5.4 $5.5 $6.0 $6.2 $6.6 $34.4 $56.9 $63.0 $ E Year $71.1 Retailing Technological Automotive Food, Groceries Elements Industrial Healthcare Other Consumer Goods Table 3. Compound Annual Growth Rates (CAGRs) by Industry for the Fortune 500 Global Major Industry CAGR E CAGR Industrial 11.4% 11.1% Healthcare 9.7% 9.3% Technological 9.3% 8.9% Food, Groceries 8.9% 8.7% Retailing 7.4% 7.3% Consumer Goods 7.2% 7.0% Elements 7.2% 6.8% Other 6.8% 6.7% Automotive 4.6% 4.7% Technological industry companies accounted for $66.8 billion of the estimated Fortune 500 Global 3PL spend in 2012 making it the largest revenue generating segment. Spending with 3PLs by Technological companies has grown 9.3% annually from 2005 to Copyright 2013 Armstrong & Associates, Inc. 9 P age

10 Technological is comprised of companies in eight different industry sub segments. The largest sub segment of Electronics, Electrical Equipment companies accounts for 38.6% of total Technological segment revenues with an estimated 3PL spend of $25.7 billion. Companies in this sub segment include Hitachi, Siemens, Royal Philips Electronics, Sony, and Samsung Electronics. The next largest sub segment is Computers, Office Equipment with $16.5 billion of 3PL spend. It includes Apple, Canon, Dell, Hewlett Packard, and Lenovo. Total 3PL revenues by each Technological sub segment are shown in the following figure. Figure PL Revenue by Technological Industry Sub Segments for the Fortune 500 Global (US$ Millions) $25,749 Electronics, Electrical Equipment Computers, Office Equipment $16,473 Telecommunications Aerospace and Defense $11,592 Network and Other Communications Equipment Semiconductors and Other Electronic Components $6,785 $3,709 $1,266 $773 $415 Computer Software Wholesalers: Electronics and Office Equipment The second largest Fortune 500 Global industry segment is Automotive which realized the lowest annual growth of 4.6% from 2005 to The Global 500 Automotive industry accounts for $47.8 billion of 3PL spend and is made up solely of "Motor Vehicles and Parts" companies including BMW, Bridgestone, Daimler, Honda Motor, Robert Bosch, and Volkswagen. The "Retailing" industry ranks third in 3PL revenue/spend for the Fortune 500 Global. In 2012 it generated total 3PL revenues of $39.4 billion. Retailing segments into General Merchandisers including Wal Mart, Sears, Target, and Macy s accounting for $18.3 billion or 46.5% of total segment revenues, and three smaller sub segments. The Food and Drug Stores sub segment includes Tesco, CVS Caremark, Carrefour, Kroger, Supervalu, and Walgreen. Specialty Retailers includes Best Buy, Costco Wholesale, Home Depot, Lowe's, and Staples. Internet Services and Retailing is one of the fastest growing 3PL revenue sub segments, but is relatively minuscule due to the small number of companies which have penetrated Fortune 500 Global ranks. It includes Amazon (and Zappos), Drugstore.com (part of Walgreen), and Google. Copyright 2013 Armstrong & Associates, Inc. 10 P age

11 Combined the sub segment accounted for an estimated $383 million in spend with 3PLs. Retailing sub segment market size estimates are detailed in the figure below. Figure PL Revenue by Retailing Industry Sub Segments for the Fortune 500 Global (US$ Millions) $18,335 General Merchandisers $14,376 Food and Drug Stores Specialty Retailers $6,326 Internet Services and Retailing $383 The fourth largest industry for 3PL revenues within the Global Fortune 500 is "Elements" with $35.2 billion. It is dominated by Petroleum Refining sub segment companies such as Exxon Mobil, BP, Hess, and Royal Dutch Shell and accounts for an estimated $18.2 billion of the total 3PL spend and 51.5% of total industry revenues. Much of the total spend from these companies is transportation related. Elements also includes Chemicals sub segment companies having $6 billion of 3PL spend or 16.9% of the total industry revenues. It includes BASF, Bayer, Dow Chemical, and Sumitomo Chemical. Copyright 2013 Armstrong & Associates, Inc. 11 P age

