2019 Top 50 Third Party Logistics (3PL) providers: “Amazonization” driving change across the board

This is an excerpt of the original article. It was written for the July-August 2019 edition of Supply Chain Management Review. The full article is available to current subscribers.

July-August 2019

If you’re a long-time reader of Supply Chain Management Review, you’re familiar with Larry Lapide’s “Insights” column. Typically, Larry is writing about the many facets of planning, but occasionally, he takes on a provocative topic. One year, he questioned whether it was necessary to be a Top 25 supply chain leader, especially if in your industry, good enough gets the job done.

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On both the domestic and global front, the consolidation trend in the third-party logistics (3PL) industry remains a gathering storm—with record merger and acquisition activity being reported across all sectors. In fact, many of the more notable deals took place late last year as more 3PLs aim to keep pace with the continued “Amazonization” of the global market.

For example, MNX acquired Network Global Logistics, creating a market leader in time-critical logistics, while Penske bought Old Dominion Truck Leasing, expanding its core leasing business. The market also saw RoadOne buy First Coast Logistics, bolstering its drayage network as well as Transportation Insight acquiring Nolan Transportation Group in an effort to double down on its truck brokerage and freight management. And finally, Lineage bought a string of cold storage companies including Service Cold Storage in a bid to challenge Americold.

According to Benjamin Gordon, managing partner at Cambridge Capital and BG Strategic Advisors (BGSA), there's also the geographic 3PL expansion designed to speed up delivery times. Within the global context, it's important to observe that DSC Logistics was sold to South Korea's CJ Logistics,” he says. “We also witnessed CFI, formerly Con-Way Freight acquiring Optimal Freight, resulting in a truckload and asset-based 3PL expansion to improve cross-border trade in North America.”

Armstrong & Associates Top 50 U.S. 3PLs

*Revenues are company reported or Armstrong & Associates, Inc. estimates and have been converted to US$ using the average annual exchange rate in order to make non-currency related growth comparisons.
Copyright © 2019 Armstrong & Associates, Inc.

Armstrong & Associates Top 50 Global 3PLs 
 

In other global arenas, FedEx teamed up with Wirecard, providing payment processing and retail outlets in India and Germany. Meanwhile, AIT bought ConneXion World Cargo, bringing the UK-based forwarder into their fold. Panalpina added Skyservices in South Africa, with a focus on perishables, while Kerry Logistics went to Italy to buy Saga Italia, a specialist in oil and gas freight forwarding. Meanwhile, Kuehne + Nagel purchased Panatlantic Logistics in Ecuador.

Gordon maintains that shippers should also consider the changes made in other ground-based 3PL service sectors. “These came about as consequence of some obvious synergies,” he says. “BNSF bought Unlimited Freight, adding flatbed capabilities. Pilot purchased Manna, gaining a last-mile foothold in furniture. Ryder bought MXD, becoming the No. 2 player in big and bulky e-commerce, while the Hub Group bought CaseStack, combining intermodal logistics with asset-light warehousing.”

Trusting truckers is key, says TIA

According to a new whitepaper produced by Transportation Intermediaries Association (TIA), being a “shipper of choice” remains one of the most tired clichés in the current third-party logistics (3PL) market vernacular.

While hardly dismissing the value of having a special shipper relationship, the authors of “Creating a Win-Win-Win Business Relationship” maintain that 3PLs must nurture better partnerships with their motor carrier providers as well.

The expectations of shippers, 3PLs and carriers have traditionally moved in just one direction, states the TIA study. Results show that, in 2018, directional changes—made by both shippers and carriers—were made due to an industry-wide driver shortage and compliance with the electronic logging device (ELDs) rule. Increasingly, these factors changed the dialogue for all parties to meet driver expectations and to make the most of the 660 minutes of driving availability, the authors add.

Chris Burroughs, senior director of government affairs for the TIA, makes many of the same observations. He’s especially adamant about ongoing collaboration in the U.S. “On the domestic front, TIA has seen a fundamental shift in the past 12 months, as 3PLs continue to strive to provide exemplary customer service not only for shippers, but for their motor carriers as well,” he says.

“The customer today is buying drivers’ hours,” says Jim Ward, president and chief executive of D.M. Bowman, a full-service trucking and logistics provider based in Williamsport, Md. “We need to work with customers to best utilize time for the driving associate.”

In TIA’s “Win-Win” study, logistics managers reiterated the importance of trust, communication and loyalty by saying that those are the factors making it possible to solve today’s challenges—even more so than technology in many instances.

“You still need the human interface,” says J.J. Jones, chief supply chain officer of Monin Americas, a manufacturer of food and beverage flavorings with headquarters in Clearwater, Fla. “You need to talk to get things done.”

