The third-party logistics (3PL) industry in the United States has undergone many important changes over the past decade. The number of industry participants has increased dramatically, to include such non-traditional players as investment bankers, financial services companies, real estate developers, and software companies. We've seen the emergence of very large providers, with several generating nearly a billion dollars a year in annual operating revenues. The service offerings of the bigger players have continued to expand as have their service areas. And many providers have moved into the international arena, establishing operations and forging alliances not only in Canada and Mexico, but also in Europe, Asia, and South America.

Yet while CEOs of the largest third-party providers remain optimistic about the future, they are forecasting a slower growth rate for the industry overall as well as for their own companies. They see important opportunities in expansion of supply chain services for their customers, further globalization, and additional information systems development. At the same time, they are concerned about a number of problems facing the industry, including the expensive and complex selling process, the difficulties inherent in finding qualified employees, intensifying pricing pressures, and the costs associated with information systems development.¹

The industry's customer base continues to grow. Today, nearly 70 percent of Fortune 500 manufacturers outsource logistics activities, at least on a limited basis. Not surprisingly, satisfied users continue to expand their use of such services. And more and more of these companies are showing a preference for one-stop shopping.² As part of this development, many large companies are pressuring their 3PL providers to expand overseas in support of their international supply and distribution systems. The reward for doing so is generally substantial contracts in those countries; not doing so, however, often results in a loss of the client's domestic business.³

Users remain committed to the concept of logistics outsourcing but have become more experienced and realistic about the process. More than one-third of all Fortune 500 manufacturers that do outsource have canceled at least one 3PL contract. Disappointingly low savings are at the root of many of those decisions. In fact, cost considerations remain dominant in both supplier evaluation and selection. Many users assume immediate savings as soon as outsourcing begins and expect continuous improvement and cost reduction throughout the life of the agreement.

The 3PL industry now is a highly visible component of the supply chain community and has captured the attention of major investment bankers and deal makers. Given the high profile of the 3PL industry, its importance to the logistics community, and its potential as an investment opportunity, many constituencies have become intensely interested in the future of third-party logistics.

We believe that the industry's future can be addressed within the context of a few crucial questions. These center on industry growth, the 3PL buying process, the future structure of the industry, and industry profitability.

Over the past 10 years, U.S. manufacturers have increasingly embraced the 3PL concept. Often what starts out as a limited experiment outsourcing a single logistics function evolves into a large-scale integrated supply chain management agreement involving one or more third-party providers.

Yet while the growth rate has been impressive to date, will it be sustained and where will future growth come from? We see three obvious sources for industry growth: (1) existing clients expanding their use of 3PL services; (2) new clients who have not outsourced before; and (3) international opportunities.

Existing clients will probably drive industry growth in the short term. In a recent study conducted among CEOs of large 3PLs, the respondents projected that nearly 50 percent of future growth would come from their existing client base.⁴ Since most existing clients devote relatively little of their logistics budgets to third-party services, there is certainly room for growth. A growing interest in one-stop shopping further reinforces the importance of current customers.⁵ Typically, companies get comfortable with outsourcing, then expand their usage. Providers who are already in the door enjoy a definite advantage—assuming that they're doing a good job.

Surveys have found that about one-third of large manufacturers are not using 3PL services, although many are considering that option. These companies may become actual users, particularly if some trigger event occurs. The galvanizing event could be a corporate reorganization, a change in top management, a merger or acquisition, product line growth, or an escalation in major customer requirements.⁶ A corporate commitment to continuous improvement could also lead to consideration of outsourcing.

Many small to medium-size manufacturers would appear to be good 3PL prospects. Like the Fortune 500s, they want to improve efficiency by coordinating the total supply chain. But most major 3PL providers view these firms as being too small to be of interest.

As a result, these smaller companies often turn elsewhere for help with supply chain issues. Some ask their existing carriers, contract warehouse operators, or other direct-service providers to expand their service offerings into related logistics activities. One recent study found that nearly two-thirds of Class I LTL motor carriers, in fact, now offer warehousing services—often in response to customer requests.⁷ Other companies ask suppliers of support services to expand their roles. Freight-bill auditors and traffic consultants, for example, frequently take on carrier selection, rate negotiations, and other management tasks. And in some instances, brokers have established overseas distribution operations for clients.

