Key takeaways from A&A’s Third Annual 3PL Value Creation Summit

Last week, Armstrong & Associates (A&A’s) Third Annual 3PL Value Creation Summit drew top executives from North American, Asian, European, and Latin American third-party logistics providers (3PLs), shippers, and leaders in the global investment community to Chicago.

The conversation was fluid in a panel-driven format, and below is a list of some key takeaways:
● A&A reports omni-channel retail is growing. Stores are becoming warehouses. Inventory optimization is key.
● According to A&A, Uberization of transportation (UOT) applications may help short-haul trucking where empty mile percentages are higher versus long-haul lanes; however, the additional revenue will need to cover additional pickup, delivery, and driver costs, plus add to profits. Also, Department of Transportation (DOT) requirements need to be covered. Local courier work was seen to have more potential for UOT applications.
● A&A reports a general feeling that supply chain management is more important to corporations than ever before to mitigate risks and optimize supply chain networks.
● Allowing Federal Motor Carrier Safety Administration (FMCSA) licensed Mexican motor carriers to provide transportation services within the U.S., and not just part of international moves, could dramatically increase U.S. domestic carrier capacity.
● Most European and U.S. based 3PLs have built relationships with universities to develop entry-level talent.
● The Prince Rupert, Canada port, with its efficient rail links to the U.S., was cited as a good alternative to Long Beach and a way to improve transit times for Asian imports.
● The rapid pace of 3PL merger and acquisition (M&A) activity is showing no signs of slowing; however, 2016 is expected to be dominated by mid- and small-sized deals versus the $100M+ deals A&A has seen in 2015. In the U.S., non-asset based 3PLs are still valued higher than asset-based 3PLs, but asset-based providers have seen an increase in the past three years.
● When evaluating companies, A&A reports private equity likes to see solid management, revenue and earnings growth, and a solid business model. Companies where external capital can be used for expansion, or to fill operational gaps such as IT, are favored. Those with “lofty” future revenue projections, or cost cutting to drive short-term profits, are frowned upon.
● According to one source, strategic 3PL buyers are looking for companies where they can increase revenue by three to four times in three to four years. Cultural fit is important as well as the ability to expand a 3PLs existing operating network geographically, or add capabilities to its solutions set.
● There is interest in Asian 3PLs buying into the U.S. and 3PLs based in slower growth countries expanding into higher growth Asian and North American markets. 2015 has been dominated by size and scale M&A activity versus other strategic plays such as service portfolio, or vertical industry diversification.
● Almost all 3PL executives see future growth in Asia and North America continuing to outpace Europe. Cross border e-commerce is a very hot market in China as increased wealth is driving the demand for products sourced in other countries.
● With Chinese labor rates increasing approximately 20% per year in some areas, nearshoring of manufacturing to Mexico from Asia is a significant trend in automotive, high-tech, and industrial manufacturing. Low oil prices are making the U.S. attractive to manufacturers with oil and gas manufacturing inputs.
● Reasons not to nearshore? Product from suppliers which is also heavily sold in local markets. The Chinese market is so large for many products, such as consumer electronics, that it makes sense to manufacture close to its regions of large demand and export to other countries.
● Technological innovation was discussed in detail. “Data is the new Oil” was one comment. People are interconnected by systems more now than ever before. Automated computer processes and machine learning will replace much clerical/data entry work.
● Autonomous (self-driving) trucks could add carrier capacity in the not too distant future.

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