Meanwhile, other global merger and acquisition deals were technology-driven, says Gordon, who points to Project44 acquiring GateHouse, a Denmark-based business with European visibility data. Meanwhile, Australia-based WiseTech bought a string of U.S.-based customs brokerage technology companies.

Finally, there are the deals involving “logistics plus technology” to consider, says Gordon. “Yusen Logistics added ILG, gaining an e-commerce warehousing platform with more than 700 clients worldwide,” he says, “and FedEx bought UK-based P2P Mailing, providing e-commerce transportation solutions, and expanding FedEx’s cross-border capabilities.”

The APAC factor

While all of these plot lines are likely to continue to develop over the course of 2019, Gordon says that the Asian Pacific (APAC) region deserves its own category.

“Alibaba and its logistics subsidiary, Cainiao Network, invested $1.4 billion in last-mile logistics company ZTO Express,” says Gordon. “As large as this deal was, it was Alibaba’s third such deal, after YTO Express and Best. Keep in mind that JD.com made a $115 million investment in China’s second largest logistics real estate supplier, China Logistics Property Holdings.”

Evan Armstrong, president of the 3PL consultancy Armstrong & Associates, certainly agrees with Gordon’s assessment that China and the surrounding region will continue to demand considerable attention. “We see the APCA gaining even more traction, despite regulatory trade concerns,” he says.

At last year’s “3PL Value Creation Asia Summit” in Hong Kong, Armstrong and conference co-sponsor Global Supply Chain Council, reported that most global 3PLs identified China, India, and Southeast Asia as three of the key growth regions. “This certainly jibes with our current compounded annual market growth rate estimates of 11.4% for greater China, 11.6% for India, and 9% for Southeast Asia from 2017 to 2022,” says Armstrong.

According to Armstrong, it was noted that North India and South India are very different, with the North having better logistics infrastructure and higher growth. China’s Belt and Road Initiative (BRI) was also mentioned as having significant potential to drive growth over the next 10 years. “The new China-to-Europe railway was identified as a positive tailwind for future growth,” he says. “At the same time, investors are driving much of the current merger and acquisition activity versus strategic buyers.”

In Europe, which has a greater asset focus than the U.S., there are very few 3PLs of size worth buying, and Armstrong maintains that many are too small to be considered by strategic buyers. Meanwhile the U.S. is still dominated by investors buying non-asset based 3PLs and investing in new technologies to keep up with Amazon. Asia is seeing significant investment in cold-chain providers, e-commerce plays, and new logistics technologies.

“Buying warehousing infrastructure is becoming a way for investors to participate in 3PL market growth without direct investment,” says Armstrong. “And there’s a general desire for more collaboration between 3PLs. As I’ve mentioned before, this is ‘coopetition’ between 3PLs, where they partner with a logistics provider in some markets and compete with the same logistics provider in other markets. This is commonplace, especially in Asia.

Shipper requirements contained within the APAC are multicultural and quite challenging, Armstrong observes, saying that the issue is how to respond to this diversity and anticipate consumer needs. Major 3PLs are stressing targeted customer acquisitions. “The focus is now on targeting vertical industries and playing to a 3PL’s strengths to deliver value for customers,” he says. “Along with e-commerce, quality food distribution and chemicals were growth areas for warehousing and distribution in China. Apparel and footwear business is also growing well in China and throughout Southeast Asia.”

Within APAC, “a tailored approach” needs to be taken to achieve geographic growth. Depending on the country, expansion may mean making specialized approaches to working with governmental entities and with locals at many levels. Joint ventures and partnerships are commonplace. “We feel that China and the U.S. have been barking at each other for long enough, and that a good trade treaty will finally be negotiated this year,” concludes Armstrong.

The Amazon cunumdrum

The phenomenon of “Amazonization” refers to the wholesale disruption occurring across logistics and e-commerce platforms that was similar to the “Walmartization” that occurred across North America in the 1990s and early 2000s. Over the past 19 years, Amazon has more than quintupled in value.

Analysts for SJ Consulting Group, a Pittsburgh-based research and consulting firm, reckons that even though Amazon does not call itself a 3PL, it’s driving unprecedented change within the industry. Like Armstrong, the analysts at SJ believe that Amazon’s revenue model stemming from logistics services is “opaque.”

Mark D’Amico, SJ Consulting’s senior analyst, says that Amazon’s one-day shipping announcement made in April may have “a counterintuitive consequence” for some 3PL competitors, as it could create opportunities for them to grow in a market that was long stagnant. “In short, Amazon’s innovation and the customer expectations it drives are making ultimate success a question of who adapts quickest,” he adds.

Like Armstrong, D’Amico believes that managing data and investing in fulfillment solutions is no longer an option for 3PLs. “It’s a ‘do or die’ situation now,” he says. “Digitization is for real.”

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