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UKWA: 3PL services are in demand

01 August 2013

It could be argued that the recession has had a positive impact on the 3PL sector, says Roger Williams, chief executive officer of the United Kingdom Warehousing Association.

The past year has been a challenging time for the logistics industry with the fall out from the recession and ongoing doubts over the Eurozone continuing to have an impact across all industry sectors. And yet there are opportunities: the recession has forced companies to undertake a root and branch review of their business practices and, as a result, many have come to realise that it makes a lot of sense to focus on their core activity and outsource other elements of their business to specialists.

I am pleased to say that UKWA has not experienced any significant drop in member numbers throughout the recession. In fact, year-on-year membership figures show a modest net growth. Paradoxically, many of our members have come to see the sustained economic uncertainty as having a positive impact on the 3PL sector. They contend that, while as a nation we continue to rely more and more on imports, 3PLs will be ever more in demand to store and deliver the goods we’re importing. Certainly, the services that a good 3PL can offer to a company – regardless of the industry sector in which it operates – can be invaluable. And, driven in part by the online shopping revolution, the type of services available from a 3PL have evolved way beyond traditional pallet storage.

For example, there is a growing belief that after sales and customer service will be the next business disciplines that forward thinking companies will choose to outsource to specialists and the third party logistics industry is ideally placed to capitalize on this trend. One particular UKWA member recently reported that it has developed the after sales and reverse logistics services that it offers to the extent that some 30 per cent of its annual turnover is generated this way.

The company offers a call centre to field clients’ customer queries, a product repair centre where faulty or damaged goods are fixed and returned and a rapidly growing online resale operation that uses the trading website e-bay to sell returned items directly to the consumer.

Service is key
The ability to offer a quality service is the cornerstone of any logistics business and, while users of 3PL services are, of course, cost-conscious, a recent survey by Eye for Transport highlighted that most shippers place quality of service higher than lowest price when it comes to choosing a logistics partner.

Interestingly, the 3PLs interviewed for the same survey believed that their clients were more likely to be driven by cost issues – a point which may go some way to explaining why large chunks of the industry continue to operate on very narrow margins. But encouragingly for the sector, the Eye for Transport survey found that most users of 3PL services rated their 3PL partner’s service offering as ‘outstanding’ or ‘higher than expected.’

Challenges
One of the more obvious challenges facing the 3PL sector in the UK is the acute shortage of good quality, affordable warehouse and distribution space that is the result of the lack of speculative property development in recent years.

Over the past three years the supply of new build or refurbished industrial accommodation has fallen steadily to the point where it now represents just 11 per cent of all available stock. Currently 84 per cent of all available storage space in the UK is classed as second hand.

This paucity of decent facilities in prime locations is driving above inflation increases in rents as landlords seek to cash-in, which, in turn, is putting additional pressure on the already tightly squeezed margins of companies operating in the UK’s logistics industry. It would appear inevitable that any increases in rents will result in price increases across the supply chain – which will not help the broader economy as it seeks to recover from doldrums.

The situation is unlikely to ease in the immediate future as uncertainty arising form the Euro crisis seems certain to delay the return of significant levels of speculative development activity and the lack of good quality accommodation is leaving many 3PLs with little alternative but to put off decisions to take space rather than take poor quality stock. In many cases companies are reconfiguring their existing facilities to accommodate new or growing accounts. Looking further in to the future, the issues raised by our increasingly congested roads and the spiraling cost of fuel, are unlikely to ever be far from the top of the logistics agenda.

Needless to say the rising cost of fuel means that the transportation element of every supply chain is facing increased scrutiny. And there is growing political pressure to use more efficient transport operations, with the European Union recently stating that transportation over 300km should ideally not be carried out using the road network. To reduce transportation costs the location of hubs and distribution centres, taking into account primary and secondary moves and consumer market density, is becoming increasingly important.

This is all leading to a growing belief that the so-called port-centric model - where DCs are based close to a port rather than in a traditional centralised location - makes sense for companies looking to reduce the distance goods need to travel by road.

It seems reasonable to assume, that with landside transportation costs – particularly road transport – now such a large part of overall supply chain costs (and likely to grow further still) anything that allows costs to be reduced through the elimination of unnecessary links in the supply chain is likely to find favour with supply chain professionals.

As a result, ports such as the new London Gateway development (opening late in 2013) and Liverpool and Port Salford, are likely to have an increasingly important role to play in the evolution of future supply chains as they come to be viewed as an important inventory management location in the end-to-end supply chain.
 
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