12 Figure PL Revenue by Elements Industry Sub Segments for the Fortune 500 Global (US$ Millions) Petroleum Refining $18,162 Chemicals Metals Utilities $5,957 $4,407 Mining, Crude Oil Production $3,334 $2,046 Energy $1,343 In our Who s Who in Logistics guide database, we use the functional categories shown in Figure 8 in categorizing the 3PL services being performed in each 3PL/Customer relationship. Integrated Solutions are combinations of services such as dedicated contract carriage, warehousing and transportation management being offered to one customer. Value Added refers to services such as merge in transit, reverse logistics, packaging and a host of others that are listed in Figure 1 which go beyond basic offerings. Supply Chain Management refers to a significant number of 3PL services being performed within multiple segments of a customer s supply chain. Within the 3PL relationships, there are 17,623 individual types of services being provided by 3PLs. The primary 3PL services provided were led by transportation management (23.7%), warehousing (19.6%), and value added services (18.8%). These are shown in Figure 8. Copyright 2013 Armstrong & Associates, Inc. 12 P age

13 Figure 8. Frequency of 3PL Services Categories Transportation Management Warehousing Value Added TM or WM Integrated Solutions International Supply Chain Management Dedicated Contract Carriage Other Intermodal Lead Logistics Provider 23.7% 19.6% 18.8% 9.5% 8.1% 5.6% 4.5% 4.1% 3.3% 3.0% ,422 1,677 3,455 3,312 4, ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 The average number of 3PL services provided by industry segment is shown in Table 4. Technological, Automotive, Consumer Goods, and Retailing industry customers utilized 3PLs for an above average number of individual services. Table 4. 3PL Services by Industry Average Number of Major Industry Individual Services Technological 3.09 Automotive 3.04 Consumer Goods 2.86 Retailing 2.72 Healthcare 2.67 Food, Groceries 2.61 Elements 2.59 Industrial 2.53 Other 2.31 Total 2.71 Copyright 2013 Armstrong & Associates, Inc. 13 P age

14 On average 2.71 services are performed by 3PLs for each customer relationship. This number is slightly lower than the 2008 average of 2.98 services being performed in each relationship and reflects an increase in 3PL use among mid sized and small 3PL customers who tend to have less complex supply chain service needs. This is shown in Figure 9 below. Large Fortune 500 Global customers average 2.96 services per 3PL, Fortune 1000 Domestic customers average 2.87 services, and those 3PL customers not ranked in the Fortune lists average 2.62 services per relationship. Figure 9. Average Services per Relationship by Fortune List Rank F500 Global F1000 Domestic Not Ranked Table 5 shows the number of services and percent of total services utilized by each industry. Table 5. Average Number of 3PL Services Provided by Industry Major Industry Number of Individual Services Percent of Total Services Technological 3, % Retailing 2, % Food, Groceries 2, % Automotive 2, % Industrial 1, % Consumer Goods 1, % Elements 1, % Healthcare 1, % Other % Total 17, % Copyright 2013 Armstrong & Associates, Inc. 14 P age

15 The top three types of 3PL services utilized by customers vary by industry segment. Table 6 details the ranking and percentage for each service. The results indicate that warehousing services are slightly more important to Consumer Goods industry customers, while the other industries have more emphasis on transportation management services. Overall demand of transportation management services has grown since 2008 and it is now ranked slightly above warehousing services for the Healthcare and Technological industries. In Automotive and Elements, there are significant needs for transportation management and value added services. These value adds can include subassembly and manufacturing line sequencing for Automotive and packaging/containerization for Elements. Table 6. Most Important 3PL Services by Industry Service Rank Major Industry First Second Third Automotive Trans. Mgmt. (23.2%) Value Added (18.7%) Warehousing (18.3%) Consumer Goods Warehousing (22.1%) Trans. Mgmt. (21.8%) Value Added (20.3%) Elements Trans. Mgmt. (27.8%) Value Added (17.0%) Warehousing (16.2%) Food, Groceries Trans. Mgmt. (25.9%) Warehousing (21.6%) Value Added (18.4%) Healthcare Trans. Mgmt. (22.1%) Warehousing (21.8%) Value Added (20.3%) Industrial Trans. Mgmt. (27.0%) Warehousing (16.7%) Value Added (16.1%) Other Trans. Mgmt. (28.0%) Warehousing (18.3%) Value Added (17.0%) Retailing Trans. Mgmt. (21.7%) Value Added (20.3%) Warehousing (20.0%) Technological Trans. Mgmt. (20.7%) Warehousing (20.4%) Value Added (19.6%) The table below shows the most important services segmented by Fortune list rank. While transportation management ranks first among all segments, it highlights a trend of larger companies putting increased emphasis on value added services versus warehousing. Smaller companies still primarily focus on transportation management and warehousing 3PL services. Table 7. Most Important 3PL Services by Fortune List Rank Service Rank Fortune List First Second Third F500 Global Trans. Mgmt. (22.3%) Value Added (19.0%) Warehousing (19.0%) F1000 Domestic Trans. Mgmt. (22.6%) Value Added (18.4%) Warehousing (17.7%) Not Ranked Trans. Mgmt. (24.5%) Warehousing (20.7%) Value Added (18.9%) We have watched lead logistics provider (LLP) relationships closely since While the total number of LLP relationships has increased each year, the relative percentage of LLP services provided as a percent of the total services tally has consistently hovered around 3%. For 2008, 3.2% of the total services performed were LLP relationships and now it is 3.0%. So it is safe to say that LLP relationships are not expanding relative to other 3PL services. Copyright 2013 Armstrong & Associates, Inc. 15 P age

