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Top 50 3PLs: Will mergers and acquisitions alter the third party logistics landscape?

A flurry of major service provider deals captured mainstream headlines in recent months, but the consequence of this activity has yet to be measured by domestic and international shippers. Meanwhile, the EU flounders, Asia remains strong, and emerging nations may represent the next great opportunity for the major 3PL players.
By Patrick Burnson, Executive Editor
June 01, 2012

Emerging markets
Dick Armstrong, who shares the consultancy’s role as president, says that some of the companies resting at or near the bottom of this year’s Top 50 Global 3PLs and Top 30 Domestic 3PLs are harder to quantify.

“All of the 3PLs listed have particular strengths in their specific markets,” says the elder Armstrong. “Obviously, the euro-centric players are going to have a rougher time of it, given the sad state of their economy. On the other hand we see opportunity for 3PLs in Latin America, where Brazil is rapidly investing in its infrastructure.”

But for those third party players that are not involved in China now, he says that it may be too late to gain a foothold. “In fact, we feel that more and more domestic Chinese forwarders will surface to become leading 3PLs in the future.”

Angela Yang, managing director of the Asia-Pacific Region for Penske Logistics, also sees China as being key to any 3PL’s global strategy. “With China experiencing rapid growth in the last 20 years, I would call this market ‘dynamic,’ but not yet mature,” she says. “As a result, China is a very competitive place and pricing is key in many industries.”

According to Yang, China-based manufacturers are constantly seeking low price providers. Because the logistics business environment is just so fragmented in China, and with lower prices constantly being offered, it’s vital that 3PLs develop strong personal relationships with the customer.

Yang observes that the cost of labor is a relatively small percentage of overall logistics costs in China. The lion’s share of expense is related to warehouse leasing, which can run anywhere from 50 percent to 70 percent. Equipment expenses are also considerable.

“In many cases, companies would rather hire additional people versus investing in equipment,” says Yang. “Sourcing is vital to a 3PL’s success in the Chinese market—leveraging resources, executing a lower total cost solution, and providing great customer service is critical.”

Encompass Global Logistics LLC, a fast-growing, privately-held 3PL serving shippers in North America and China, may well demonstrate how a “smaller player” can penetrate this burgeoning arena.

“Many 3PL’s complement their ocean freight program with robust airfreight services and domestic distribution services in China,” says Encompass CEO Asa Cheng. “The collective service menu puts many ‘smaller players’ on par with those giant multinationals.”

Secondly, says Cheng, the smaller player can be more flexible in offering premium service from the inception of the purchase order to the shipper’s door. He notes that the 3PL has the ability to negotiate volume across multiple carriers and utilize those carriers whose services best complement the needs of specific shippers.

“We can work the spot market for our accounts, as we are on the forefront of market-driven rate differentials by lane and by service,” he adds.

Finally, says Cheng, many of the larger multinationals were kept busy during the recession, “strafing” clients with selling, general, and administrative expenses, which is a major non-production cost presented in an income statement.

“Instead of concentrating on short-term tactics, we should all be focusing on how to bundle customer-specific packages that address certain key elements of their supply chains,” Cheng says.

Growing importance of IT
If any consensus can be arrived at with this year’s special report on 3PLs, it’s that all lead logistics providers—especially in emerging markets—should provide web-based systems that give importers and exporters complete and instant visibility to their shipments throughout the supply chain.

Penn State’s John Langley may have summed it best by observing that emerging markets represent a “blank slate” when it comes to IT infrastructure: “Building information technology systems can be achieved more easily in a country like China because it’s being done from scratch. Rather than adding on to legacy systems, or tearing one down to build another, 3PLs can now concentrate on putting the most modern solutions in place from the start.”

In the end, the same can be said for airports, seaports, surface transportation networks, and everything else related to the expanding world of global logistics management.

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About the Author

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Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


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