As 3PLs emerge from two years of turmoil, how will providers adapt?
The 3PL market has gone through unprecedented disruption over the past two years. Now, the easing of Covid restrictions is in sight, private equity cash is abundant, and low unemployment and a strong economy continue to drive seemingly unstoppable freight volumes. What did 3PLs learn?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
Transportation and logistics workers—from the executive suite to professional drivers to the warehouse associates picking orders on the floor—have navigated a period of turmoil and disruption over the past two years unlike any the industry has seen before. “If ever there was a time where ‘survival of the fittest’ was an accurate description of the market, that was it,” says John Vaccaro, president of third-party service provider Bettaway Supply Chain Services, of the pandemic and the world’s journey through seemingly endless Covid mutations.
Yet even through all that turmoil, 3PLs (third-party logistics service providers) continued to step up to the plate, and in many cases delivered—and prospered—as never before, albeit not without overcoming new as well as traditional challenges. Along the way, 3PLs have discovered how they prepare and offer services, determine and price for value, and figure out what customers want—and are willing to pay for—is changing as well.
“It’s in the mindset,” says Vaccaro. “No one has ever talked this much about supply chain before. It used to be invisible,” he notes, adding that “the Covid disruption has affected folks in the supply chain the way the Great Depression affected our grandparents.” He believes the migration of companies from minimal inventory and just-in-time practices to emphasizing more robust inventories and deeper safety stocks is a permanent shift. “A lot of people were scarred by [the pandemic]. It changed their mentality, how they approach the business, and how they evaluate needs, assess risk.”
In some ways, the pandemic accelerated trends already under way: The boom in e-commerce, embraced now across all age demographics. Shifts to smaller, more frequent shipments. Redesigned distribution networks built for speed and velocity. Giant regional warehouses giving way to more smaller, localized warehouses in more places.
Vaccaro, based in New Jersey, shares an example: “For years, big box warehouses were going out to Harrisburg, Pennsylvania, two hours from New York City,” he recalls. “Now, we’re seeing them go up in New Jersey—30 miles from Manhattan. They want more [product] closer. It’s the Amazon effect. You have to fulfill and deliver in a day or less—whether it’s a parcel shipment or a truckload of beverages on pallets.”
IT’S NOT AN ARBITRAGE GAME ANYMORE
What do 3PLs need to do differently? How are they adapting to a market with sustained high demand for services; a critical lack of capacity, whether it be trucks, drivers, or warehouses and their workers; and shippers wanting faster and faster service?
“You can’t wrestle with the carrier to get low rates; it’s not an arbitrage game anymore” for 3PLs, says Satish Jindel, chief executive officer of analytics firm ShipMatrix. “The days of ‘What rates can you give me, Mr. Trucker?’ and then adding a big markup” are fading into history, he says.
Instead, Jindel advises shippers to take a critical look at their logistics and shipping operations, ask carriers to help them root out practices that add cost or reduce efficiency, and then work to eliminate those.
“Identify what you can control: What is it in your operation that adds cost or makes your freight unattractive to the carrier?” Jindel says every shipper’s network has some level of waste. Opportunities abound to eliminate that, he believes. “If the best way is by incurring a few extra dollars to better palletize or crate your shipment, then do that. It will reduce your LTL [less-than-truckload] charges by a larger amount.”
Tom Curee, senior vice president for strategy and innovation at nonasset-based 3PL Kingsgate Logistics, says that one unintended lesson many 3PLs learned was how quickly they can react to change. “We have had to radically and rapidly shift, particularly in how we buy capacity and manage carriers, and help customers make the most of scarce capacity,” he notes. “We have all seen the value of agility, and we’ve learned that when the market—and our customers—demand rapid change and adaptation, we can do it.”
He adds that in the current market, with capacity tight and prices at historic highs, another hard-earned lesson was to focus on optimizing each trailer. “Shippers are to the point where they recognize capacity is going to cost more. They’re not arguing over pennies. So, it’s not enough to tell them ‘I can find you a truck for this load.’ They want you to optimize the value of what is being moved and what you are spending for that truck,” Curee says. “Increasing trailer utilization by 10% to 15% has a huge impact on their capacity needs. That helps everyone across the supply chain.”