16 Of the total 6,398 3PL customer relationships, 1,184 or 18.5% are strategic with the 3PLs performing supply chain management and/or lead logistics provider services. This mirrors the percentage of strategic relationships in While these strategic relationships were dominated by large Automotive and Technological industry customers in the past, we have seen increasing numbers of strategic relationships with Retailing and Industrial industry customers. To the extent that LLP relationships have been formed, they are most likely to occur in relationships that are more partnership based and involve larger 3PL accounts. Table 8. Supply Chain Management and Lead Logistics Provider Relationships Number of Major Industry Relationships Technological 248 Retailing 191 Industrial 153 Automotive 147 Food, Groceries 122 Consumer Goods 105 Elements 83 Healthcare 80 Other 55 Total 1,184 Integrated solutions, supply chain management, or lead logistics services are prevalent in 35% of the 3PL customer relationships and have more strategic properties. Stated another way, 46.5% of the 3PL customer relationships are tactical, 35% are more strategic, and 18.5% are strategic. Penetration of different industries by 3PLs is a good indication of their operational competence, marketing, and business development efforts. For example, European providers CEVA Logistics, Logwin AG, and DB Schenker Logistics have a large number of automotive operations and top the list of automotive customer relationships from our database. These are shown in Table 9. With top line revenues of $9.3 billion, CEVA Logistics is a top 10 ranked global logistics company and is the world s largest automotive 3PL. It has a heavy emphasis on manufacturing and is expanding operations in other sectors. Its industry sectors are Automotive 28%, Consumer/Retail 23%, Technology 20%, Industrial 17%, Energy 7% and Other 5%. CEVA operates in over 160 countries. Its Matrix software suite reflects its range of logistics capabilities, including materials management. CEVA s core services include fulfillment centers, high velocity cross docks, subassembly, sequencing, dedicated contract transportation, and network designs/redesigns. Its revenue is split between Contract Logistics (54%) and Freight Management (46%). The Copyright 2013 Armstrong & Associates, Inc. 16 P age

17 Americas account for 30% of its revenues, Asia Pacific 29%, Northern Europe 24% and Southern Europe, Middle East and Africa account for the rest. Private equity owner, Apollo Management, acquired EGL Eagle Global Logistics which was rebranded as CEVA Freight Management in EGL added global freight forwarding to match CEVA s high quality value added warehousing, materials management and other contract logistics capabilities. In 2008, CEVA introduced its Century Partnership Account Program for 100 of its key customers selected by its Executive Board. These accounts have a global scope and represent more than half of CEVA s total business. Its automotive customers include BMW, Fiat, Honda, Mercedes Benz, Michelin, Pirelli, and Toyota. Logwin, formerly Thiel, is a conglomerate that acquired Birkart, Microlog and other companies. Logwin has subsidiaries for automotive, fashion/lifestyle/media, and furniture. Nearly 70% of its revenue is Germany and Austria based. Logwin has two business segments: Solutions (contract logistics) and Air + Ocean. Its Road + Rail business segment was discontinued in Solutions generates 52% of the business and Air + Ocean accounts for 48%. Its automotive customer list includes Audi, Daimler, Johnson Controls, Robert Bosch, and Volkswagen. Table 9. Automotive Customer Relationships 3PL Total CEVA Logistics 42 Logwin 33 DB Schenker Logistics 24 DHL SC & GF 24 Rudolph Logistik 22 UTi Worldwide 21 Menlo Worldwide Logistics 19 ARS Altmann 18 Neovia Logistics Services 17 GEFCO 16 Kuehne + Nagel 16 Penske Logistics 16 TRADISA 15 Yusen Logistics 15 BLG Logistics 13 GENCO 13 Werner Egerland Automobillogistik 13 Schneider Logistics 12 Transport Corp. of India 12 Wincanton 11 Norbert Dentressangle 10 Ryder SCS 10 syncreon 10 DSV 9 Ewals Cargo Care 9 Active Aero 8 APL Logistics 8 Fiege Logistik 8 Geodis 8 Copyright 2013 Armstrong & Associates, Inc. 17 P age

