- Third-party logistics providers continue to carve out growing roles in the transportation and logistics sector, and investors are taking notice.
- Shippers are turning to 3PLs to help them address increasingly complex distribution challenges fueled by growth in ecommerce, rising customer expectations around speed of delivery and ongoing transportation capacity constraints.
- As exemplified by three recent Harris Williams clients, best-in-class 3PLs bring distinct and differentiated value propositions to shippers as they wrestle with the need to manage accelerated delivery schedules, supply chain complexity, service level demands, and cost.
Supply chains are becoming increasingly complex. As organizations focus on their core competencies rather than supply chain decisions, they are relying more than ever on third-party logistics (3PL) providers to manage their supply chains with a focus on speed-to-market, cost efficiency and analytics-based decision-making.
Merger and acquisition activity in the sector is strong. Private equity groups and strategic players alike recognize the distinct value that 3PLs offer, and they continue to invest accordingly. Concurrently, strong 3PLs are accelerating their growth and driving industry consolidation by acquiring peers that offer access to scale, new customers, extended geographic coverage, or additional service offerings.
In this article, Jeff Burkett, James O’Malley and Jonathan Meredith from Harris Williams’ Transportation and Logistics Group share their perspectives on the dynamics attracting investors to the 3PL sector today and discuss the differentiation that enabled three premiere platforms to achieve highly successful outcomes in their recent sales.
Key Trends Driving Growth
Third-party logistics providers continue to carve out growing roles in the transportation and logistics sector as shippers face increasingly complex distribution challenges and more time- and cost-sensitive logistics needs. Trends driving this growth opportunity for 3PLs include:
Increasing speed to market
The quest to be responsive continues to become more difficult as consumer expectations rise. For example, ecommerce sites offering two-day or same-day delivery have set new customer expectations around the speed of delivery for a growing range of items, from bottles of aspirin to household appliances.
Ecommerce and the rise of parcel freight
Ecommerce is driving up parcel package shipment volumes and changing the mix of freight moving through supply chains. With ecommerce retail sales growing at a CAGR of nearly 15% over the last five years, ecommerce now represents 6.9% of total U.S. logistics costs.1 To keep up with this trend, shippers need multi-modal shipping capabilities and full supply chain visibility. Parcels have to be transported to individual homes and businesses, which increases the pressure on “last-mile” capacity as goods move to their ultimate destinations.
“Shippers used to be able to hold shipments to ship in truckloads to a store where customers would pick up products,” says Burkett, a director in the Transportation and Logistics Group. “Now, rather than what may have been a weekly truckload, it's daily pallets or multiple intraday batches of parcels that are ultimately being transported to hundreds of different destinations. It’s a substantially different and more complex logistics model.”
There is also an acute shortage of trucking capacity in the U.S. Beginning with an already tight national labor market, a combination of an aging driver population and more stringent U.S. Hours of Service regulations (through e-logs, or electronic logging devices) is contributing to unprecedented capacity constraints and rising transportation costs.
These market drivers are pressuring shippers to handle much greater distribution channel complexity and speed demands while trying to manage increasing costs. Across industries, shippers are turning to 3PLs as an increasingly important partner to help them meet customer needs. These demands continue to drive growth: The U.S. 3PL market has grown from $57 billion in 2000 to over $184 billion in 2017, and has averaged a 7% CAGR since 1995.2
The growing significance of, and growth outlook for, the 3PL sector continues to attract strategic buyers and private equity investors with expertise in technology, supply chains, and other related fields.
What makes a best-in-class 3PL?
In this highly active segment, how can investors identify a best-in-class 3PL? And what are the keys for a 3PL to get a premium outcome from a sale? Harris Williams recently advised on the sale of three premier platforms in the 3PL industry. Each is delivering value in a different way, but all were very attractive to investors and drew strong interest. Their common characteristic is that they offer a unique value proposition to shippers wrestling with the need to manage accelerated delivery schedules, supply chain complexity, service level demands, and cost.
GlobalTranz: Market-leading technology spurs superior organic growth
GlobalTranz is a technology-driven freight brokerage company specializing in less-than-truckload (LTL), full truckload and transportation management services. It is among the top 10 freight brokerages in the U.S.
The company’s world-class technology platform provides multi-modal transportation and logistics solutions that attract brokers and agents, as well as shippers and carriers. This proprietary technology enables GlobalTranz to drive organic growth that is outpacing the industry.
GlobalTranz leverages a hybrid logistics model that includes company brokers (its direct sales channel) and independent agents, both of which use the company’s technology platform to broker freight shipments. Through this hybrid model, GlobalTranz enjoys a growing and diverse shipper base across a variety of end markets. Volume brings access to a large carrier network and industry-leading transportation rates, which continues to fuel GlobalTranz growth by attracting new agents and shippers.
Burkett highlights GlobalTranz’s use of technology as a primary way the company has differentiated itself in the 3PL industry: “GlobalTranz has built a technology platform that enables both their company brokers and their agents to deliver best-in-class execution to current shippers and prospects and win new business. Dozens of in-house developers focus on the constant innovation of GlobalTranz’s technology to ensure that customers, employees, agents and carriers are provided the best capabilities available in the market.”
“The software is continuously being enhanced,” adds O’Malley, a vice president in the Transportation and Logistics Group. “For example, it is now using geo-fencing technology to help agents identify backhaul opportunities for carriers in specific geographies, driving increased efficiency in the supply chain.”
