3PL Value Creation Summit 2016 yields interesting findings

The 3PL market will see modest growth for the rest of 2016, with many services that were value-adds a few years ago now becoming part of the expected base 3PL service.

Evan Armstrong, president of Armstrong & Associates, shared these observations and others gleaned from the recently-concluded 3PL Value Creation Summit in Chicago.

“Three-year 3PL contracts are the norm,” says Armstrong, “But integration costs are driving some five-year terms. The time from contact to contract is running about eight months.”

He also noted that major 3PLs are stressing targeted customer acquisitions. The focus is on targeting vertical industries and playing to a 3PL’s strengths to deliver value for customers. 

“People are key to creating value for customers and driving 3PL growth and profitability. Having solid programs for talent acquisition and training are critical,” adds Armstrong.

Regarding mergers & Acquisitions, Armstrong describes this year as a good seller’s market.

Big M&A deals are done for 2016 and it’s expected that most transactions will be under $100 million through 2017. An EBIT of $10 million is pretty realistic for a transaction. Right now there is a size premium. The majority of the deals have EBITDA multiples of 8-12x and can be in the 11-12x range with the right strategic buyer.

“Capital is plentiful for private equity investments and strategic acquisitions,” he says, “although there may still be a few red flags for buyers.”

Among those risks, he says, are “homegrown IT systems,” financial books that are not clear and straightforward, manager feuding, and investor/management cultures that do not match.

On the e-commerce front, analysts at 3PL Value Creation Summit noted that Amazon is building its operating infrastructure to support its fulfillment business and is encroaching on 3PLs. Furthermore, the distribution infrastructure requirement to handle smaller parcel quantity outbound orders versus buying goods from a brick-and-mortar store is much higher. 

According to Armstrong report, consumers have adapted a return from anywhere mentality and want to be able to return goods no matter where they were originally sourced.

“On-time fulfillment and delivery performance expectations continue to increase. Amazon PrimeNow is providing free two-hour delivery in select markets which will only continue to ratchet performance expectations up,” says the report.