And he’s absolutely right. The 3PL business has continued to be the healthiest market within the slow five-year economic recovery for domestic and international freight transportation. In the United States, the market was valued at more than $154 billion in 2014 by industry analyst Armstrong & Associates, and globally has reached above $720 billion. Most shippers continue to farm out some aspect of the nitty-gritty of their transportation and logistics operations to these very capable entities.
But the market remains incredibly fragmented. No surprise then that the major players also view this as a time to buy up former competitors to plug gaps in their service and geographic portfolios.
Since the start of the year, there has been a proliferation of merger and acquisition activity. Most notably they include XPO Logistics’ purchase of Norbert Dentressangle, Echo Global Logistics’ acquisition of Command Transport, Kintetsu Express’ takeover of APL Logistics, Japan Post’s Toll Holdings buy, Forward Air’s absorption of Towne Air Freight, and C.H. Robinson finalizing its purchase of Freightquote. Not to mention private investment firm Greenbriar Equity’s purchase of a controlling stake in SEKO Logistics.
According to Thomas Albrecht, a noted industry analyst with BB&T Capital Markets, there’s a “healthy book of earnings” among the big 3PLs right now, which allows them to more easily reach mutual takeover agreements. Non-asset entities, like 3PLs, are also attractive to private equity because they don’t bring along the perceived deadweight of transportation assets.
3PL executives are quick to point out that mergers and acquisitions are positive for their customers because they provide access to more comprehensive services under a single roof, and these deals rarely run afoul of government regulators—with the exception of UPS’s unsuccessful bid to takeover TNT last year—since no one company is capable of dominating such a vast market.
When asked at Transplace’s annual shipper symposium in early May if shippers should worry about slippage in service levels during the apparent rush of mergers and acquisitions, Sanderson said no.
He explained that 3PLs are not buying distressed companies. While a little house cleaning may be needed here and there, the firms are generally in great shape and acquired for their talent, information technology sophistication, and to fill holes in service portfolios. “No one wants to screw that up. [The acquiring firms] are very wary of that. In the non-asset world… you better hold on to that talent,” Sanderson said. (Transplace continues on the path to make on average one acquisition a year, he noted.)
However, shippers should stay on top of the activities of their primary 3PLs when it comes to mergers and acquisitions and seek to understand how they might impact their service levels and costs.
While the marriage of some 3PLs may seem unfathomable on the surface, don’t discount the possibility in this current market. Many more mergers and acquisitions among non-asset and asset-light logistics services providers are expected in the foreseeable future, Albrecht noted, but at what pace is still anyone’s guess.
This editorial was published in the June 2015 issue of American Shipper.