A two-tier provider market may, in fact, be developing. Many large 3PL companies provide their biggest customers with a broad range of supply chain management support and "asset neutral" services. These companies rarely get the opportunity to manage all of a client's supply chain functions. Nevertheless, they view themselves as having the potential to provide complete supply chain services and see their breadth of skills as a key strength. Single-function providers, by contrast, typically serve smaller accounts. They provide their customers with additional functions as add-ons that can be offered in response to a specific need.

Expansion internationally is an intriguing possibility. The European market, to cite one obvious example, is crowded with experienced 3PLs. Yet most lack the pan-European capabilities desired by large U.S. manufacturers trying to rationalize their European operations. This represents a clear opportunity for U.S. third-party providers who can design their European networks in response to the demand. The European subsidiaries of more than a dozen U.S.-based 3PLs already do a considerable amount of business with European subsidiaries of U.S. multinationals. Many of these providers are moving aggressively to build pan-European distribution systems.⁸

Asia, too, seems to provide enormous potential for 3PLs with pan-Asian solutions. Although cultural, regulatory, infrastructure, and competitive issues can appear daunting in that part of the world, the potential rewards for companies that "get it right" are impressive. However, the recent financial turmoil in the region is quite likely to lead U.S.-based providers to move more slowly in Asia. The uncertainty also will likely increase the relative attractiveness of alliances with Asian providers compared with direct investment in their own operations.

Though South America continues to interest many large 3PL providers, questions remain about the potential size of the market and the difficulties inherent in serving it. Some major U.S. companies have asked third-party providers to support their logistics networks in the region. But these markets may not be large enough or stable enough to justify the major investments in time, people, and capital necessary to adapt third-party logistics to the different cultures and infrastructures.

The evaluation and selection process for third-party services is changing significantly. When the outsourcing concept was introduced, selection teams could call upon internal experts who had run company warehouses, private fleets, or traffic departments. Yet during the initial wave of outsourcing, many companies dramatically downsized this corporate expertise. So when it came time to renew or expand their third-party contracts, they brought in independent consultants such as Mercer Management Consulting and Andersen Consulting to aid in the evaluation and selection process.

Evaluating potential providers today has become far more formalized and is beginning to look like other large service buys. A number of companies, in fact, have moved the 3PL selection process to the purchasing function.

In the future, cross-functional teams may be doing the selection. These may be led formally by purchasing, and informally by independent consulting firms with logistics management practices. The balancing act for 3PL providers will be to educate purchasing people about logistics, while working with consultants who will be setting performance expectations.

Clearly, not all current and prospective 3PL service users have cut that deeply into their internal logistics management expertise. The buying process in companies that have retained in-house talent will continue to be internally focused, with cross-functional supply chain managers participating in the outsourcing decision-making process. In fact, some of the companies that have cut too deeply are likely to attempt to rebuild internal logistics expertise in self-defense. These rebuilding attempts must emphasize internal linkages and functional integration so that the organizations are able to work effectively with third-party providers.

In any case, the balance of power in the buying process will continue to shift toward the larger users, who typically can exert far greater leverage than their smaller providers.

Forecasting the industry's future structure is not easy. Even though the outsourcing growth curve is beginning to flatten, investors and new market entrants still are being attracted to 3PL. This discussion examines the emerging influences and the various industry models that may result.

Emerging Influences

Customers are increasingly looking for integrated supply chain solutions that can be accessed via one-stop shopping. To be a successful contract bidder then, a third-party provider must seamlessly put together the combination of key elements—assets, logistics knowledge, and systems capabilities. In some instances, those elements are combined within a single provider organization. Because of the large-scale scope of many 3PL contracts, however, they are more commonly found in multi-provider alliances.

The asset base required to service a particular account may include facilities, transportation equipment, and capital. In some instances, a different alliance member may provide each type of asset. For example, Trammel Crow, a major developer and operator of warehouses, has established several alliances with large 3PL providers. Similarly, companies like GE Capital, in conjunction with alliance partners, offer inventory financing as part of their service menu.

The second requirement, logistics knowledge, comes in two forms: operational know-how and strategic planning.

• Operational know-how is the ability to meet daily customer requirements for service and cost. Asset-based 3PLs have some comfort in this area because of their operations roots. Yet most asset-based companies are stronger in their core functions—such as warehousing or transportation—than in other parts of the supply chain. Non-asset—based third parties access this capability through careful hiring, sophisticated supplier selection, good relationship skills, and excellent communications and control systems.
• Strategic planning capability is knowing how to design and configure supply chains in response to customer requirements. Key activities include network design and location, scheduling approaches, and asset-requirement projections. To meet this need, many large 3PL companies have established internal consulting groups and equipped them with sophisticated planning and decision-support tools. Others have acquired that capability through acquisitions. Alliances involving providers and major consulting organizations, such as the Ryder Integrated Logistics-IBM-Andersen Consulting relationship, are beginning to emerge.

