Global 3PL Mergers & Acquisitions Examined by Armstrong & Associates

For the third straight year, Armstrong & Associates, Inc. (A&A) convened its Annual 3PL Value Creation Summit in Chicago recently to identify key global industry trends.

Investment specialists were also part of the blend, and contributed insights on how merger and acquisition (M&A) activity is reshaping the marketplace.

“There was a general feeling that Supply Chain Management is more important to corporations than ever before to mitigate risks and optimize supply chain networks,” observed Evan Armsrong, the consultancy's president.

AA chairman, Richard Armstrong, added that the rapid pace of 3PL M&A activity is showing no signs of slowing, although 2016 is expected to be dominated by mid- and small-sized deals versus the $100M+ deals seen last year.

“In the U.S., non-asset based 3PLs are still valued higher than asset based 3PLs, but asset based providers have seen an increase in the past three years,” he said.

Other key takeaways cited by AA include:

*There is interest in Asian 3PLs buying into the U.S. and 3PLs based in slower growth countries expanding into higher growth Asian and North American markets. 2015 has been dominated by size and scale M&A activity versus other strategic plays such as service portfolio, or vertical industry diversification.

*According to one source, strategic 3PL buyers are looking for companies which they can increase revenue by 3 to 4 times in 3 to 4 years. Cultural fit is important as well as the ability to expand a 3PLs existing operating network geographically, or add capabilities to its solutions set. Expanding into other vertical industries was also cited as another driver in strategic acquisitions.

*Almost all 3PL executives see future growth in Asia and North America continuing to outpace Europe. Most Asia 3PL growth will occur to support intra-Asia trade and distribution within Asian countries. Cross border e-commerce is a very hot market in China as increased wealth is driving the demand for products sourced in other countries.

*With Chinese labor rates increasing approximately 20 percent annually in some areas, nearshoring of manufacturing to Mexico from Asia is a significant trend in Automotive, High-Tech, and Industrial Manufacturing. Low oil prices are making the U.S. attractive to manufacturers with oil and gas manufacturing inputs.

*Reasons not to nearshore? Product from suppliers which are also heavily sold in local markets. The Chinese market is so large for many products, such as consumer electronics, that it makes sense to manufacture close to its regions of large demand and export to other countries. There is no need to dismantle the existing manufacturing footprint.

*The much hyped “mother of all carrier capacity shortages” is being addressed by U.S. shippers through increased use of domestic transportation managers to optimize mode/carrier selection, increased use of intermodal rail, increased carrier contracting, and use of more dedicated contract carriage. Allowing Federal Motor Carrier Safety Administration (FMCSA) licensed Mexican motor carriers to provide transportation services within the U.S., and not just part of international moves, could dramatically increase U.S. domestic carrier capacity.

*European trucking is competitive and commoditized. There are thousands of small, family-owned trucking companies. Large companies subcontract labor and carrier capacity. To get around specific country cabotage and work rules, most large transportation management 3PLs operate as freight forwarders in approaching inter-European transportation.

*Most European and U.S. based 3PLs have built relationships with universities to develop entry-level talent.

*The Prince Rupert, Canada port, with its efficient rail links to the U.S., was cited as a good alternative to Long Beach and a way to improve transit times for Asian imports.

*The uberization of transportation (UOT) applications may help short-haul trucking where empty mile percentages are higher versus long-haul lanes; however, the additional revenue will need to cover additional pickup, delivery, and driver costs, plus add to profits. Also, Department of Transportation (DOT) requirements need to be covered. Local courier work was seen to have more potential for UOT applications.

*Autonomous (self-driving) trucks could add carrier capacity in the not too distant future. Drones are being utilized to automate processes and can potentially deliver products to outlying areas. 3D printing could displace a lot of spare/service parts needs with local service people printing parts onsite at customer locations. Robotics is being deployed in manufacturing and in some warehousing operations with exceptional accuracy rates.

*Omnichannel retail is growing. Stores are becoming warehouses. Inventory optimization is key. E-commerce is changing consumer behavior. “Going to the mall just isn't as much fun.” A buy anywhere/return anywhere attitude is growing. Product variation in retail demand is leading to “stock keeping unit proliferation” with increased inventory management challenges.

In a panel moderated by Peerless Media, LLC, entitled “Innovation in the Americas,” it was noted that IT continues to be the driving force in this arena.

“Data is the new Oil,” said John Golob, chief executive officer of San Francisco-based Lanetix. “People are interconnected by systems more now than ever before.”

Other panelists agreed, noting that automated computer processes and machine learning will replace much clerical/data entry work in the future.

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