Large acquisitions are dominating the 3PL market landscape. In January, FedEx purchased GENCO, a high quality, value-added warehousing and distribution (VAWD) third-party logistics provider, for $2 billion. In the spring of 2015, Norbert Dentressangle sold itself to XPO Logistics for $3.5 billion after purchasing top-three North American VAWD provider Jacobson Companies in 2014.
Asia Pacific (APAC) acquisitions have also been significant deals. The biggest is Japan Post’s pending acquisition of Toll Group for more than $5 billion. Australia-based Toll had extensive operations through APAC including Southeast Asia and extending into India.
Japan Post made a decision to become a major logistics player and dove in. The multiple was 9.1-times earnings before interest, taxes, depreciation and amortization (EBITDA) for Toll’s mixed operations.
Another major deal was Neptune Orient Line’s (NOL) divesture of APL Logistics (APLL). Kintetsu World Express, a major international transportation management based 3PL, completed the deal on May 29.
These deals are reflective of a 3PL market that is now dominated by around 50 providers based in post-industrial countries. These 3PLs have scale based on geographical coverage, IT and processes that create threshold levels which bar smaller rivals from overtaking them with organic growth alone.
U.S. 3PL MARKET
Due to the expanded 3PL market size (“Law of Large Numbers”) and global economic vacillations, the 3PL sector’s growth continues in single digits. From 2013 to 2014, the U.S. 3PL market gross revenues grew 7.4 percent, or $10.8 billion.
The “Law of Large Numbers” comes into play by comparing the year-over-year growth in 2006 and 2014. From 2005 to 2006, the market grew $9.9 billion or 9.5 percent. However, when the market grew $10.8 billion from 2013 to 2014, it translates to only 7.4 percent growth since the market was much larger in 2013 than in 2005.
Two U.S. 3PL market segments experienced double-digit growth in 2014. Both were domestic segments reflecting U.S. economic growth. Non-asset based domestic transportation management (DTM) gross revenues grew 15.4 percent, while net revenues grew 20.5 percent. Dedicated contract carriage (DCC) gross and net revenues both increased by 10.4 percent. DTM is the modern and sophisticated offspring of freight brokerage. DCC provides dedicated truck capacity in a market often dominated by tractor shortages which are driven by a lack of drivers. The American Trucking Associations (ATA) has estimated that the U.S. trucking market has a shortage of 35,000-45,000 drivers. DCC is a primary protection mechanism for shippers when demand outpaces supply.
Value-added warehousing and distribution grew in step with U.S. gross domestic product (GDP) at a rate of 2.5 percent. International transportation management, the more modern, value-added and high-tech answer to freight forwarding, grew by 2.2 percent, reflecting the continuing global economic malaise.
Armstrong & Associates, Inc. is a supply chain management market research and consulting firm specializing in strategic planning, logistics outsourcing, competitive benchmarking, mergers and acquisitions, 3PL service/cost benchmarking, and supply chain systems evaluation and selection.