18 DB Schenker Logistics has nearly $20 million in gross revenue making it the fourth largest 3PL globally. Its sheer size also makes it a significant player in automotive where it has relationships with BMW, Daimler, Ford, NAZA/Peugeot, Nissan, and Subaru. Fueling its growth, DB Schenker made significant purchases from 2006 to 2008 to double the size of its operations. The purchases include BAX in 2006, Spain Tir in 2007 and Romtrans in Romtrans was the largest forwarding company in Romania with $140 million in revenue and 1,500 employees. Operations go as far east as Georgia. Spain Tir had over 700 trucks and 16 million square feet of warehousing space covering the Iberian Peninsula. BAX added significant North American and Asian capacity. German operations, including Europe s largest rail freight and trucking operations, are over 70% of total revenues. DB Schenker s European trucking by land transport has over 24,000 employees/owner operators and handled 95 million shipments in Russian and Eastern European operations are substantial. DB Schenker is significantly expanding its contract logistics operations adding over $100 million of new business in North American contract logistics operations are 42% Consumer Goods, 30% High Tech, 16% Industrial and 12% Automotive. In Table 10, DHL Supply Chain & Global Forwarding, GENCO, and Wincanton lead in the number of retail relationships within our database. Table 10. Retailing Customer Relationships 3PL Total 3PL Total DHL SC & GF 52 IDS Group/LF Logistics 15 GENCO 40 Menlo Worldwide Logistics 15 Wincanton 36 OHL 14 Yusen Logistics 36 Performance Team 14 Kuehne + Nagel 31 TMM Logistics 14 Damco 27 ADI Logistics 13 MIQ Logistics 24 UPS SCS 13 ITG GmbH Internationale Spedition + Logistik 23 Cargo Services Far East 12 Alpha Distribution Solutions 19 Werner Enterprises 12 BNSF Logistics 19 3PD 11 Norbert Dentressangle 19 Capacity 11 Transplace 19 Navarre Distribution Services 11 Cardinal Logistics/Greatwide Logistics 18 Ryder SCS 11 CEVA Logistics 17 FedEx SC/TN 10 C.H. Robinson 16 Jacobson Companies 10 Logwin 16 ODW Logistics 10 Toll Group 16 Swift Transportation 10 APL Logistics 15 UTi Worldwide 10 DHL Supply Chain and Global Forwarding, with 3PL gross revenue exceeding $31 billion, is by far the world's largest 3PL and contract logistician. Contract logistics (VAWD) revenues account for just over 50% of total revenues. Globally, it manages a network of 2,400 warehouses with 248 million square feet of space. Given its size, DHL SC & GF has operations of virtually every kind on every continent. Its retail accounts include ASDA, B&Q, Chico's FAS, Home Depot, Nike, Pep Boys, and Selfridges & Co. Copyright 2013 Armstrong & Associates, Inc. 18 P age

