Merger and acquisition activity among North American third-party logistics (3PL) providers will likely continue as acquiring firms look to defend their market share in an ongoing climate of consolidation, according to Northeastern University's 22nd annual survey of top 3PL executives.
The survey, which polled 30 CEOs of multinational 3PLs, found that several North American executives expected their companies to become acquisition targets. The executives weren't identified in keeping with the longstanding tradition of maintaining strict confidentiality. Of the 30 executives, 15 were from North America, 10 from Europe, and five from the Asia-Pacific region. Given the sizes of the companies they lead, the executives polled have their collective pulse on billions of dollars of transport and logistics spending.
Only three of the 10 European executives said M&A activity has affected their business. However, several said that Greenwich, Conn.-based XPO Logistics Inc.'s US$3.5 billion acquisition in April of French transport and logistics firm Norbert Dentressangle S.A., will likely have a profound impact on the continent's 3PL landscape.
This was the first time in the survey's history that M&A made the short list of European 3PL executives' main concerns, according to Dr. Robert C. Lieb, professor of supply chain management at Boston-based Northeastern. Lieb conducted the research for the survey, which was sponsored by 3PL Penske Logistics.
The respondents said the merger wave is being driven by providers' desire to increase scale and broaden global service offerings. It is also being aided by the availability of inexpensive capital, as interest rates remain historically low and liquidity reasonably abundant. "More customers are asking for 'one-stop' service beginning from design and production to delivery and reverse logistics," said Joseph Carlier, senior vice president of global sales for Penske Logistics, in a recent interview with CSCMP's Supply Chain Quarterly, DC Velocity's sister publication. "This is not just a matter of scale. The question for us is: How do we extend our product offerings on a strategic level?"/
The study's primary goal is to query 3PL CEOs about industry challenges, opportunities, and market dynamics, as well as profitability and revenue growth for individual 3PLs and for the regional industry. The key issues cited by executives are often specific to their regions. For example, North American executives cite issues such as the shortage of qualified commercial truck drivers, productivity concerns at U.S. West Coast ports, and the trend toward nearshoring of manufacturing. European executives are most concerned about Russian economic sanctions, more emphasis on 3PL alliances in developing countries, and an inflexible workforce. Asia-Pacific executives emphasized the steady growth of intra-Asia trade, infrastructure problems in developing countries, and economic developments in China.
However, three stood out as near-universal concerns: The impact of M&A, e-commerce, and new sources of competition. In North America, e-commerce accounts for about 12 percent of 3PL revenues on average, and respondents forecast that will grow to 21 percent in three years. European respondents generate some 5 percent of their revenues from e-commerce clients, which they expect to grow to 9 percent in three years. In the Asia-Pacific, e-commerce revenues now account for 10 percent of the 3PL revenue base, and the CEOs forecast that will more than double to about 24 percent in three years.
Accordingly, the 3PLs are taking steps to boost their ability to serve e-commerce clients. Respondents in all regions said they are upgrading their information technology to support this business segment. Many are investing in physical infrastructure, such as heavily automated distribution centers. North American respondents also mentioned that they are developing dedicated e-commerce operations and linked technology as well as expanded e-commerce consulting. Europeans are establishing new locations for consumers to pick up packages and are expanding international operations and value-added warehousing for e-commerce clients. Those in Asia-Pacific also are focusing on integrating domestic and international warehousing services and adding rapid delivery, parcel, and high-volume returns services to their portfolios.
E-commerce is bringing 3PLs into direct competition with the likes of Seattle-based Amazon.com, Chinese e-commerce firm Alibaba, and the San Francisco-based car service Uber. Six North American CEOs and four of the Europeans cited Uber, which is in talks with major retailers to provide delivery services, as a potential threat in the "last mile" delivery segment, Lieb said. A key question is whether Uber would be subject to the regulatory requirements that currently apply to 3PLs, parcel companies, and motor carriers, according to Carlier of Penske Logistics.
Respondents also identified Amazon as a competitive threat. When asked about Amazon's impact on the e-commerce marketplace, North American respondents mentioned an increased focus on same-day delivery, its expansion into multiple distribution channels, domination of small last-mile competitors, and the e-tailing and fulfillment giant generating so much volume in peak season that it can be difficult for others to get the services they need. European respondents said that Amazon is increasingly emphasizing same-day delivery, driving down transportation costs, and pressuring carriers to reduce cross-border premiums. At the same time, Amazon is developing more relationships with European 3PLs for last-mile delivery.
In Asia-Pacific, Alibaba is the big concern. Asked to identify Alibaba's impact on supply chain management in the region, respondents said the e-commerce behemoth provides customers with alternative methods of distribution for their products, offers consolidation services for small and medium-size businesses, and uses its market power to get lower rates from carriers, 3PLs, and government-owned warehouses. On the plus side, its last-mile delivery services have facilitated the rapid growth of e-commerce in the region, they said. None of the 3PLs involved in the survey provides services to Alibaba.
Overall, respondents were optimistic about the future, although not quite as bullish as they were last year, Lieb said. North American CEOs said the most important opportunities for 3PLs in their region are supporting the growth of nearshoring, expanding services for e-commerce businesses, retaining truck drivers, becoming more selective about markets served, going upstream in supply chains, and placing greater focus on intermodal services. In Europe, respondents said that 3PLs could bundle services for existing customers, support e-commerce sales, expand their global reach, focus on expanding into more profitable markets and trade lanes, provide data-management services to customers, and offer more services to small/medium customers. In Asia-Pacific, respondents mentioned the expansion of services in emerging markets, opportunities in health care, the provision of "lead logistics provider" services, assisting customers with network design, and bundling services for existing customers.