ENTER THE DEEP POCKETS
As the market evolves into its next iteration, certainly third-party logistics firms, as well as other intermediaries like freight brokers and logistics technology providers, have their fans. Including ones with cash looking to invest.
Despite the pandemic, the level of venture capital and private equity money flowing into 3PLs, trucking companies, and logistics tech startups has been stunning. What has made this market a magnet for investment cash, and what do these investors bring to the party?
For Geoff Turner, chief executive officer of 3PL and freight broker Choptank Transport, it was two opportunities: First, taking to the next level a company he and his team had spent 20 years building into a $300 million business, and second, access to what every 3PL wants, especially today: more reliable capacity.
Choptank was acquired last fall by David Yeager’s Hub Group, one of the nation’s biggest transportation companies.
“As a nonasset-based 3PL, your scope is somewhat limited,” Turner says. “What our customers have been telling us repeatedly is that they want us to do more, provide more services, and operate in more modes,” he explains. “Now, as part of The Hub Group, we have a logistics platform, intermodal, and over-the-road both dry and reefer, so we can provide a lot more capacity and more complete solutions. It was the right time for the right partner,” he says.
He also cites one other benefit on the brokerage side. Combining Choptank’s brokerage volumes with Hub’s created a brokerage operation with over $1 billion in revenue, providing scale and critical mass that enable it to offer truckers more quality freight in more of their preferred lanes.
FINDING THE SWEET SPOT
Private equity investors, through their infusion of cash, can help accelerate growth for a 3PL as well as expand it into complementary verticals that, as in Choptank’s case, broaden its capabilities and solution set. But that’s not the only advantage they bring to the table.
Bob Bianco, operating partner at private equity firm Calera Capital, notes that the value his firm brings when it invests goes beyond capital and financial acumen. Strategic insight, experience, and subject matter expertise are just as valuable, if not more so. Prior to joining Calera Capital, Bianco spent 30 years with Menlo Logistics and was its president at the time the company was acquired by XPO Logistics several years ago.
“We focus on asset-light companies that are founder- or family-owned; we want to be their first private equity partner,” Bianco says, noting that it can often be difficult for these firms to access cost-effective capital and develop a workable strategy for expansion. One of Calera’s sweet spots is in the supply chain space, particularly mid-market firms in transportation management and freight brokerage. The company has a long history of partnering with company founders and owners in these specific market segments.
Bianco describes an attractive candidate as one that has a track record of growth and success, an excellent workforce culture, and a focus on specialized or differentiated services. “We’re not competing in the commoditized logistics space,” he emphasizes. “We like companies that have great employee retention and low turnover in their customer base.” A private equity partner, he adds, with its experience acquiring companies, also can help a founder expand the business through targeted, strategic acquisitions.
What’s top of mind with the chief executives that Bianco works with? “Getting skilled, qualified workers and retaining them. That’s their biggest battle,” he says. “We’re dealing with the highest wage inflation in 30 years. That has a ripple effect that goes right into the prices you’re asking the customer to pay.”
IT’S STILL ABOUT THE PEOPLE
Dave Beatson, principal at private equity firm ATL Partners, shares some similar observations. A long-time industry executive, Beatson has helmed several logistics software startups and, earlier in his career, was chief executive officer of global freight forwarder Circle International and president of the venerable aircargo pioneer Emery Air Freight during its time under CNF Inc.
One of ATL’s portfolio companies is Pilot Freight Services, a leading player in U.S. last-mile delivery. Over the course of its ownership of Pilot, ATL helped strengthen the company with acquisitions that gave Pilot “middle-mile” capabilities, as well as expanded its last-mile white-glove service capacity. Investments also were made in Pilot’s tech platform that drove better service and efficiency. The strategy enabled Pilot to grow significantly, deliver consistent profitability, and solidify its position as one of the nation’s top three providers of final-mile delivery and logistics services.