19 DHL Supply Chain and Global Forwarding s current major initiatives involve further expansion within the Healthcare industry Pharmaceuticals sub segment. There are major sustainability and environmental efforts. Brazil and Mexico already have large, high quality operations. DHL Global Forwarding (DGF) grew through the acquisition of highly respected companies like Danzas. DHL and Danzas are strong brands in Europe and Asia. DGF currently has 31 global carrier partners with 81 contracts on a multitude of trade lanes and more than 330 gateway facilities. Its annual volume is 2.7 million TEUs and its LCL is 2 million cubic meters. There are more than 45,000 weekly point pairs for LCL globally. DGF handles 2.2 million shipments annually. With 35 million square feet of warehousing space and $1.5 billion in revenue, GENCO is one of the largest 3PLs in North America. Domestically, GENCO dominates the reverse logistics arena, which provides approximately 40% of its revenue. It runs distribution and return centers for major retailers and manufacturers. GENCO s retail customers include Home Depot, Hudson Bay (Zellers), Kohl s, Levi Strauss, Target, and Wal Mart. Other key value added services performed by GENCO include pharmaceutical returns, contract packaging, and damage research. GENCO has a series of niche solutions heavily integrated with specialized, in house developed IT applications. Its operations have a heavy emphasis on Lean Six Sigma management processes and environmental sustainability. GENCO s 2010 acquisition of ATC strengthened its dominance in high tech reverse logistics. ATC was one of the best quality and most profitable high tech focused value added warehousing and distribution 3PLs. Technological relationships tend to be dominated by transportation centric providers with small shipment expertise and value added warehousing 3PLs offering targeted value added services to high tech companies. DHL Supply Chain & Global Forwarding, Kuehne + Nagel, Menlo Worldwide Logistics, Ingram Micro Logistics, and UPS SCS have the greatest number of relationships in this segment. Kitting, pick/pack, spare/service parts order fulfillment, returns handling, test and repair, and refurbishment are noteworthy value added 3PL services being provided to customers. These relationships are listed in the following table. Copyright 2013 Armstrong & Associates, Inc. 19 P age

20 Table 11. Technological Customer Relationships 3PL Total DHL SC & GF 61 Kuehne + Nagel 39 Menlo Worldwide Logistics 30 Ingram Micro Logistics 29 UPS SCS 27 DB Schenker Logistics 26 CEVA Logistics 24 FedEx SC/TN 21 GENCO 21 ModusLink Global Solutions 21 Logwin 19 UTi Worldwide 19 Ryder SCS 18 Yusen Logistics 18 syncreon 17 Geodis 16 Pantos Logistics 16 Panalpina 15 New Breed Logistics 14 CTSI 13 Integrated Logistics 13 SDV 13 Choice Logistics 12 Dimerco 12 Penske Logistics 12 Brightstar 11 Navarre Distribution Services 11 Nippon Express 11 PFSweb 11 D.W. Morgan 10 DSV 10 Suppla 10 Wincanton 10 Swiss based Kuehne + Nagel finished 2012 with revenue of $22.1 billion making it the second largest 3PL globally after DHL SC & GF. It has strong market positions in ocean & air freight forwarding, contract logistics (VAWD) and transportation management, with a clear focus on providing IT based integrated logistics solutions. With the addition of the ACR group in 2006, contract logistics operations more than doubled. Contract logistics makes up 50% of net revenues. The industry breakdown for its contract logistics operations is: Retail 35%, Healthcare 22%, Technological/Telecom 18%, Chemicals 7%, Automotive 6%, Fulfillment 5%, Misc. 5% and Services 2%. Its Technological industry customers include Apple, Celestica, Jabil, Memorex, Nortel, and Phillips Consumer Electronics. Kuehne + Nagel s North American logistics network totals 12 million square feet of space across 50 distribution centers. There are 11 DCs in Canada (located in Toronto, Montreal, Calgary, and Copyright 2013 Armstrong & Associates, Inc. 20 P age

21 Edmonton), 30 single and multi client DCs in the U.S., six facilities in Mexico, and four Mexican border locations for transborder/customs services. Menlo Worldwide Logistics is one of the leading U.S. based 3PLs. It had gross revenue of $1.7 billion in 2012 and manages 138 warehouses globally totaling 18 million square feet. Internally, Menlo has adapted a Lean Six Sigma management approach which has helped it gain new business. It has seen significant growth with Technological customers where it has relationships with Cisco Systems, Hewlett Packard, Lam Research, Logitech, Powerwave Technologies and Siemens. Menlo has solid inbound supply chain management and finished goods distribution capabilities. It is a prime contractor for the U.S. Transportation Command s Defense Transportation Coordination Initiative and the lead logistics provider for truck manufacturer Navistar. Menlo is also a key 3PL for HP, Caterpillar, GM, Sears and Dow. Menlo has significantly grown its China and Southeast Asia network and is continuing to expand its European operations. Both are adding significant pieces of business with retailers such as Triumph in the U.K. and Malaysia and Puma in Singapore. In Southeast Asia, Menlo runs 27 value added warehousing operations with 3.5 million square feet of space and a workforce of 1,175. Menlo's IT capabilities, including its recent addition of Oracle TM s transportation management system, provide it with solid supply chain management and optimization capabilities. Copyright 2013 Armstrong & Associates, Inc. 21 P age