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Discussion Topics

• Introduction to the Surveys and the Report
  Findings
• Summary of Major Regional Findings
• Americas
• Europe
• Asia-Pacific
• Comparative Key Findings
• Conclusions and Expectations

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The 2006 Third-Party Logistics Provider CEO
Surveys

• This is the 13th year that the annual 3PL CEO
  Surveys have been conducted.
• Forty-four CEOs of the worlds leading 3PLs
  participated in our three regional surveys. The
  regions examined were North America, Europe, and
  the Asia-Pacific region.
• Collectively their companies generated nearly 50
  billion in 3PL revenues in those markets in 2005.
• The surveys provide a global overview of the 3PL
  industry from the perspective of the CEOs.
• The data generated not only give insight into the
  specifics of the regional markets, but also allow
  comparisons across geographies.
• The survey data also provides an industry
  benchmark, and has been used by 3PLs in their
  strategic planning efforts.

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North American SurveyCEOs of 22 of the largest
North American 3PLs participated in the survey

• Cardinal Logistics
• Caterpillar Logistics Services
• DSC Logistics
• Exel Logistics
• Genco
• Kuehne Nagel Logistics, Inc.
• Landstar
• Maersk Logistics
• Menlo Logistics
• MeridianIQ
• NAL

• NYK Logistics
• Panalpina
• Penske Logistics
• Pittsburgh Logistics
• Ryder
• Schenker
• Schneider Logistics
• TNT Logistics
• Transplace.com
• UPS Supply Chain Solutions
• UTi

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North American Survey3PL operating revenues in
North America continue to grow
Average Annual Revenues of Participating
Companies
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North American SurveyDuring the past three
years, these companies have become more
successful in meeting their regional revenue
growth projections
North American 3PL Performance in Meeting Growth
Projections
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North American SurveyThe majority of CEOs
indicated that their companies and the North
American 3PL industry had been moderately
profitable in 2005
For the third straight year, none of the
participating CEOs reported that their North
American business unit failed to record a profit
during the year.
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North American SurveyIndustry dynamics again
highlighted continued pricing pressures, growing
demand for 3PL services, and increased pressure
to internationalize service offerings
Total points
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North American SurveyFor the second straight
year, the CEOs saw the greatest industry
opportunities in the possible expansion of their
international services
Total points
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North American SurveyFinding/keeping management
talent is the regions top problem, followed by
the high-cost/ low return on IT investments, and
steadily increasing customer expectations
Total points
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North American SurveyRising fuel prices have
impacted 3PL costs, but contract provisions have
allowed most of those increases (86) to be
passed on to customers
The Impact of Increasing Fuel Costs on 3PL Costs
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European SurveyCEOs of 11 of the largest
European 3PLs participated in the survey

• Caterpillar Logistics Services
• Exel Logistics
• Geodis
• Kuehne Nagel Logistics, Inc.
• Maersk Logistics
• Menlo Logistics
• Penske Logistics
• Ryder
• Schneider Logistics
• TNT
• UPS Supply Chain Solutions

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European SurveyAverage annual 3PL operating
revenues in Europe were reported at approximately
the same level as the previous year
Average Participating European 3PL Company Revenue
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European SurveySome European 3PLs continue to
have problems meeting their revenue growth
projections
European 3PL Performance in Meeting Revenue
Growth Projections
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European SurveyThe majority of European CEOs
indicated that their companies and the European
3PL industry had been moderately profitable in
2005
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European SurveyDuring the past several years
European 3PLs have responded to the 2004
expansion of the EU in a number of ways
Total points
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European Survey Industry dynamics again
highlighted pricing pressures, growing demand for
3PL services, and large-scale mergers of 3PL
providers in the region
Total points
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European SurveyAccording to the European CEOs
their companies face a number of important
management challenges in Europe. These include

• Effectively integrating recent acquisitions into
  their companies
• Accessing adequate funds to support IT expansion
  efforts
• Development of adequate resources to support
  company moves into Eastern Europe and Russia
• Hiring and retaining high quality human resources
• Effectively managing company growth in Europe
• Developing good implementation skills with
  respect to new accounts
• Building a Pan-European platform from which new
  services might be launched
• Improving processes to lower costs

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Asia-Pacific Region SurveyCEOs of 11 of the
largest Asia-Pacific Region 3PLs participated in
the survey

• Caterpillar Logistics Services
• DHL
• Eagle Global Logistics
• Exel Logistics
• KuehneNagel Logistics
• Landstar Logistics
• Maersk Logistics
• Menlo Logistics
• MeridianIQ
• UPS Supply Chain Solutions
• UTi

