For nearly 25 years, Transplace, a third-party logistics service provider (3PL) based in the Dallas suburb of Frisco, Texas, has carved out a successful living in North America. Transplace's home market remains robust, with at least five years of abundant opportunities left to it, said Frank McGuigan, the company's president and chief operating officer.
Yet when the privately held company looked for a new owner after its private equity fund parent made plans to sell, it had more than North America on its mind. Transplace wanted a buyer to have a global network should it decide to expand beyond North America, a scenario that Transplace has discussed with many customers who want it to go global, McGuigan said.
In mid-August, Transplace's parent, Greenbriar Capital, sold it to private equity behemoth TPG, a $73 billion company with 16 offices worldwide. Transplace will leverage TPG's capital and footprint to make selective acquisitions, though McGuigan said there is no concrete plan for the company to make international deals.
Two years before, the transport and logistics services powerhouse XPO Logistics Inc. pursued Jacobson Cos., a U.S.-based contract logistics, transport management, and packaging company, but lost out to French trucking and logistics company Norbert Dentressangle S.A. XPO Chairman and Chief Executive Officer Brad Jacobs knew little or nothing about the company that had prevailed over his. "I had trouble even pronouncing it at first," he said.
However, as Jacobs analyzed Dentressangle's business, he realized the two companies were mirror images of each other. Less than a year later, Greenwich, Conn.-based XPO acquired Lyon-based Dentressangle in a $3.5 billion deal that would become the springboard for XPO's European expansion. Today, the company operates in 31 countries and is plotting additional overseas moves by leveraging an $8 billion war chest generated from a recent secondary equity offering.
Jacobs said XPO would have eventually gone global because its multinational customer base would have demanded it. But those plans weren't on the drawing board in mid-2015. The Dentressangle deal was "completely opportunistic," he said.
THERE FOR THE TAKING?Not every U.S. 3PL has access to private equity as Transplace does or deep internal resources like XPO's. Nor is every 3PL like giant C.H. Robinson Worldwide Inc., which in 2012 acquired Phoenix International, an international freight forwarder and customs broker, for $635 million—a move that overnight more than doubled the revenue of Robinson's global forwarding unit—and then followed it up last year by buying Australian 3PL APC Logistics for $225 million.
Yet that shouldn't stop 3PLs of all sizes from casting their nets outside the U.S., because that's where the growth is, according to Evan Armstrong, president of consultancy Armstrong & Associates Inc. According to Armstrong data, China, India, Russia, and the Asia-Pacific will generates the highest growth rates for 3PL services from 2016 through 2022, expanding at an annual compound rate of 8 percent a year during that time. By contrast, the North American market is projected to grow by 5.2 percent a year through 2022, Armstrong said.
As Asian consumers accumulate wealth and increase their consumption, services are shifting to support intraregional ground distribution and away from export-related activity, Armstrong said. "3PLs providing value-added warehousing and distribution, and cross-border transportation management services in these countries are experiencing significant growth," he wrote in a note.
Another reason to go abroad is that expansion-minded customers will want their service partners to be in as many markets as possible, Jacobs said. Large global accounts will, almost by definition, be off-limits to providers whose geographies don't align with their clients', he added.
U.S. firms not operating outside North America "should listen to their customers and find ways to leverage operational strengths" to enlarge their footprint, Armstrong urged. That will usually mean an acquisition versus organic growth, he said.
That is all very well, but for small to mid-sized U.S. 3PLs with champagne tastes and (perhaps) beer budgets, jumping into global markets presents a bevy of challenges. Unlike the homogeneity of U.S. commerce, working in global markets means multiple customs borders, languages, cultures, and currencies.
Going abroad also means butting heads with a raft of seasoned competitors. For example, European-based 3PLs like Panalpina, DHL Global Forwarding, Kuehne + Nagel, Schenker, and Ceva Logistics have decades of experience serving global markets and have the resources to go, without much friction, where customer demand takes them.
U.S. 3PLs should also know that while Europe's transport and distribution infrastructure is more unified than ever, there are still differences among the continent's trading partners that could affect operations, said Alex LeRoy, a 3PL analyst for Transport Intelligence, a U.K. consultancy. LeRoy said the European 3PL market may be too established and saturated for U.S. firms to break into and advised them to focus on the Asia-Pacific marketplace, which is not nearly as mature and where the growth rates are "so inviting that you can't ignore it."
HELP ON THE GROUNDTo ease their way into unfamiliar markets, 3PLs sometimes turn to outside help. Matson Logistics, the North American 3PL unit of liner company Matson Shipping, will often enter international markets through a relationship with a local agent with existing operations, said Jeffrey Ivinski, director of supply chain marketing and sales for the Concord, Calif.-based company. Once Matson Logistics gains experience and volume with a market, it may look to structure its own entity and on-the-ground presence in that location, Ivinski said.
Using an agent appears a prudent step for a newcomer, but it carries its own risks, according to Mike Short, president of C.H. Robinson's global forwarding unit. Because most agents don't work exclusively for one 3PL, a company entering a market is not going to be the agent's sole focus, Short said. Without a commitment to exclusivity on an agent's part, a 3PL without a physical presence in a foreign land may not have the visibility into its business there that it needs, Short said.
The arena of customs compliance, where failure to meet complex and precise government requirements can result in hefty penalties and delayed shipments, is where agents can stumble, Short said. Ongoing training and education is essential for proper compliance, yet agents cannot devote their full training efforts to one 3PL, according to Short. Robinson employs a staff of 80 full-time compliance educators and trainers, backed by a team of auditors, Short said. This gives Robinson the "boots on the ground" needed to facilitate the penetration of overseas markets, he said.
Jacobs of XPO said a U.S. 3PL seeking to go abroad should be led by executives seasoned in the ways of global commerce. This is an important step to developing a "global approach" that promotes the concept of a single brand that's bringing a coherent message to market, which is why XPO is unlikely to seek out agents as it expands its international presence, according to Jacobs.
A guiding principle for 3PLs to follow is to apply overseas the unique capabilities that made them competitive in the U.S., said Paul Man, head of North Asia for APL Logistics, a Singapore-based 3PL that has served the U.S. since 1980. Man said 3PLs will need to properly segment their market and then deliver value-added solutions to appeal to a new customer base. That may sound like 3PL 101, yet it's a universal philosophy that is likely to work in any geography.
