Third-party logistics (3PL) is the function by which a manufacturer or retailer outsources activities related to logistics and distribution. Third-party logistics companies can provide specialized services such as inventory management, cross-docking, door-to-door delivery, and packaging of products. The market for 3PL service in Canada is expected to witness significant growth due to development of the e-commerce industry. Moreover, the demand for this service is expected to escalate in the near future due to increase in focus of manufacturers and retailers on their core business (known as core competencies) and subcontracting activities, such as logistics, where they have less expertise. Therefore, increase in competition has diverted the focus of manufacturers to promote respective specializations in production and distribution.
Factors, such as increase in trading activities due to globalization, rise in focus of manufacturers and retailers on core competencies, and development of the e-commerce industry, are expected to drive the growth of the market. However, risk toward goodwill of manufacturers and lack of control of manufacturers on logistics service hinder the market growth. Entering into strategic partnership with end users, surge in use of IT solutions & software, and cost cutting & lead time reduction due to adoption of multi-modal system are some of the factors that are expected to foster the 3PL market growth.
The Canada 3PL market is segmented into type and mode of transportation. Depending on type, the market is divided into home decor, health & nutrition, beauty & cosmetics, pet, sport & recreation, and do it yourself. By mode of transportation, it is divided into railways, roadways, waterways, and airways.
The key players operating in the Canada 3PL market are A.P. Moller-Maersk, Bollore Logistics, C.H. Robinson Worldwide, Inc., FedEx Corporation, Kintetsu World Express, Inc., Nippon Express, Penske Logistics, Inc., Purolator Inc., SCI Group, and United Parcel Service.
Increase in trading activities due to globalization
Dynamic market conditions and global economy movement are the key factors driving globalization. Various activities related to trade have been witnessed to increase, owing to rise in globalization from the last several years. Moreover, growing globalization leads to increased manufacturing and trade activities across the globe. Growing trade activities require efficient transportation solution for goods transportation.
Manufacturers or retailers find it difficult to keep a track of transportation activities in an effective manner; hence, third-party logistics (3PL) companies support these manufacturers to keep a track and control of transportation and supply chain activities, including warehousing, distribution, and fulfillment services. The growing trade activities and increasing concern toward seamless transportation activities are expected to drive the growth of the Canada 3PL market. Moreover, development of the overseas market is a significant factor that fuels the growth of the industry. Trade activities with the U.S. and other countries are anticipated to support the growth of the 3PL market in the coming years. 3PL services are becoming extremely vital for price-sensitive customers who require a wider choice of high-quality products with timely delivery. Therefore, increase in trading activities due to globalization fuels the growth of the Canada 3PL market.
Rise in focus of manufacturers and retailers on core competencies
Manufacturers or retailers are vital points in the overall supply chain of a particular industry as the focus of these participants are mainly on their sub-contracting and core business activities. Transportation and logistics activities are add-on operations for these players as these activities involve high capital investment and dedicated workforce to streamline activities. Moreover, for dynamic trade activities of the end-use industries and effective capital management requirement, manufacturers and retailers are focused only on their core business activities and assign these transportation activities to the third-party service providers. Moreover, 3PL companies can make better use of transportation assets by balancing the needs of multiple client shippers across transportation and distribution functions, thereby resulting in economies of scale. Offshoring and outsourcing result in longer and more complex supply chains. Management of this type of supply chain is extremely difficult for manufactures; therefore, the need for 3PL service providers is expected to increase in the coming years. 3PL model provides greater asset utilization and asset sharing alliances, which increases its demand, thereby contributing toward the growth of the Canada 3PL market.
Entering into strategic partnership with end users
Involvement of huge capital requirement and dedicated workforce, end users are entering into strategic partnership with 3PL service providers to gain competitive advantage. Moreover, 3PL service providers are involved in direct business with the end consumer to portray the manufacturer’s or retailer’s goodwill. To maintain streamlined transportation and supply chain activities of the company and uphold the goodwill of the company, end users opt for the service along with long-term agreements and contracts with 3PL service providers. Market participants need to focus on long-term business agreements with end users to attain lucrative opportunity in the near future.
The business outlook has changed dramatically post COVID-19 health crisis. The agenda for business is shifting workforce health & safety, domestic production capacity, liquidity & cash management, disruption of supply chain, delays & contractual risk, and logistical challenges (non-essential business closures and long haul shipments). The spread of the COVID-19 pandemic has impacted the Canada 3PL market, owing to commute restrictions and expected weak financial performance of the market players in 2020. The economic impact of the pandemic is visible with organizations preparing strategic cost-saving plans. Organizations with vehicle assets are considering sale and leaseback options to improve cash flow. The major risk factors of the Canada 3PL market participants are supply chain execution, regulatory & policy changes, dependency on labor, working capital management, and liquidity & solvency management.
For the 3PL market, the year 2020 was a slow growth performing year, owing to the negative demand and supply outlook due to COVID-19 restrictions for end users, including manufacturers and suppliers of home décor products, health & nutrition products, beauty & cosmetics products, pet accessories & products, sport & recreation related products, and Do It Yourself (DIY) products. The overall production activities of these industries have declined, owing to operations with limited workforce capacity and inadequate health safety measures. This expected weak business performance directly impacts the overall sales of the system and service of 3PL.
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