Logistics Outsourcing Market: Drivers, Restraint & Future Growth

Logistics outsourcing, most commonly known as third-party logistics is a process or operation of sub-contracting industrial functions like cross-docking, inventory keeping, warehousing and transportation to a third party or supply chain management provider. Third party logistics providers include raw material suppliers, distributors and other value-added service providers. These services are generally integrated and used together to provide end-user convenience. The decision for outsourcing logistics by a parent company is generally dependent on company size, complication of logistics and relative economic benefits of outsourcing.

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Logistics outsourcing includes contracting of material management, supply chain management, distribution management, shipment packaging and channel management. E-business web portals and stores are in extensive need of on-clock dispatch and delivery services offered by outsourced logistics providers. The advantages associated with the logistics outsourcing market are – improvement of supplier’s capability due to the use of information technology, specialization of operation, focus on core competencies and uniform growth. However, lack of monitoring control over logistics and risks associated with vendor reliability are some of the drawbacks of this market.

Regions across the globe with an attractive logistics outsourcing market, in terms of contract logistics, include North America and Southeast Asia. RoW (Rest of the World) is showing growth in inter-regional logistics. Major factors driving the development of logistics outsourcing market are globalization, time-proportional economy, presence of virtual organizations, improved customer awareness, strategic concerns to achieve more flexibility and better IT infrastructural support. On the other hand, loss of logistics, poor transportation, local protection regulations and lack of post-outsourcing measurements are some of the factors hampering growth of this market.

The global logistics outsourcing market is segmented on the basis of service type, transport media used and geography. The market can vary in service type as simple service, combined service, consulting service and value-added service. On the basis of transport media used to handle logistics, it can be classified into air freight, ocean carriers, railways and trucking. The market can be categorised on the basis of geography into North America, Latin America, Asia-Pacific, Japan, Western Europe, Eastern Europe and Middle East & Africa.

Globalized product availability, demand for product individualization in terms of logistics, on-time delivery, just-in-time inventory, agility in time response transport, big data analytics and atomization of shipment are some of the global market trends guided by technological innovations like remote tracking and monitoring using RFID tags and EDI-based location of the shipment. Analytics based on big data is providing better accuracy of frequency of tasks and decision-making capabilities. There is a continuous insourcing trend by online retailers (like Amazon.com) for inventory so as to be more cost-effective and unified in terms of operations, and to emphasize on outsourcing for end-product transportation services only. These technological up gradations continuously enhance services provided by outsourced logistics providers.

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Exel Logistics (U.K.), Menlo Worldwide Logistics (U.S.), FedEx (U.S.), Ryder Logistics (U.S.) and Tibbett and Britten (U.K.) are some of the key outsourced logistics providers. These companies have a wide global presence and provide multi-sector services. They are continuously trying to reach influential market and customers by means of removing bottlenecks related to international shipments and reducing cost through geographical spread of inventory. The market in Asia-Pacific region shows a steady and consistent growth through service innovations by companies, so as to attract economic customers. The companies need to shift their focus from integrated services to offering broad range of products & services portfolio. With more focus on growing B2C sector, the scope for logistics outsourcing will extend towards value-added and specialized services.

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