The third requirement, systems capability, has proven most problematical. Initially, 3PLs sought to differentiate themselves based on powerful, real-time systems capability. Today, however, this has become a basic necessity rather than a strategic differentiator. In effect, these logistics companies have become information-technology providers simply to stay in the game.

In the future, 3PLs will find it increasingly difficult to use proprietary systems capabilities to lock in customers for the long term. Open standards based on the World Wide Web will likely dominate the exchange of information along the supply chain. At the same time, customers are unifying their information flows based on enterprise systems such as SAP. Third-party providers will have to implement those interfaces even if the customer does not insist on Web capability.

A number of the larger 3PLs have invested heavily in information technology, even though they are neither financially nor technically positioned to be leaders in this field. That role probably will be assumed by companies like Microsoft and SAP, possibly in partnership with supply chain software specialists like i2, Manugistics, and Numetrix. Not surprisingly, a number of large third-party providers have begun aggressively exploring partnerships with IT companies and systems integrators. The hope is that the information technology alliance partner will provide them with the requisite systems capability while minimizing internal staffing and development costs.

Alternative Industry Models

The 3PL industry's heightened visibility and attractive growth rate continue to attract new entrants. These range from defense contractors to holding companies such as International Logistics Ltd., which have been established specifically to acquire companies to build supply chain management capabilities. Major distributors also are potential players in this market. For example, Avnet, one of the world's largest electronics distributors, has established its Integrated Materials Services division to coordinate supply to high-technology companies such as Cisco Systems and Intel. W.W. Grainger, the large industrial supply distributor, has initiated similar support services for its clients.

Although new competitors continue to enter the market, the industry has entered a slower growth period, and customers have become more demanding and consultant-dependent. Conventional wisdom holds that the largest players are likely to use their resources to force a shakeout in the industry.

The shakeout scenario appears to be playing out in the MIS outsourcing industry, where IBM, EDS, and a few others now dominate. Some CEOs of third-party companies expect that several large providers will fail or be acquired during the next few years. Continued severe price competition and the trend toward one-stop shopping are consistent with this projection. As large customers use fewer logistics service providers, there will be fewer large clients to go around. This may lead some of the larger 3PLs to vigorously pursue small to medium-size accounts, a segment they had heretofore ignored. This scenario is already playing out in the European market for 3PL services.

To a large degree, long-term growth will hinge on how effectively the 3PLs select and manage their service partners. Success also will depend heavily on how skillfully the 3PLs handle human resource challenges—both internally and within the client organization.

Partner Selection and Alliance Management

Customers—especially large customers—expect tailored solutions, virtually perfect service, total operations visibility, continuous improvement, and stable-to-decreasing costs. To deliver on these expectations, 3PL providers will need world-class partners in every area—from asset ownership to information technology to warehouse and transportation service. The need to form these kinds of alliances globally only heightens the challenge.

Once the contract has been won, the provider has to manage the ongoing operation. This means coordinating the alliance partners so that one face can be presented to the customer. To be successful, the third-party alliance leader also must embrace continuous improvement. Some users complain that a provider comes in, grabs the easy savings, and then rests on its laurels. The lead provider must instead be politically savvy, locate opportunities within the customer's operations, and swiftly act on improvement possibilities.

Human Resource Management Issues

In annual surveys of CEOs of U.S. third-party logistics companies, the respondents consistently identify a shortage of qualified management resources as one of their most pressing problems. The large providers in particular have had difficulty finding, training, and retaining qualified management personnel—all symptoms of an industry coping with rapid and substantial growth.

The problem is multifaceted. It involves not only determining where the talent will come from, but also how to access qualified people on short notice, provide relevant training, and quickly get them into the field. If a company successfully bids on a large contract, it may need to add several hundred people in a relatively short period of time. As one CEO told us, "These people are not simply sitting around our office, waiting for bids to be won. When we win one, we have to add staff very quickly, and that is a problem."

