The Changing Face of 3rd Party Logistics
Originally published in Supply Chain Management Review
The third party logistics (3PL) industry is undergoing a huge transition. Currently competing in a highly fragmented, high growth market, 3PL providers will soon be swept up in a massive wave of consolidations. This trend will be driven by three factors: the increased demand for lead logistics providers, the emergence of new technology, and an increase in cash-rich buyers seeking logistics targets. Shippers need to start scrutinizing their 3PLs and decide how well these providers are positioned to survive in the new era.
We are living in an unprecedented time of consolidation in the supply chain management industry. In the past three years, we have witnessed such mega-mergers as Deutsche Post-AEI-Danzas, UPS-Fritz, Kuehne & Nagel-USCO, and Exel-Mark VII. The conventional wisdom holds that these large deals, which were all completed from 1999 to 2001, are a relic of history and that no mergers of this magnitude remain to be done.
But I will argue that the exact opposite is true. The logistics industry is actually in the early stages of a massive wave of even greater consolidation that will reward a small number of third-party logistics (3PL) companies with tremendous value. As shippers look to simplify their vendor base, as new technology allows large 3PLs to serve the midmarket cost effectively, and as acquisitions and investment capital fuel the growth of leading service providers, a handful of “mega-winners” will come to dominate the 3PL marketplace.
These developments will also have a major impact on how 3PL users select and use their service providers. Smart shippers already treat their 3PLs as true business partners. They integrate 3PLs into their business and rely on them for critical supply chain functions. Given this dependency, it’s all the more vital for shippers to understand their 3PLs’ long-term viability amidst a rapidly changing marketplace. As the 3PL landscape shifts, who will be the winners? How should users of these services respond? This article provides some answers, laying out a roadmap to help both providers and users of third-party services navigate a dynamic 3PL market.