
Article - October 25, 2022
2022 Harris Williams 3PL Conference
Harris Williams recently hosted the 2022 Harris Williams Third-Party Logistics (3PL) Conference—a two-day event featuring keynote speakers, panel discussions, and dedicated networking time. This boutique, invitation-only event offered an opportunity for transportation and logistics leaders and private equity investors to connect, share ideas, and look ahead in a high-touch, engaging setting designed for meaningful interactions. Here, we share highlights from insightful conversations, panel discussions, and presenters at the conference.
Conference Sessions
Over the Horizon Outlook on the Economy – What Are Freight Flows Telling Us?
Navigating On-Going Supply Chain Gridlock Through Evolving Domestic Solutions
Geopolitics and the Influence on Global Supply Chains
ESG Responsibility and Value Creation Along the Supply Chain
The Evolved TMS: Blurring the Line Between Managed Trans Solutions and Self-Service Technology Tools
Global Conditions Impacting 3PLs
Both the featured freight economist and the geopolitical strategist featured in this year’s event agreed that U.S. businesses, especially those in transportation and logistics, are primed to weather the Russian-Ukraine energy crisis, China supply chain disruptions, shifting demographics and labor shortages, and inflation, and ultimately participate in strong North America-based economic expansion.
Presenters and attendees agreed that the formula for success for 3PLs is simple: Technology equals productivity, and the more productive workers and companies are the more prosperous the economy will be. “The U.S. remains the most open technology and idea-sharing market in the world, which presents significant opportunity for continued economic success,” notes Bass.
Conference participants also discussed the overall impact of inflation on margins, particularly related to labor cost increases. Many agreed that while these have largely been mitigated through intentional client management and contract discussions, inflation management will be on-going.
While the concepts of on-shoring and re-shoring were noted by all panelists, participants disagreed on the relative magnitude of this shift. Several participants felt that this shift was already underway, with tariffs and labor dynamics pushing more businesses to focus on diversifying or localizing their supply chains. “This shift was materially accelerated by the pandemic’s disruption across global networks,” says Kidd.
However, some panelists believed that a material alteration in supply chains to a more near-shore or on-shore profile was not realistic for many large companies. These panelists noted that businesses have spent billions of dollars on designing networks to capitalize on global manufacturing and sourcing reach. Some said the emphasis on the near-shoring and on-shoring trend may have been amplified by headlines surrounding escalating ocean and air freight rates, which have materially subsided since COVID-19 highs.
While these panelists agreed that certain simpler manufacturing processes may shift and that there will be more supply chain diversification and localization, they disagreed with the notion of a widespread transformation of the supply chain. “Global supply chains, and specifically those that are China-centric, aren’t going away,” says Mountcastle. “At the same time, on-shoring will continue to evolve as businesses minimize risk exposure and take advantage of skilled Mexican and domestic labor.”
Freight Market, Volume, and What’s Next
Conference participants said that domestic flows within the U.S. are continuing to evolve, particularly around port activity and the growing shift from West Coast ports to more East Coast and Gulf Coast centers. “Participants said that continued congestion in Los Angeles and Long Beach is making importers and exporters more thoughtful about which ports they use,” says Meredith. Companies that work on or near the ports also cite growing disparities in labor rates and real estate prices between the West Coast and East Coast or Gulf Coast options, leading many to focus investment where there is a better opportunity for return.
Panelists and speakers also largely agreed that shifting purchasing trends for U.S. consumers will require supply chains to continue reshaping, both domestically and internationally. More prevalent domestic touch points will accelerate growth—likely surpassing GDP—for domestic ton-miles and activity across multiple modes. This ongoing evolution of the supply chain creates the need for a focus on transition points and typical bottlenecks in the supply chain that can be exacerbated by change.
There was strong sentiment among panelists that transition points within the supply chain such as yard management, warehousing, transloading, and middle mile will continue to be large opportunities given their lower costs but high importance levels relative to the rest of the supply chain. Panelists also believe these transition points will help create stronger customer relationships by driving efficiency.
In addition, conference participants noted the importance of taking a more holistic approach to supply chain technology rather than focusing on any one constituent. While many systems exist to drive value to shippers or carriers individually, participants suggested that the opportunity for investment and optimization lay instead with technologies that serve more central orchestration roles within the supply chain. Such systems offer value to multiple constituents simultaneously and optimize environments for shippers, carriers, and employees, driving overall supply chain productivity.
ESG Responsibility and Value Creation Along the Supply Chain
Panelists agreed that ESG is becoming a more significant focus internally and among customers. Environmental consciousness among consumers and governments is driving a need to track and report ESG standards and proactively make changes and measure progress toward these goals. At the same time, increased regulations in customer end markets are requiring them to ask for more reporting capabilities from their 3PL partners.
Panelists agreed that the largest inhibitors to developing an ESG program are their ability to track where they currently stand with their ESG footprint and their ability to record and analyze the right data to improve ESG performance. They also said their businesses are investing heavily in ESG capabilities: Priorities include technology to track data and human capital investments focused on analyzing data to drive improvement.
Among participants there was consensus that 3PLs are well positioned to make a significant impact on the environment and reduce carbon footprints through route optimization and freight consolidation. They also agreed that driving ESG is not a one-time capital cost: It requires continued investment in technology and human capital.
From an M&A perspective, panelists said that ESG programs were table stakes for high-quality businesses seeking full valuations. “Companies lacking ESG programs will likely require investments to enhance these capabilities, potentially impacting valuations or even overall interest,” says Bass.
Additionally, the shift toward ESG awareness will support M&A activity, since smaller players may lack the technology to report ESG metrics and the capital needed to compete. “As customers increase demand for more stringent ESG standards among their providers, larger players with the best capabilities will likely gain market share,” says Mountcastle.
M&A In Transportation & Logistics: Today and Tomorrow
Overall, participants in the most recent Harris Williams 3PL Conference emphasized that today’s 3PLs must adapt to an ever-changing environment to serve customers, and that M&A will play a central role in that pursuit.
Several 3PL executives noted that they have expanded service offerings, enhanced technology capabilities, boosted ESG capabilities, and improved customer service via acquisition. They also expect to continue leveraging M&A as a tool to enhance adaptability, access innovation, and accelerate growth. And, despite strong recent M&A activity, panelists noted that the 3PL space is still highly fragmented, especially within technology and tech-enabled services.
All of this bodes well for M&A activity in the 3PL space, says Bass: “Tomorrow’s leading 3PLs are pulling ahead today by generating more value for their customers. We believe thoughtful and strategic M&A will remain essential to achieving that goal.”
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Featured Engagements
Contacts
Jason Bass
Group Head
Managing Director
Frank Mountcastle
Head of M&A
Group Head
Managing Director
Jeff Kidd
Managing Director
Jon Meredith
Director