One increasingly common response that has produced positive results is to hire people from the client company. Another approach is to recruit on college campuses. It's also become common practice to hire talent from competitors and corporate logistics groups. The raiding has occurred not only at the operating and strategy level, but also in the executive suite. One recent study noted that during a one-year period, the CEOs of nine of the 25 largest 3PLs in the United States changed companies. Furthermore, the CEOs' average job tenure was three and one-half years.⁹ At the same time, in building alliances the providers are clearly motivated by the desire to access the managerial talent of their partners.

Regardless of where the talent comes from, training remains a challenge. The difficulty here is that the people often must be on the job quickly, leaving little time for training. This can cause serious problems because while these people have not really been assimilated into the provider organization, they are on the job with clients. As a result, coordination, integration, and communications problems are quite common. These affect a provider's ability not only to effectively implement new contracts, but also to sign renewals.

At a minimum, these individuals should be trained in the following areas: the structure, culture, and goals of the provider and client organizations; the development of performance metrics; alliance management; and communication within and across corporate lines. They also need some sense of the client's competitive business environment. Some of the training might have to be self-paced instruction modules. At the same time, providers need to recognize that training is a career-long requirement and develop mechanisms to deliver ongoing support to employees throughout their careers. Failure to do this will ultimately lead to an obsolete work force in a dynamic industry.

Another industry issue demanding attention is the nomadic nature of many operating-level jobs. Most contracts are one to three years in duration, and it is not uncommon for managers to be moved from one client site to another even within the contract period. Several third-party CEOs have acknowledged that after several site changes the resulting lifestyle may cease to be attractive, and that the industry may be losing talented people. In the short term, this is a difficult problem to resolve because of the nature of the business. If the industry succeeds in building longer-term relationships with clients, however, "site hopping" may become less of an issue. Obviously, as the industry becomes more global in nature, these human resource management issues will be even more challenging.

The mistakes that companies have made when expanding internationally are legendary, and 3PL executives should never underestimate the associated risks and costs. The third-party providers will need to attract, train, and keep in-country talent. One short-cut might be to aggressively recruit foreign students attending U.S. business and engineering schools who show an interest in logistics management. Managed properly, that recruitment process could become an important source of management talent for 3PLs expanding into the international arena. The individuals recruited also might provide a means of attracting local business in those markets. The ability to develop such a foreign customer base will be critical to global success of the U.S.-based third-partly logistics providers.

Outsourcing also can create tough human resource management challenges within a customer's organization. In general, the 3PL is expected to replace client personnel where appropriate. But if the cuts in in-house logistics personnel are deep enough, there may no longer be a clear career track for new hires in that functional area. Third-party personnel typically fill the first-line supervisory jobs. And in many cases, the site manager also is a third-party employee. Frequently, the short-term answer is to retain client personnel in certain positions. Importantly, the service provider needs to screen and train these individuals.

Within the client company, another important human resource issue centers on the ability of managers to work effectively across functions. In many organizations a cross-functional orientation traditionally has not existed. In such cases, it must be designed and incorporated into the 3PL implementation program. If clients fail to achieve the needed integration, the benefits of outsourcing usually prove elusive.

Increasingly, providers will be expected to sit on client project teams and to play a role in final customer support teams, which often include people from several divisions and competing interests. This calls for political acumen as well as team skills. Providers will have to participate in designing the service/product offerings that are important to the client's customers. Consequently, the 3PL may find itself in the middle as client divisions compete for sales, pricing, and service advantages.

We believe that in the longer term, many 3PL users will at least partially rebuild internal logistics expertise. In fact, some already are looking at the highly qualified personnel of logistics-service companies and consulting firms as target human resources in this rebuilding effort.

This last question is obviously a crucial one. It can be looked at instructively from two perspectives: the near- and longer-term price pressures that affect margins and the impact of these pressures on customer selection

Industry Profitability and Margins

Though the 3PL industry in the United States has grown dramatically over the past decade, providers remain concerned about profitability and margins. It is difficult to gauge industry profitability accurately because many of the large providers are part of companies that combine the earnings of all subsidiaries in consolidated income statements. Yet there's clear evidence of the problem. CEOs of several of the industry's largest providers have voiced this concern, both in the media and in discussions with the authors.

The profitability problem has many roots. In some cases, the industry has contributed to the situation by not knowing its own costs. This has led to underbidding contracts and subsequent unpleasant surprises. In other cases, particularly in the industry's formative stages, providers were frequently accused of making low-ball bids to obtain high-visibility business. In such cases, the providers probably believed that the situation would be rectified at contract renewal. Yet because users typically become quite aggressive at renewal time, price corrections have been difficult, if not impossible, to effect.