The plan worked; Pilot drew the attention of ocean shipping behemoth Maersk, which has announced that it is acquiring the last-mile service provider as a strategic move to bolster its U.S. logistics capabilities.
Success with any private equity investment starts with “good people who are good at what they do and understand the market and what customers are looking for,” Beatson says. “And a strong work ethic and a culture where people are paid and incentivized in the right way.” Also important is “the ability to help management identify and act in a timely manner on strategic opportunities … in new verticals or with other services customers want that complement your core competency,” he says. Lastly, Beatson invokes an old truism: “You have to be close to your customers” and listen to them through regular conversations and feedback.
THROWING DARTS
Not everyone is of the opinion that the flood of cash flowing into logistics and supply chain is necessarily a good thing. “What venture capital people are doing I would not do at all,” says ShipMatrix’s Jindel. “They are destroying the market, throwing money at anything that moves.” His view is that the principal strategy of many venture capital firms is to emphasize growth at any cost, not worry about profitability, and “keep throwing money at it until the valuation reaches a point where they can sell and cash out.” It’s like “throwing darts at a target and if one [hits the mark], then forget about all the others that missed,” he adds.
He contrasts that to the approach of private equity investors, who in his view, “are investing in a business that is going to be solving a problem for the customer.” Jindel characterizes this approach as “investing correctly in businesses that have a good operating model, are delivering measurable value, and are making a profit. The private equity firm becomes a long-term partner in growing that business and helping it expand into more services and new customers.”
What’s the most critical asset a 3PL needs to succeed? Jindel believes it is an active, assertive sales force that’s educated, that’s informed on current and emerging trends, and that combines a consultative approach with accurate data and intelligence to help shippers make the best decisions. And who don’t try to fit the shipper into a predetermined solution.
At the end of the day, regardless of the mode, Jindel says, “You have to know more about [the market] than me as a customer. Otherwise, why do I need you?”
Third-party logistics (3PL) providers’ share of large real estate leases across the U.S. rose significantly through the third quarter of 2024 compared to the same time last year, as more retailers and wholesalers have been outsourcing their warehouse and distribution operations to 3PLs, according to a report from real estate firm CBRE.
Specifically, 3PLs’ share of bulk industrial leasing activity—covering leases of 100,000 square feet or more—rose to 34.1% through Q3 of this year from 30.6% through Q3 last year. By raw numbers, 3PLs have accounted for 498 bulk leases so far this year, up by 9% from the 457 at this time last year.
By category, 3PLs’ share of 34.1% ranked above other occupier types such as: general retail and wholesale (26.6), food and beverage (9.0), automobiles, tires, and parts (7.9), manufacturing (6.2), building materials and construction (5.6), e-commerce only (5.6), medical (2.7), and undisclosed (2.3).
On a quarterly basis, bulk leasing by 3PLs has steadily increased this year, reversing the steadily decreasing trend of 2023. CBRE pointed to three main reasons for that resurgence:
Import Flexibility. Labor disruptions, extreme weather patterns, and geopolitical uncertainty have led many companies to diversify their import locations. Using 3PLs allows for more inventory flexibility, a key component to retailer success in times of uncertainty.
Capital Allocation/Preservation. Warehousing and distribution of goods is expensive, draining capital resources for transportation costs, rent, or labor. But outsourcing to 3PLs provides companies with more flexibility to increase or decrease their inventories without any risk of signing their own lease commitments. And using a 3PL also allows companies to switch supply chain costs from capital to operational expenses.
Focus on Core Competency. Outsourcing their logistics operations to 3PLs allows companies to focus on core business competencies that drive revenue, such as product development, sales, and customer service.
Looking into the future, these same trends will continue to drive 3PL warehouse demand, CBRE said. Economic, geopolitical and supply chain uncertainty will remain prevalent in the coming quarters but will not diminish the need to effectively manage inventory levels.