GlobalTranz’s technology differentiation and impressive organic growth made it an attractive prospect for investors seeking a strong foothold in the consolidating freight brokerage segment.
Rock-it Cargo: Vertical industry expertise propels expansion to new markets
Rock-it Cargo is a non-asset-based freight forwarder and a leading provider of specialized, international logistics solutions. Through a global network of 32 owned offices in 12 countries across five continents, as well as over 200 foreign agents, Rock-it Cargo’s logisticians orchestrate the delivery of mission-critical, complex, and time-sensitive freight. They specialize in complex transportation needs (due to shipment size, destination, or fragility) and shipments where the failure to deliver within a narrow time window would result in significant cost and reputational damage to the customer.
Rock-it Cargo first earned its reputation serving the live music industry. In 2017, more than 80% of the top 20 worldwide music tours relied on Rock-it Cargo for freight transportation. This stronghold propels year-over-year growth as the live event segment continues to grow in size, complexity, and global reach. The advent of digital music has caused artists to increasingly seek income from tours and performances, and the popularity of live events continues to grow. In fact, in 2017, global live event entertainment revenue was $62 billion, with a 15-year CAGR of 6.1%.3
Leveraging its expertise in the live music segment, Rock-it Cargo continues to fuel its growth by expanding into new markets. These include sporting events, fine art, trade shows, specialty auto and other project-based freight moves (e.g. disaster relief) that exhibit similarly demanding transportation requirements. “Rock-it Cargo has developed an expertise in a niche market – the live music market – in which their customers value the service they provide,” notes O’Malley. “They've been able to apply that service to numerous other niche markets, in addition to growing within live music events.”
Burkett concurs: “Rock-it Cargo is going way beyond just the ancillary markets to live music events. It's able to apply its expertise anywhere there’s a need to ensure high-value goods are delivered through a complex supply chain on time, intact, where they need to be.”
Rock-It Cargo’s depth of vertical expertise and its ability to deliver mission critical services with very high precision provide differentiation in the marketplace. The company’s track record of leveraging that expertise in new markets demonstrates its potential for continued significant growth, which made it an attractive prospect for investors.
Transportation Insight: Consultative, longstanding relationships secure recurring revenue and growth through ecommerce
Transportation Insight (TI) is a multi-modal lead logistics provider with an approximately $4 billion annual transportation-related spend under management. For nearly 20 years, the enterprise logistics solution provider has partnered with manufacturers, retailers and distributors to achieve significant cost savings, reduce cycle times, and improve customer satisfaction rates by providing customized supply chain solutions. The company offers a Co-managed Logistics® form of 3PL, carrier sourcing, freight bill audit and payment services, state-of-the-art transportation management system applications, a parcel technology platform (audit, engineering, advanced analytics) and business intelligence. Serving over 1,500 clients, its logistics services portfolio includes domestic transportation, ecommerce solutions, supply chain analytics, international transportation, warehouse sourcing, LEAN consulting, and supply chain sourcing of indirect materials including secondary packaging.
“TI’s core value proposition revolves around partnering with clients and helping them optimize their supply chain decisions in an increasingly complex logistics environment,” says Meredith, a vice president in the Transportation and Logistics Group. “By leveraging an impressive technology platform, and a deep employee base of logistics professionals, TI collaborates with clients to design and put into action supply chain strategies developed through advanced modeling and data analytics.”
One aspect appealing to investors was TI’s longstanding client relationships. TI works with its clients to optimize distribution strategies and transportation spend on an ongoing basis, which provides a recurring revenue base and the opportunity for TI to grow along with its clients. Furthermore, there is a vast set of potential clients in need of these services. Meredith points to this reality: “TI finds that these are incredibly complex supply chain decisions that, frankly, many companies don’t have the internal resources to make as effectively as they could, given the rapidly changing landscape. TI effectively brings this capability to them.”
Beyond these attributes, TI is optimally positioned to address clients’ rising ecommerce and parcel needs. TI is one of only a few truly multi-modal (TL, LTL, parcel) 3PL providers of scale in the market, providing it with a powerful market position as a growing number of companies face shipping thousands of parcels a day and are forced to grapple with this significant business shift. “Getting a parcel to someone’s home cost effectively is a challenge that shippers have not had to think too much about until recently,” comments Burkett. “TI helps these shippers to understand and diagnose these new demands – and then develop a plan of attack.”
The common challenge across all North American shippers – from those shipping large, time-sensitive equipment to those shipping millions of parcels – is to manage much greater supply chain complexity and a need for speed, all while effectively managing costs.
Whether it’s GlobalTranz providing technology to find the most cost-effective way for shippers to connect with carriers, Rock-it Cargo navigating complex international freight movements, or Transportation Insight using modeling and analytics to help optimize supply chains, each company is delivering differentiated value that helps its clients address the growing complexity and cost of logistics.
In the active 3PL M&A market, such market differentiation is critical to drawing strong interest from investors and generating highly successful outcomes.
Harris Williams recently advised GlobalTranz on its sale to The Jordan Company; Rock-it Cargo on its sale to ATL Partners; and Transportation Insights on its sale to Gryphon Investors.
Published October 2018
1. Buxbaum, Peter, “eCommerce Logistics Costs in the US Hit $117.2 Billion in 2017,” Global Trade Daily, May 3, 2018.
2. “BULLS LEAD – Third-Party Logistics Market Results and Trends for 2018 Including Estimates for 190 Countries,” Armstrong & Associates, Inc June 7, 2018.
3. Federal Reserve Economic Data