Key Takeaways from the
3PL Value Creation North America Summit 2021

On October 20th-21st, third-party logistics (3PL), technology, and investment leaders convened at Armstrong & Associates’ 3PL Value Creation North America Summit in Chicago to address trends in the $962 billion global 3PL market.

Many of the 3PL panelists spoke of continued growth in 2021 with no sign of slowdown in 2022. While the 3PL industry has boomed, relationships with shippers have blossomed. Frequent conversations, collaboration, and flexibility have been key to mutual success during continued disruptions such as manufacturing shutdowns, container shortages, port congestion, and increasing labor challenges. Investment and acquisition deals are surging with many rushing to close before the end of 2021.

For those who missed this year’s summit, we’ve collected a summary of trends below broken out by Global View/International Transportation Management, Domestic Transportation Management and Freight Brokerage Automation, Value-Added Warehousing & Distribution, Technology and Innovation, and Merger and Acquisition Landscape.

For those who missed this year’s Summit, we’ve collected a summary of trends, below.

Global View Black

Global View and International Transportation Management

Global logistics costs were $9.1 trillion in 2020. 3PL revenues represent about 10% of logistics costs at $962 billion. Panelists spoke of strong 3PL revenue growth expected for both 2021 and 2022.

Container shortages, which are tied to dray chassis shortages, have caused major supply chain disruption. Port congestion remains a huge problem and will continue deep into 2022. Pivoting to other transportation modes has helped in securing carrier capacity. Passenger flights have been converted into air freight for a few months.

Shutdowns in Asia forced more domestic activity. Nearshoring and cross border business is up. Shippers are adding new vendors in Mexico to obtain shorter product lead times. The Chinese New Year is coming earlier than usual and the Olympics are in Beijing. Delays may remain inevitable into mid 2022 for those relying on components from the Asia Pacific region.

Vietnam has been a great spot for air capacity. China and Hong Kong remain core lanes. Thailand and Malaysia are secondary but do not have direct flights or large capacities of ocean sailings. Taiwan is an area to watch, especially from a technological product standpoint.

Brand loyalty has diluted due to the rise in inventory stock outs. Consumers are buying whatever is available on the shelf.

Domestic Transportation Management and Freight Brokerage Automation

Owner operator carrier capacity is at an all-time high but is hyper fragmented. Many can play the spot market at high market rates given current demand levels. There are worries that when the spot market volume comes down, many of these owner operators may exit an already tight industry.

For Domestic Transportation Managers/Freight Brokers, automating the front and back office to manage as many loads per person per day is the ultimate goal. Using proprietary systems or available off-the-shelf technologies when negotiating upfront pricing, performing digital freight matching, and automating load booking is driving newfound efficiencies.

Sustainability used to be a footnote on shipper RFIs; it is now a significant portion of the request. Automating parts of the freight brokerage process with technology, increasing carrier reutilization and better planning routes can increase a 3PLs sustainability efforts.

Value-Added Warehousing & Distribution

Warehousing 3PLs are leaning into automation, such as intelligent kitting and robotics, due to labor shortages. Creative staffing models, including pay per performance as well as campus warehouse networks, are helping to meet labor challenges. Also, educating shippers on the impact of regular overtime and turnover is an important part of the relationship. 3PLs are using social media and advertising efforts to attract hourly employees.

Warehousing space is tight. Multiclient warehousing and flexible space options have grown out of need. Shippers want to deploy e-commerce fulfillment parcel shipping out of warehouses as close to the customer as possible to increase service levels.

With wage rates increasing, quoting on bids is more challenging. Contracts are now being written with year over year price increases, with provisions covering market conditions and regulatory changes are also being included.

E-commerce continues to grow rapidly, and 3PLs are using peak teams to get through it. Home improvement and food and beverages continue to be strong with more consumers working from home. Returns are growing as well; this includes difficult big and bulky items such as appliances. Reverse logistics and e-commerce continue to be growth areas going into 2022.

Technology and Innovation

3PLs are looking to automate repetitive tasks to free up human capital. From freight brokerage upfront pricing for loads, to tendering and scheduling, down to back-office automation, machine learning is helping 3PLs make better decisions within seconds.

When leveraging technology, it is important to look at situations holistically. By leveraging intelligent robotics, you can prevent fixing an issue in one area and causing a bottleneck in a new area.

3PL user experience design efforts have grown and are focused on carriers, shippers, as well as internal employees. Encouraging the use of technology can be key to strong culture and improving employee morale.

For warehousing, the cost of robotics relative to employees in decreasing. We are seeing a continued proliferation of Cobots being utilized to support order picking and putaway. Robots for each picking continue to improve and are becoming more cost effective.

Merger and Acquisition Landscape

Many panelists spoke of how they have never seen a year like 2021. Deals are moving fast with 3PLs and investors trying to buy and sell before end of year, albeit at record setting EBITDAs.

Firms that jumped out of private equity in 2017, missed out on three of the best years. Private equity is strong right now with good valuations and large yields. The increased spotlight on transportation and logistics is attracting a slew of new investors.

While Private Equity investors tend to look for more generalist platform companies to grow, strategic buyers often look for niche companies, with a concentrated customer base or a geographical presence, that offer a specialized service or competitive advantage to the market, to fill service gaps. Leading technology via proprietary and off-the-shelf systems, can drive additional interest.

E-commerce, freight brokerage, healthcare, and last-mile delivery were notable areas of M&A focus in 2021. Cross border and transloading is gaining attention. Mexico may become a growing area of focus over the next five years with increased nearshoring.

The pandemic slowed down international travel and decreased the number of international acquisitions. International deals are expected to increase in 2022.

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