Last month, third-party logistics (3PL), technology, and investment leaders convened at Armstrong & Associates’ 3PL Value Creation North America Summit in Chicago to discuss trends in the $869 billion global 3PL market.
Many of our 3PL panelists reported double-digit growth this year. As one speaker noted, “the only thing 3PLs don’t like is equilibrium.” Today’s complexity and tight capacity is good for 3PLs, as are growing e-commerce volumes, improvements in technology, and rapid automation. That’s propelled by the impacts of corporate tax cuts coming to fruition, and the sense that trade with Canada and Mexico will continue to be good. Expectations are tempered somewhat by tariff uncertainty, looming inflationary pressures, and challenges in finding labor with increasing wages across the board. Still, the consensus is that 3PL business will remain favorable into 2019.
We had a great turnout on our Financial Briefing day, and for good reason. To put it in the words of one of our panelists, “If you’re inclined to sell your company, now is the time to do it.” Private equity deals will likely dominate through the remainder of 2018 and 2019—there’s a lot of dry powder out in the market. Many strategic buyers, even those that aren’t normally acquisitive, are looking for a good fit—namely a niche service portfolio, sticky customer base, and a good culture overlap.
For those who missed this year’s Summit, we’ve collected a summary of major trends, below.
Uncertainty around tariffs means we haven’t yet seen big shifts in international supply chains, but a number of panelists noted increased forwarding/import volumes to get ahead of tariffs.
E-commerce is ripe with opportunity but it can be a risky business. 3PLs differentiate from Amazon’s Fulfillment by Amazon (FBA) program with lower prices, Seller Fulfilled Prime service, and scooping up customers that have outgrown FBA.
Strategic buyers are looking for the right fit. There’s a lot for sale, but big multiples and due diligence add up quickly. Private equity deals will likely dominate through the remainder of 2018 and 2019—there’s a lot of dry powder out in the market.
3PLs tend to be risk-averse, which deters technology investment. Gaps in data leave 3PLs in a reactionary mode. Still, forward-thinking 3PLs are working with innovators coming to market with solutions like AI, automation, APIs, sensors, and digital freight matching.
3PLs are taking nearly a quarter of newly constructed warehousing space in a market with just 5% vacancy. Familiar issues, like scope creep and a tight labor market, continue to be challenges.
Trucking capacity has been tight, wages are rising, and drivers are hard to find and retain. But there are some indications the market will look different as we head into 2019.