The high costs of responding to bids and developing customized system solutions for clients also has affected profitability. A number of CEOs of third-party companies have noted the magnitude of the bid response problem, reporting that it is not uncommon to invest several hundred thousand dollars on systems, staff, and planning in advance of a major bid.¹⁰ The second issue, systems development costs, can involve a commitment of millions of dollars.

In some instances, the profitability issue has created a hostile relationship between 3PL management and the board of directors of their parent company. This is compounded by the fact that many board members don't understand the industry and consequently may have unrealistic expectations. This can lead to difficulties in obtaining the necessary investment capital from internal sources (and may also explain the rather high turnover rate of CEOs in this business). At the same time, poor performance along this dimension may make it difficult to attract outside capital and quality alliance partners. This partially explains the 3PL interest in companies involved in financial services and information technology as potential alliance partners. It may also be triggering the interest in the providers' interest in foreign markets where it is generally—though not necessarily accurately—perceived that margins are more attractive.¹¹

Unfortunately, little price relief is in sight. Services often are difficult to differentiate, and innovations can be quickly imitated by competitors. Price competition in the 3PL marketplace will likely continue to be brutal until (and unless) someone emerges as a clear leader who can discipline the market. Frankly, this seems unlikely. The underlying trucking and warehousing markets are heavily price driven. The major providers are chasing large customers, but in many industries such as food, retail, and chemicals the customer's margins also are low. Niche markets exist for reverse logistics, hazardous materials handling, and repair parts support, for example. Plus there are high-margin customers in certain high-technology segments. But the largest users of logistics services are at once the most savvy and cost-conscious.

Increased competition is inevitable, and some of the most intense competition may come from outside the industry. Information-technology companies such as IBM and Microsoft may see logistics as an incremental market. A fully integrated supply chain requires excellent communications and information exchange. The software and hardware to support this capability means more IBM boxes sold and more copies of Microsoft Exchange or similar products installed. Since they already have developed the base technology, these IT giants can afford to operate just above variable cost in this market.

Another source of potential competition is the distributor community. Distributors have always operated on low margins and they are familiar with costing service offerings. Further, they often know both the customer and the material supplier marketplace intimately. As distributors expand their influence in this space, price pressure may become even more intense.

Overall, logistics service providers should not expect price pressures to ease for some time. Even though there may be an industry shakeout, a growing market always attracts new entrants. Companies that want to stay in the marketplace will need deep pockets and/or strong alliance partners to finance continued systems and people upgrades in a harsh environment.

Customer Selection and Other Industry Responses

Obviously, if there is little "wiggle room" with respect to price, the industry will have to find other ways to increase profitability. Some providers are doing well in spite of the pricing environment. One of their secrets appears to be customer selection. Profitable, growth-oriented clients seem willing to pay for service, as do companies where logistics is a small part of total expense. As companies grow, however, even small-percentage expenses become large dollars. Major chip manufacturers, for example, now aggressively benchmark logistics costs and capabilities. Personal-computer manufacturers, for their part, are looking to cut logistics costs as they move into the under $1,000 market. For these types of clients, 3PLs will have to establish themselves as "strategic partners" who provide important value-added services.

In summary, a "good" 3PL customer appears to have three important characteristics: (1) good measurement systems, usually including some version of Activity Based Costing, that properly state the value of effective logistics capability; (2) a market that allows the customer to give its suppliers decent profit margins; and (3) a willingness to give more than lip service to the concept of business partnerships.

In most cases, the customer will hold the power in the relationship—partnership or not. Major customers typically are larger than the third-party providers, and switching costs are sometimes low. For these reasons, the providers must continually prove their value. They should expect to show real productivity gains year to year. Companies expect as much from their own employees.

Providers also should be proactive problem solvers. Many providers have extensive process knowledge and analytical capabilities. Most customers do not have similar skills since logistics is not their core business. It is this knowledge, as manifested in continuous improvement in both costs and service, that customers are paying for. It is up to each provider to find customers who are willing to pay a fair price for the value received.

While seeking to develop such a partnership-oriented customer base, the third-party providers must continue to explore various ways of reducing their own cost structure. To date, the efforts have centered on reorganizing their business structure, outsourcing specific supply chain functions to other providers, and developing alliances with major asset holders and financial institutions to reduce capital costs. Some larger providers also are becoming far more selective in responding to RFQs. (The days of the free logistics audit for prospective customers are numbered!)