In a push to automate manufacturing processes, businesses around the world have turned to robots—the latest figures from the Germany-based International Federation of Robotics (IFR) indicate that there are now 4,281,585 robot units operating in factories worldwide, a 10% jump over the previous year. And the pace of robotic adoption isn’t slowing: Annual installations in 2023 exceeded half a million units for the third consecutive year, the IFR said in its “World Robotics 2024 Report.”
As for where those robotic adoptions took place, the IFR says 70% of all newly deployed robots in 2023 were installed in Asia (with China alone accounting for over half of all global installations), 17% in Europe, and 10% in the Americas. Here’s a look at the numbers for several countries profiled in the report (along with the percentage change from 2022).
Sean Webb’s background is in finance, not package engineering, but he sees that as a plus—particularly when it comes to explaining the financial benefits of automated packaging to clients. Webb is currently vice president of national accounts at Sparck Technologies, a company that manufactures automated solutions that produce right-sized packaging, where he is responsible for the sales and operational teams. Prior to joining Sparck, he worked in the financial sector for PEAK6, E*Trade, and ATD, including experience as an equity trader.
Webb holds a bachelor’s degree from Michigan State and an MBA in finance from Western Michigan University.
Q: How would you describe the current state of the packaging industry?
A: The packaging and e-commerce industries are rapidly evolving, driven by shifting consumer preferences, technological advancements, and a heightened focus on sustainability. The packaging sector is increasingly prioritizing eco-friendly materials to reduce waste, while integrating smart technologies and customizable solutions to enhance brand engagement.
The e-commerce industry continues to expand, fueled by the convenience of online shopping and accelerated by the pandemic. Advances in artificial intelligence and augmented reality are enhancing the online shopping experience, while consumer expectations for fast delivery and seamless transactions are reshaping logistics and operations.
In addition, with the growth in environmental and sustainability regulatory initiatives—like Extended Producer Responsibility (EPR) laws and a New Jersey bill that would require retailers to use right-sized shipping boxes—right-sized packaging is playing a crucial role in reducing packaging waste and box volume.
Q: You came from the financial and equity markets. How has that been an advantage in your work as an executive at Sparck?
A: My background has allowed me to effectively communicate the incredible ROI [return on investment] and value that right-size automated packaging provides in a way that financial teams understand. Investment in this technology provides significant labor, transportation, and material savings that typically deliver a positive ROI in six to 18 months.
Q: What are the advantages to using automated right-sized packaging equipment?
A: By automating the packaging process to create right-sized boxes, facilities can boost productivity by streamlining operations and reducing manual handling. This leads to greater operational efficiency as automated systems handle tasks with precision and speed, minimizing downtime.
The use of right-sized packaging also results in substantial labor savings, as less labor is required for packaging tasks. In addition, these systems support scalability, allowing facilities to easily adapt to increased order volumes and evolving needs without compromising performance.
Q: How can automation help ease the labor problems associated with time-consuming pack-out operations?
A: Not only has the cost of labor increased dramatically, but finding a consistent labor force to keep up with the constant fluctuations around peak seasons is very challenging. Typically, one manual laborer can pack at a rate of 20 to 35 packages per hour. Our CVP automated packaging solution can pack up to 1,100 orders per hour utilizing a fully integrated system. This system not only creates a right-sized box, but also accurately weighs it, captures its dimensions, and adds the necessary carrier information.
Q: Beyond material savings, are there other advantages for transportation and warehouse functions in using right-sized packaging?
A: Yes. By creating smaller boxes, right-sizing enables more parcels to fit on a truck, leading to significant shipping and transportation savings. This also results in reduced CO2 emissions, as fewer truckloads are required. In addition, parcels with right-sized packaging are less prone to damage, and automation helps minimize errors.
In a warehouse setting, smaller packages are easier to convey and sort. Using a fully integrated system that combines multiple functions into a smaller footprint can also lead to operational space savings.
Q: Can you share any details on the typical ROI and the savings associated with packaging automation?