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Asia-Pacific Region Survey3PL operating revenues
in Asia continue to grow
Average Annual APAC Operating Revenues of
Participating 3PLs
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Asia-Pacific Region SurveyOn average, China will
still remain the regions most important 3PL
revenue source in 2008, but Indias share of
regional revenues will have tripled between
2004-2008
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Asia-Pacific Region SurveyThe majority of APAC
CEOs indicated that their companies and the
regional 3PL industry were at least moderately
profitable in 2005
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Asia-Pacific Region SurveyIndustry dynamics
highlighted pricing pressures, large-scale merger
activity, and increased pressure to
internationalize company service offerings
Total points
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Asia-Pacific Region SurveyMany providers have
established operations in China, but their
success in meeting various goals in China varies
widely among these companies
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Asia-Pacific Region SurveyIn identifying
regional growth opportunities, some CEOs focused
on specific countries, while others emphasized
opportunities related to specific services

• Servicing the continued growth of the domestic
  markets in China and India
• Supporting global sourcing efforts of
  manufacturers of all sizes
• Supporting increasingly complicated supply chain
  solutions in the region
• Provision of freight management services or
  reliable ground transportation options in China
• Expansion of the visibility tools offered to
  clients
• Building and operating shared-use of facilities
• Expansion of value added services
• Provision of customs clearance services

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Asia-Pacific Region SurveyThe CEOs identified a
wide range of regional problems

• Human resources management issues
• Competition for skilled human resources is
  intense
• It is hard to match the available labor skill set
  to client requirements
• Managers tend to have single or dual country
  expertise, but tend to lack theatre-wide
  knowledge
• Compliance with national and local regulations
  within the region is difficult
• Operating costs continue to rise with wage
  increases
• There is a lack of political stability in the
  region

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Key Comparative Findings Mergers and
Acquisitions (M/A)The industry consolidation
movement continues in all three regions

• Twenty-three of the 44 CEOs involved in the
  regional surveys reported their companies had
  been involved in significant M/A activity in
  their regions during the past year
• Two-thirds of the CEOs ranked continuation of the
  consolidation movement among the most important
  regional changes they expect during the next
  three years
• CEOs in all regions expect a significant
  percentage of their revenue growth in the next
  three years to come from M/A activity North
  America15.4 Europe17 and, Asia-Pacific
  Region22.5
• To date, the impact of the M/A movement on the
  3PL marketplace has varied substantially by
  region

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Key Comparative Findings Mergers and
Acquisitions (M/A)There are typically a variety
of post-acquisition issues to be addressed

• Integration of operations, reporting and IT
  systems
• Addressing a wide-range of people issues
  including blending different cultures, handling
  redundancy, and compensation issues
• Maintaining customer relationships throughout the
  transition period
• Blending sales and marketing strategies
• Presenting a single-face to the marketplace

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Key Comparative Findings Managing Customer
RelationshipsIn all three regions 3PLs are
increasingly customer-selective, and have
generally been successful in developing more
collaborative relationships with key customers
Success in developing collaborative working
relationships with key customers
More customer selectivity over the past several
years
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Key Comparative Findings Managing Customer
RelationshipsCEOs identified many barriers to
improved collaboration including

• Lack of top management commitment to the concept
  in client companies
• Client perception that 3PLs provide a service not
  a strategic partnership
• Lack of necessary resources in one or both
  organizations to support true collaboration
• Too many contact points within the client
  organization at different organizational levels
• Lack of client willingness to share critical
  information with the 3PL
• Increased use of consultants to manage the bid
  processthey get in the way
• Lack of trust in one or both organizations
• Internal conflicts within the client organization
• The short time horizon of many clients

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Key Comparative Findings Managing Customer
Relationships3PLs have made many organizational
changes to promote collaborative relationships
with key accounts, including formation of

• Executive sales teams to focus on key accounts
• New business development organizations
• Customer advisory teams and consumer councils
  that are involved in strategic planning exercises
• A larger customer solutions group
• Industry-specific groups to focus on the dynamics
  of particular industries
• Focused account leadership groups
• A key account management organization
• A restructured customer service organization to
  assure that key accounts receive a uniform
  quality of service around the globe
• A new customer care organization
• A global account management program that focuses
  on key accounts
• Positions for key customers on the companys
  board of directors

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Key Comparative Findings Managing Customer
Relationships3PLs have made many operational
changes to promote collaboration with key
accounts. These have included

• A commitment to longer-term contracts with key
  customers
• The use of consultative selling techniques
• Regular operations reviews
• Support for collaborative transportation planning
  among customers
• Co-development of new SCM capabilities with key
  customers
• More frequent customer visits, and investment in
  more contact people
• Investments in more sales and relationship
  management training for employees
• More customer involvement in analytical projects
• More aggressive linkages between the companys
  sales and customer service activities
• The use of more individual incentives related to
  key accounts
• A commitment to constantly evaluating customer
  requirements
• Presentation to key accounts of more strategic
  proposals with larger potential payoffs to both
  parties
• Focus on value creation for customers even in
  areas in which the company doesnt directly
  provide the service.

