Key Takeaways from the
3PL Value Creation North America Summit 2023
For those who missed the 2023 summit, we’ve collected a summary of trends, below.
Global View and International Transportation Management
Global logistics costs were $11.4 trillion in 2022. 3PL revenues represent about 14% of logistics costs at $1.6 trillion. By 2025, 3PLs are expected to make up close to 11% of the global logistics spend due to continued and increased outsourcing of logistics functions to 3PLs.
Panelists discussed how imports from China are now less than Mexico. Mexico and Canada cross border is strong. 3PLs need to plan for Canadian Bill S-211 regarding forced labor in Canadian supply chains and its potential impact.
E-commerce is huge and eating up a lot of air freight capacity. The top five major 3PL players could take up all air capacity at this point.
Overcapacity in ocean is keeping container rates low ($1,200 a container after a high of $30,000 a container). More capacity is expected.
Fraud is up and remains a huge risk for 3PLs during a down market.
Domestic Transportation Management and Freight Brokerage Automation
Dry van truckload spot rates and demand are much lower than the last two years. This has led to intense competition and rippling to industry-wide layoffs. Spot-market rates are rebounding which should put a floor on the market going into 2024. 3PLs with contractual business are faring better than spot-market players.
Digital Freight Broker Convoy shut down completely the week of the summit. While it had unique challenges, the Convoy story may negatively impact other technology companies raising capital.
LTL is doing well versus truckload transportation management helped by the Yellow Transportation bankruptcy.
More big and bulky purchases are being made with customers wanting installation and customization supporting demand in last-mile delivery.
Value-Added Warehousing & Distribution
VAWD continues to do well given the general lack of warehousing space, which is nearing a critical level in the cold chain, and ongoing growth in e-commerce fulfillment, and last-mile delivery.
E-commerce, as one of the fastest growing 3PL segments, takes up more warehouse space and is more labor intensive. More automation and robotics are being used in the warehouse to assist in cost and efficiency due to the continued labor shortage, rising wages, and competing with Amazon. Some 3PLs at our summit, noted customized warehousing services such as engraving and embroidery in the warehouse as a competitive differentiator to Amazon.
E-commerce growth is expected to continue as companies outsource versus building internal fulfillment operations. A lot of shippers that 3PLs work with are examining their supply chain networks and providers to improve inventory management and on-time delivery performance. We anticipate continued focus on supply chain network flexibility and warehouse optimization.
Technology and Innovation
Technology can eliminate some of the repetitive tasks, while allowing staff to focus on what is important, such as interacting more frequently with customers and having more strategic conversations with carriers. A freight brokerage employee can spend almost 80% of their time on email. Automating manual tasks remains a priority.
Hiring and access to talent continues to be tough especially in Domestic Transportation Management where it’s hard to find good freight brokers, and Value-Added Warehousing and Distribution for forklift drivers and frontline labor and supervisors. More investments are being made in automation and robots to augment labor supply.
For DTM 3PLs, automating the front and back offices to manage as many loads per person per day is a priority. 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. Shipment visibility has become table stakes.
A highly manual document collection and freight bill auditing process can lead to a high level of days sales outstanding, negatively impacting operating expenses. Automating this process adds working capital back into a 3PL and provides opportunity for scalability without increasing headcount.
The importance of data analytics and how it is used continues to grow. Data can be used to transition from emotional to logical decision making. It is important to understand bias and how it can impact interpretation of data.
More data-rich, strategic conversations are occurring than technology-related ones within large shippers.
Merger and Acquisition Landscape
As predicted at last year’s conference, M&A deals in 2023 have slowed. The deals that are going through are for top 3PL performers and multiples remain high. Expectations are that multiples will remain high for a few more years.
Strategic buyers are looking for synergies, while private equity investors focus on deals that complement other platform investments and strong leadership teams. Losing a leadership team results in losing customers. A heavy customer concentration is a huge risk for financial buyers.
With 3PLs continuing to grow through acquisition and some private equity companies still actively looking for complementary deals, managed transportation providers, e-commerce 3PLs, last-mile, and reverse logistics are the segments of investment focus.
Overall deal activity is expected to pick up in the second half of 2024.
If you would like information about our 2024 events, please reach out to us here.