Consolidation in Third-Party Logistics Market Roars Back in 2015 …
Though nary a year goes by without a thinning of the ranks, 2015 was an extraordinary time for large-scale shrinkage. According to consultancy Armstrong & Associates Inc., there were 11 $100 million-plus transactions in 2015 that involved third-party logistics providers, the most in one year since Armstrong began tracking deals in 1999. By contrast, there were just three and five such transactions in 2013 and 2014, respectively, according to Armstrong data.
FedEx Corp. and UPS Inc., two of the world’s most high-profile transport and logistics firms, made the largest acquisitions in their histories in 2015. Memphis-based FedEx acquired Dutch-based rival TNT Express for US$4.8 billion. Atlanta-based UPS, which tried unsuccessfully to buy TNT Express in 2013 for US$6.8 billion, acquired Chicago-based freight broker Coyote Logistics LLC for $1.8 billion. FedEx also closed on its purchase of Pittsburgh-based contract logistics specialist Genco Supply Chain Solutions for an undisclosed sum one analyst pegged it at about $2 billion a deal that represented FedEx’s biggest commitment ever to a firm in the non-transport segment.
A Time When Consolidation Means More Choices
“The whole 3PL space is going through a shakeup partly because of the strain being placed on it by e-commerce,” says Constellation Research VP and principal analyst Guy Courtin. “I think a lot of these 3PLs are saying, ‘the only way we can survive is to just get big.’ In a way it’s like retail itself: Get really big, or get really niche there’s nothing in between.”
While the total number of 3PL providers may be shrinking, in one sense any customer whose business relies on a logistics backbone has more options now, since they can find a one-stop-shop provider, rather than piece together relationships with multiple smaller 3PLs, Courtin says. “The question is, does it reduce the price competitiveness because there are fewer players?” The flip side to that question is whether the efficiencies gained from a single relationship make potential price increases a wash, he adds.
Armstrong & Associates expects the pace of 3PL mergers will remain high this year, albeit with fewer large deals, according to DC Velocity. However, there’s no guarantee that growth equals quality, the report notes:
Armstrong also delivered some words of caution for prospective acquirers: A recent survey of 3PL customers found that large providers with $10 billion or more in annual gross revenues revenues before the costs of purchased transportation rate lower in customer service, value/pricing competitiveness, and process improvement capabilities than do providers with less than $1 billion in gross revenues.
- ^ as DC Velocity reports: (www.dcvelocity.com)
- ^ Constellation Research VP and principal analyst Guy Courtin (www.constellationr.com)