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  November 10th, 2015 | Written by

Logistics Providers, Shippers, Investors Offer Insights at Armstrong & Associates Summit

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  • 3PLs that practice cost cutting to drive short-term profits are frowned upon by private equity.
  • 3PL buyers are looking for companies which they can increase revenue by three to four times in as many years.
  • Allowing Mexican truckers to provide services within the U.S. could increase domestic carrier capacity.
  • Local courier work was seen to have the most potential for Uber-like trucking applications.

The rapid pace of 3PL merger and acquisition activity is showing no signs of slowing. However, 2016 is expected to be dominated by mid- and small-sized deals versus the $100 million-plus deals which were seen in 2015. In the U.S., non-asset based 3PLs are still valued higher than asset based 3PLs, but asset based providers have seen an increase in the past three years.

Those were some of the insights offered at the Armstrong & Associates, Inc. Third Annual 3PL Value Creation Summit in Chicago last week.

Private equity likes to see solid management, revenue, and earnings growth, and a solid business model when evaluating companies, some of the panelists noted. Companies where external capital can be used for expansion, or to fill operational gaps such as IT, are favored. Those with lofty future revenue projections and those who practice cost cutting to drive short-term profits, are frowned upon.

This year has been dominated by size and scale M&A activity versus other strategic plays such as service portfolio, or vertical industry diversification. There is interest in Asian 3PLs buying into the U.S. and 3PLs based in slower growth countries expanding into higher growth Asian and North American markets.  According to one source, strategic 3PL buyers are looking for companies which they can increase revenue by three to four times in as many years. Cultural fit is important as well as the ability to expand a 3PL’s existing operating network geographically, or add capabilities to its solutions set. Expanding into other vertical industries was also cited as another driver in strategic acquisitions.

Almost all 3PL executives see future growth in Asia and North America continuing to outpace Europe. Most Asia 3PL growth will occur to support intra-Asia trade and distribution within Asian countries. Cross border ecommerce is a very hot market in China as increased wealth is driving the demand for products sourced in other countries.

With Chinese labor rates increasing 20 percent per year in some areas, nearshoring of manufacturing to Mexico from Asia is a significant trend in automotive, high tech, and industrial manufacturing. Low oil prices are making the U.S. attractive to manufacturers with oil and gas manufacturing inputs.

There was a general feeling that supply-chain management is more important to corporations than ever before to mitigate risks and optimize supply chain networks.

The much hyped “mother of all carrier capacity shortages” is being addressed by U.S. shippers through increased use of domestic transportation managers to optimize mod and carrier selection, increase use of intermodal rail, increase carrier contracting, and use of more dedicated contract carriage. Allowing Federal Motor Carrier Safety Administration (FMCSA) licensed Mexican motor carriers to provide transportation services within the U.S. could dramatically increase U.S. domestic carrier capacity.

The uberization of transportation applications may help short-haul trucking where empty mile percentages are higher versus long-haul lanes. However, the additional revenue will need to cover additional pickup, delivery, and driver costs, plus add to profits. Local courier work was seen to have more potential for Uber-like trucking applications.