Over the next several years we expect continued—but slower—growth in the third-party logistics industry. Part of that growth will come from existing clients who increase their outsourcing activity. Another part will come from companies who are turning to third-party logistics for the first time.

Growth prospects look comparatively encouraging internationally. Major U.S. providers are expected to make concerted expansion efforts in Europe, Asia, and, to a lesser extent, in South America. In Europe, U.S. providers may have a competitive advantage because they begin from a pan-European perspective and can limit their capital commitment through alliances with other providers. U.S. companies may fill a similarly important unfilled niche in Asia by providing integrated services through the region. However, the aggressiveness of U.S. 3PL companies in that region is likely to be tempered, at least in the short term, by the region's recent economic instability. Success in South America depends upon the region's economic growth and the expansion plans of U.S. retailers and manufacturers who might use 3PL providers to support their growth in this market.

High growth does not necessarily imply strong profitability, though. Most large 3PL providers are targeting the same customers even as the industry continues to attract new players. Customers are taking advantage of the wide choice in providers and asking for continuous improvement in services. At the same time, they're demanding stable or lower prices. Many of the industry's new entrants are information-technology firms that see logistics as an incremental outlet for their existing expertise. Others include financial organizations that can provide much-needed capital for industry while financing inventory for customers. Both of these new groups have the resources to outlast pricing pressures and to align with, dominate, or acquire many existing 3PL providers.

To support future growth, the industry will require more resources—both human and capital. Many customers are interested in additional services and one-stop shopping. Yet with the parent company boards limiting the availability of capital, the traditional providers have little choice but to pursue alliance partners. Large-scale global alliances will subsequently emerge, with information-technology companies and financial institutions becoming far more important as key alliance components.

Logistics service providers are likely to continue scrambling to find skilled managers and other personnel. The competition for this talent will be intense. Recruiting, training, and retaining qualified people will remain major concerns. Providers will continue hiring client employees, who will become an increasingly important source of human capital. At the same time, many industry observers worry that an erosion of logistics expertise within client organizations could change the buying process. More and more, providers may find themselves dealing with purchasing personnel and consultants as they negotiate new deals. If that is the case, the bidding and startup problems—already common in the industry—will be exacerbated.

As large customers continue to consolidate their own supplier bases, we expect these "signature" accounts to ask their 3PLs to take complete supply chain responsibility—either directly, or, more likely, through alliances. As this happens, the expected shakeout among major 3PLs will accelerate. Pricing pressures also may encourage industry consolidation; certainly, that is what many CEOs surveyed expect.

Structurally, the industry is still fragmented, with large providers almost exclusively focusing on large accounts. Although many smaller companies currently outsource a variety of logistics activities, they generally rely upon functional specialists such as truckers or warehousemen to put together a service package. This two-tier market structure may be disrupted if some large U.S. providers target these smaller accounts, a scenario already playing out in Europe.

Going forward, these are among the key developments affecting the user community:

• Large customers will continue to hold the power in most relationships and will enjoy a significant number of provider options from which to choose.
• As the scope of provider alliances broadens, large users will be able to outsource the full range of supply chain support services.
• The emergence of large-scale international provider networks and alliances will foster the development of global service packages.
• The trend toward one-stop-shopping will continue. And that one stop increasingly will be at the headquarters of a large 3PL provider that can leverage the assets and services of other providers to put together broad, complex support systems.
• In their evaluation and selection process, users will put even greater emphasis on the 3PL's established track record.
• Users will demand that providers share their company's attitude toward customer service and satisfaction.
• Users that have developed a reputation for being difficult to work with are likely to find fewer market options, as large 3PLs become more selective in choosing clients.
• Cultural fit and similarity in outlook will become even more important in the final selection process. Meanwhile, competitive cost, systems capability, and excellent performance will simply be the ante to play the game.

How the third-party providers respond to these emerging market dynamics—and how the user community, in turn, responds to those provider efforts—will ultimately shape the answer to our original question: What's the future for third-party logistics?

Author's note: This article was developed under the sponsorship of the Logistics Research Roundtable in the College of Business Administration at Northeastern University. We would like to express our thanks to the Roundtable sponsors, Exel Logistics, EDS, and Ryder Integrated Logistics, for their support.