A: Three-dimensional right-sized packaging automation boosts productivity significantly, leading to increased overall revenue. Labor savings average 88%, and transportation savings accrue with each right-sized box. In addition, material savings from less wasteful use of corrugated packaging enhance the return on investment for companies. Together, these typically deliver returns in under 18 months, with some projects achieving ROI in as little as six months. These savings can total millions of dollars for businesses.
Q: How can facility managers convince corporate executives that automated packaging technology is a good investment for their operation?
A: We like to take a data-driven approach and utilize the actual data from the customer to understand the right fit. Using those results, we utilize our ROI tool to accurately project the savings, ROI, IRR (internal rate of return), and NPV (net present value) that facility managers can then use to [elicit] the support needed to make a good investment for their operation.
Q: Could you talk a little about the enhancements you’ve recently made to your automated solutions?
A: Sparck has introduced a number of enhancements to its packaging solutions, including fluting corrugate that supports packages of various weights and sizes, allowing the production of ultra-slim boxes with a minimum height of 28mm (1.1 inches). This innovation revolutionizes e-commerce packaging by enabling smaller parcels to fit through most European mailboxes, optimizing space in transit and increasing throughput rates for automated orders.
In addition, Sparck’s new real-time data monitoring tools provide detailed machine performance insights through various software solutions, allowing businesses to manage and optimize their packaging operations. These developments offer significant delivery performance improvements and cost savings globally.
Mid-marketorganizations are confident that adopting AI applications can deliver up to fourfold returns within 12 months, but first they have to get over obstacles like gaps in workforce readiness, data governance, and tech infrastructure, according to a study from Seattle consulting firm Avanade.
The report found that 85% of businesses are expressing concern over losing competitive ground without rapid AI adoption, and 53% of them expect to increase their budgets for gen AI projects by up to 25%. But despite that enthusiasm, nearly half are stuck at business case (48%) or proof of concept (44%) stage.
The results come from “Avanade Trendlines: AI Value Report 2025,” which includes two surveys conducted by the market research firms McGuire Research Services and Vanson Bourne. Conducted in in August and September 2024, they encompass responses from a total of 4,100 IT decision makers and senior business decision makers across Australia, Brazil, France, Germany, Italy, Japan, Netherlands, Spain, UK, and US.
Additional results showed that 76% of respondents state that poor data quality and governance inhibits their AI progress. To overcome that, companies are stepping up investments in that area, with 44% planning to implement new data platforms and 41% setting governance standards. And to support the scaling of AI, budgets will focus on data and analytics (27%), automation (17%), and security and cyber resilience (15%).
"Mid-market leaders are at a defining moment with AI—where investments must not only boost efficiency but ignite future innovation and sustainable growth," Rodrigo Caserta, CEO of Avanade, said in a release. "The tension between cost-cutting and growth ambitions shows the AI value equation is still being worked out. Productivity with AI isn't just about doing things faster; it's about reimagining work itself. People are central to this shift, requiring workforce alignment, clear communication, and new training. Leaders must rethink how they support collaboration, measure productivity, and ultimately, assess the true value AI brings to their organizations."
Editor's note:This article was revised on November 13 to correct the site of Avanade's headquarters; it is located in Seattle.
That result came from the company’s “GEP Global Supply Chain Volatility Index,” an indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses. The October index number was -0.39, which was up only slightly from its level of -0.43 in September.
Researchers found a steep rise in slack across North American supply chains due to declining factory activity in the U.S. In fact, purchasing managers at U.S. manufacturers made their strongest cutbacks to buying volumes in nearly a year and a half, indicating that factories in the world's largest economy are preparing for lower production volumes, GEP said.
Elsewhere, suppliers feeding Asia also reported spare capacity in October, albeit to a lesser degree than seen in Western markets. Europe's industrial plight remained a key feature of the data in October, as vendor capacity was significantly underutilized, reflecting a continuation of subdued demand in key manufacturing hubs across the continent.
"We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers," Todd Bremer, vice president, GEP, said in a release. "President-elect Trump inherits U.S. manufacturers with plenty of spare capacity while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia."