Executive Briefings

Careful Evaluation of Global 3PLs Needed as Merger Activity Accelerates

Analyst Insight: The overall market for U.S. 3PL providers has surpassed $116bn after six consecutive years of expansion. The 3PL market has expanded in all but one of the last 10 years, with a recession-fueled decline in 2009 the only blemish. At the same time, global corporations are striving to consolidate the number of logistics providers they work with to obtain more services from fewer providers. - John Johnson, Senior Content Specialist, Gartner Supply Chain

Careful Evaluation of Global 3PLs Needed as Merger Activity Accelerates

As customers consolidate providers, 3PLs are responding by expanding the breadth of logistics services they offer and their geographic availability. Over the past decade the industry has experienced rampant mergers and acquisitions (M&As). The activity has accelerated rapidly over the last 12 months with several billion-dollar deals, including DSV Group’s $1.35bn bid for UTi Worldwide, and UPS doling out $1.8bn for Coyote Logistics. FedEx’s offer for TNT Express finally gained regulatory approval from the EU.

However, companies require much more than a conglomeration of disconnected services to choose from. According to Gartner's most recent customer surveys, conducted as part of its 3PL Magic Quadrant collection, buyers of 3PL services seek a complete set of integrated services, with consistent and reliable availability wherever companies need them, all at a competitive price. Increasingly, companies want specialized capabilities, expertise and solutions specific to their industry, and demand partners that possess cultural qualities similar to their own, and an operating mentality that puts the customer's business objectives first.

Companies should take the following qualities and characteristics into consideration when determining which 3PL to work with.

• Does the 3PL provide consistent excellence in the execution of the basic logistics functions, is it proactive in service failure detection, and does it have pre-planned issue resolution procedures?

• Does it offer proactive innovation and share the advances achieved with other customers, and does it bring industry solutions (especially technology) to the company that it may not be able to accomplish on its own?

• Does it offer a seamless experience to the customer, regardless of which internal 3PL division is providing the specific service (for example, global freight forwarding, regional transportation management and contract logistics), and offer more end-to-end process improvements by integrating across traditionally disjointed functions?

• Does it develop and maintain integrated systems and technology with standardized interfaces across the spectrum of services and across regions? Is it devoted to simplifying the process of integration maintenance for the customer?

• Does it provide extreme responsiveness at the local team level, and does it have decision power to act quickly on behalf of customer needs? Is this supported by a corporate management structure that supports local needs when they span the corporate resources or when needs are outside of regular policy?

The Outlook

More mergers are likely to alter the 3PL landscape. When considering a 3PL, take special note of those that have been involved in M&A activity and confirm that there are no issues around integrating newly acquired services. Many deals take months or years to integrate and can result in sporadic service disruptions. In addition, remember that even the largest global service providers are not equal when it comes to the integrated logistics services, regional coverage and industry specialization demanded by businesses today.

As customers consolidate providers, 3PLs are responding by expanding the breadth of logistics services they offer and their geographic availability. Over the past decade the industry has experienced rampant mergers and acquisitions (M&As). The activity has accelerated rapidly over the last 12 months with several billion-dollar deals, including DSV Group’s $1.35bn bid for UTi Worldwide, and UPS doling out $1.8bn for Coyote Logistics. FedEx’s offer for TNT Express finally gained regulatory approval from the EU.

However, companies require much more than a conglomeration of disconnected services to choose from. According to Gartner's most recent customer surveys, conducted as part of its 3PL Magic Quadrant collection, buyers of 3PL services seek a complete set of integrated services, with consistent and reliable availability wherever companies need them, all at a competitive price. Increasingly, companies want specialized capabilities, expertise and solutions specific to their industry, and demand partners that possess cultural qualities similar to their own, and an operating mentality that puts the customer's business objectives first.

Companies should take the following qualities and characteristics into consideration when determining which 3PL to work with.

• Does the 3PL provide consistent excellence in the execution of the basic logistics functions, is it proactive in service failure detection, and does it have pre-planned issue resolution procedures?

• Does it offer proactive innovation and share the advances achieved with other customers, and does it bring industry solutions (especially technology) to the company that it may not be able to accomplish on its own?

• Does it offer a seamless experience to the customer, regardless of which internal 3PL division is providing the specific service (for example, global freight forwarding, regional transportation management and contract logistics), and offer more end-to-end process improvements by integrating across traditionally disjointed functions?

• Does it develop and maintain integrated systems and technology with standardized interfaces across the spectrum of services and across regions? Is it devoted to simplifying the process of integration maintenance for the customer?

• Does it provide extreme responsiveness at the local team level, and does it have decision power to act quickly on behalf of customer needs? Is this supported by a corporate management structure that supports local needs when they span the corporate resources or when needs are outside of regular policy?

The Outlook

More mergers are likely to alter the 3PL landscape. When considering a 3PL, take special note of those that have been involved in M&A activity and confirm that there are no issues around integrating newly acquired services. Many deals take months or years to integrate and can result in sporadic service disruptions. In addition, remember that even the largest global service providers are not equal when it comes to the integrated logistics services, regional coverage and industry specialization demanded by businesses today.

Careful Evaluation of Global 3PLs Needed as Merger Activity Accelerates