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3PL Outsourcing

The PROs and CONs of 3PL Industry Consolidation

Patrick Coughlin | September 23, 2021

Mergers & Acquisitions in the third-party logistics (3PL) industry are on the upswing.

Is that a good thing for users of 3PL services?

It can be, but shippers working with 3PLs that are the product of recent mergers must do their due diligence to assure that these mergers have only positive benefits. Let’s look at the PROs and CONs of 3PL industry consolidation.

The Positive Impacts of 3PL Industry Consolidation

Access to broader services and geographic reach

Big brands must manage inbound and outbound logistics flows across all their international and domestic markets. The more 3PL relationships required, the more complicated and time-consuming it becomes to get it all done. That’s why brands appreciate the ability to source multiple services from one reliable partner.

3PL-industry-consolidation

These same brands like the ability to expand – either nationally or internationally – with a single 3PL. Here’s an example. A large furniture company with a successful distribution model in the UK wanted to expand into the US market. Because its 3PL was global, the company quickly started up in one region and eventually expanded nationally – without the time and risk of finding and onboarding a new last-mile delivery partner.

 

Financial Stability

This could be an upside for customers of a smaller 3PL who become part of a larger organization. For instance, if that smaller 3PL was highly dependent on one or two clients for its revenue, the exit of just one of those clients could have created instability. A larger 3PL with a broader customer base will be a more stable partner. Another benefit: the larger merged company may have greater access to capital to invest in systems upgrades and automation to improve supply chain intelligence and drive operational efficiency.

 

Greater Bench Strength

This advantage is particularly important for planning and implementing new outsourcing projects. At Kane Logistics, for instance, we may bring in people three and four months ahead to prepare for major logistics start-ups. But smaller 3PLs may not have the resources to take this necessary step. A larger organization will draw from a deeper pool of expert engineers and operators to support start-ups. That’s very important to a brand that is staking its reputation on a seamless transition to a new logistics provider.

 

The Negative Impacts of 3PL Industry Consolidation

For all the upsides of 3PL industry consolidation, bigger is not always better. Negative consequences from M&A activity can hurt shippers if the merger is not managed well.

 

Disruption in normal business operations

As a shipper, you want to make sure that the talented people you count on to manage your operation are not distracted. Necessary merger-related initiatives like IT system integrations and facility consolidations can be a major time suck.

Another important factor is whether a merger results in the loss of key individuals, including people that have guided the acquired company for many years. The loss of that intellectual capital could hinder future operations and relationships.

 

Decline in Quality and Customer-Centricity

Can larger, global 3PLs be customer-centric?

Absolutely!

But the discipline and culture required for that to happen is just harder to maintain as organizations become larger and organizationally complex. Having a customer-centric 3PL partner is not just about getting attention from senior executives, although that’s part of it. It’s primarily about operational execution. Can 3PLs growing through acquisition maintain a relentless focus on delivering the on-time, in-full metrics that are at the heart of any 3PL’s value proposition.

The new business KANE has acquired recently is not with companies new to outsourcing. It’s with large, global brands who saw their 3PL partner lose focus as it pursued a series of acquisitions. They became unhappy as, over time, that relationship degraded from a true business partnership to simply a business arrangement.

 

Loss of focus on smaller customers

For shippers that become customers of ever-expanding and very large 3PLs, it’s frankly fair to ask the proverbial question: “Have I just become a smaller fish in a much larger pond?”

The answer depends on how 3PLs alter their structures as they grow. When you allow executives’ span of control to increase too much, those leaders are forced to make choices about which customers get the attention. In such cases, the largest customers will get most of the love.

In contrast, when you maintain a very focused span of control – whether it’s by vertical sector, geography, service area or other structure – customers of all sizes get the attention they deserve, even at the very largest 3PLs.

 

Is 3PL Consolidation Working for You or Against You?

There were 89 logistics M&A deals in the US in 2020. PWC reports that the value of deals is on the rise in 2021. So 3PLs are certainly getting bigger. The question is whether that will have a positive or negative impact on your business.

Are you working with a 3PL that has grown through acquisition? If so, has the provider maintained a strong customer focus while adding valuable resources and services? Or, has it simply becoming larger and more bureaucratic, with a diminished focus on operational excellence?

3PL industry consolidation can have powerful advantages. But it needs to work for you, not against you.

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