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Key Comparative Findings Managing Customer
RelationshipsMany of these companies are also
using technology to support collaboration
Use of technology in attempting to build
collaborative working relationships with key
customers
Technology used

• CRM software
• Supply chain visibility tools
• Supply chain integration software
• Software that supports analytical projects for
  customers
• Customer performance portals (not CRM)
• EDI linkages to customers

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Key Comparative Findings Market Differentiation
FactorsMost Frequently Cited Differentiation
Factors by RegionWe found similarities and
differences in what these companies emphasize in
attempting to differentiate themselves from
competitors in the regional markets
North America
EMEA
APAC

• A commitment to high-quality customer service
• The companys global reach
• Breadth of company service offerings
• The companys superior IT support capabilities
• The companys excellent operational execution

• The talent of company employees
• The companys global reach
• Breadth of company service offerings
• The companys superior IT support capabilities
• The companys non-asset based approach to 3PL

• The companys long-term presence in the region
• The companys global reach
• Breadth of company service offerings
• The companys superior IT support capabillities
• The companys experience in particular industry
  verticals

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Key Comparative Findings The Use of 4PLs or
LLPsMany CEOs in all three regions believe there
is increased customer interest in the possible
use of 4PLs or Logistics Lead Providers (LLP)
Question Many industry observers believe that
there is growing interest in the use of 4PLs or
LLP to manage multi-company relationships. Do you
agree?
Especially in Europe the respondents believe
there is an increased customer interest in 4PLs
or LLP
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Key Comparative Findings The Use of RFIDThe
percentage of 3PL customers either committed to
RFID or conducting pilot studies of RFID
remains quite limited in all three regions
Percentage of 3PL customers already committed to
the use of RFID
Percentage of 3PL customers conducting pilot
studies of the technology
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Key Comparative Findings Revenue growth
projectionsNorth AmericaCEOs still bullish
about regional company growth prospects
North American CEO Projections of Their Companys
Growth Rate
Projected growth rate
North American CEO Projections of Their Companys
Growth Rate
Survey year
Survey year
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Key Comparative Findings Revenue Growth
Projections North
America

CEOs continue to project solid
growth for the North American 3PL industry
North American CEO Projections of Industry Growth
Rate
Projected growth rate
Survey year
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Key Comparative Findings Revenue growth
projectionsAPAC CEOs project substantially
higher company and industry growth rates than
their European counterparts
APAC and EMEA CEO Projections of Company and
Industry Growth Rates
APAC
EMEA
Projection
2005
2006
2005
2006
1 year - Company
18
16
30.9
15
3 year - Company
18
13
23.3
17
1 year - Industry
20
16.5
9
9
3 year - Industry
16
9
14.8
9
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Conclusions and Expectations

• Where do we find similarities across the regions?
• Company profitabilitynearly all companies in the
  surveys were profitable in 2005
• Industry profitabilitynearly all CEOs
  categorized the 3PL industry in their region as
  being profitable in 2005
• Growth projections3PL service demand was
  projected to grow substantially in all three
  regions over the next three years
• Market dynamicscontinued growth, price
  compression, M/A activity and pressures to expand
  internationally are major drivers in all three
  regions

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Conclusions and Expectations

• Problems similar across regionsthey included
  depressed margins, talent shortages, rising
  customer expectations, post-acquisition
  integration issues
• Customer relationship focusin all regions 3PLs
  are becoming more customer-selective, more
  industry focused, and have made many changes to
  promote more collaboration with key customers
• Consolidation will continuewill happen in all
  regions and impact will increase
• 4PL interest and potentialgrowing interest
  across regions, but few CEOs expect extensive use
  in the future
• RFID commitment still lowthis is the case in
  all regions, CEO consensus is that major impact
  is three-five years off

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Conclusions and Expectations

• Where do we find differences across the regions?
• Growth rate projectionsthe rates were high and
  nearly identical for NA and Europe, but
  substantially higher for APAC
• Realization of revenue growth goalsOnly five
  companies didnt meet their 2005 revenue goals
  four were in Europe
• Stage of industry developmentin APAC the 3PL
  network is being built in NA and Europe 3PLs are
  adjusting their networks and marketing mix
• Growth rates of economies being servedhighest in
  APAC, lowest in Europe

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Conclusions and Expectations

• Opportunitiesservice expansion highlighted in
  NA CEOs in other regions often focused on
  specific geographies as the best opportunities
• Regulatory complexitythis appears to be a much
  more significant problem in APAC than elsewhere
• Scale issuesin APAC many 3PLs are still
  attempting to achieve marketplace scale in other
  two regions many 3PLs are re-assessing their
  scale of operationis bigger necessarily better?

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Conclusions and Expectations

• What do we expect?
• Continued solid revenue growth in all three
  regions
• Increasing customer-selectivity and further
  customization by large 3PLs
• Standardization of service offerings by niche
  players to increase their market share of small
  to medium size customers
• Increased emphasis on risk-sharing and
  gain-sharing in 3PL contracts
• More parent company board scrutiny of 3PLs if
  price compression and margin erosion continue

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Conclusions and Expectations

• Significant increases in 3PL industry investment
  in recruiting, training and retention efforts
• Continuation of the consolidation movement in all
  three regions with post-acquisition integration
  issues demanding even more attention
• Differentiation pressures will increase to
  counter commoditization within the 3PL industry

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Questions?
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