Logistics lines blurring: report predicts growth in integrated logistics services, with technology having large impact. (Logistics).(Brief Article)

The market for logistics business process outsourcing, or BPO, which encompasses the physical flow of products as well as the information and processes that go with it, will increase at a five-year compound annual growth rate of 17 percent to $380.7 billion by 2006, according to a report entitled "Worldwide Logistics BPO Forecast and Analysis, 2002-2006" by Framingham, Mass.-based research firm IDC.

Familiar market drivers such as globalization are behind the growth but there also are new factors such as the emergence of stronger e-logistics players. As shippers demand a broader portfolio of services and third-party providers strive to keep pace with changing demand, "it will become increasingly difficult to categorize logistics service providers by their functional expertise," said IDC.

Over the last year or so service providers have expanded their offerings across the supply chain, moving into areas such as asset planning and event management. They also are looking to exploit new opportunities in consulting and lead logistics provider contracts. The report said market leaders such as United Parcel Service, FedEx, Exel and TNT Logistics have invested in integrated logistics services and are changing buyer expectations. Buyer demands have changed as well. "The emphasis has shifted to planning and execution' said IDO analyst Romala Ravi, program manager for the report.

Technology is playing a crucial role in this changing market. "Advances in technology and the Internet are having a profound impact on the demand for and supply of logistics outsourcing services," said the report. Global service providers are investing heavily in IT, and the emergence of e-logistics companies also underlines the importance of technology.

According to Ravi, companies in the elogistics space, which she defined as "web-enabled logistics," have become more competitive and are challenging established logistics BPO providers. For example, by offering hosted applications, elogistics vendors bring new options to shippers. Some players, such as Schneider Logistics, are offering both traditional and web-enabled hosted services. "Everybody now is trying to get in on the act," she said. Buyers can sample ASP services relatively easily and cheaply by paying on a per-transaction basis. "That's where you have more players now, and that could eat into the market share of BPO players," she said.

That throws up some challenges for logistics software vendors. "Software companies like Manugistics and i2 are seeing their license revenue go down and are trying to strengthen their services business," Ravi observed. But this is a different business model with different revenue streams. "The big question is how the pure software vendors and ASP vendors are converging," she said.

Another area of convergence is consulting. Major logistics players such as Menlo have been expanding their consulting practices for some time. This trend is accelerating as large shippers demand a wider array of services from their outsourcing partners. The recent launch of UPS Supply Chain Solutions, the consultancy arm of UPS, is one manifestation of this trend, Ravi pointed out. At the same time, consultants are competing for a slice of the outsourced logistics services market. She said an example of this is the "Connection to eBay" service launched recently by Accenture and eBay whereby the consulting firm will handle reverse logistics business associated with the online auction. "Both groups of companies are moving into each other's traditional spaces," said Ravi.