3PLs – Adapting to the times

What is a 3PL – a Third Party Logistics – provider? It’s an acronym frequently used in logistics’ circles but seldom defined. It’s a sort of catchall expression for an intangible collection of services that have become necessary to couple together and enable freight movements through an increasingly complex supply chain. Many of these services have been around a great deal longer than modern – containerized – shipping. A number of shipping services like freight forwarding and customhouse brokerage are nearly as old as civilization itself. In some respects, the 3PL is just an evolutionary step forward, but in other ways the 3PL is a completely new industry forged in the fires of demanding times.

The road that Mode Transportation took to becoming a 3PL shows how the need for freight management systems has pushed the development of the sector.
The road that Mode Transportation took to becoming a 3PL shows how the need for freight management systems has pushed the development of the sector.

For this reason, in compiling a 3PL list like our AJOT’s Top Fifty North American 3PLs it is worth noting that many are familiar names. The Top 3PLs were once ranked in other lists as “top” freight forwarders, customhouse brokers, NVOs, LTL and/or FTL trucking companies, IMCs, integrators, and now, even the ocean carriers have entered the category. Added to this list of services of traditional supply chain service providers is a new and growing list of technology providers that are labeled as 3PLs or 4PLs. And now the service providers to the tech segment are sometimes being referred to as 5PLs.

Not surprisingly, there is a little confusion in where all these “PLs” actually fit in the logistics universe. The ever widening services have morphed from the original idea of simply moving an item of freight from A-to-B into something quite else. Relatively recently, B2B [Business-To-Business] applications crept into the menu of logistics services with the expansion of SaaS [Software as a Service] from a localized software application to cloudware with its far reaching computerized clout. Now, the new logistics’ universe includes the manufacturer and the end-user (the consumer) and the services linking these logistics’ extremes is far more intricate than anything that has come before. Aggregating global supply chain data is now part of the overarching effort to integrate Big Data into commercial activities irrespective of sector.

The service designs for end-to-end tracking and information capture have become goals unto themselves with commercial utility – what is moving off the shelves – ranging far beyond the actual fundamentals of moving freight. In the current frame of reference for the logistics industry, tech is less defined by whether a build is vertical or horizontal as there is almost amoeba like need for collaboration with partners in all quadrants to maximize ROIs.

Building more utility into logistics systems has become the mantra of the 3PL sector and what drives the expansion of 3PL services.

Size and Shape: M&A and 3PLs

The 3PL sector is loosely divided into asset heavy and asset light companies. 3PLs, especially those originating from the freight forwarder/customhouse broker, NVO or IMC businesses like Yusen, Rogers & Brown or BOC tend to be asset light while those which evolved from the trucking sector tend to be asset heavy. Of course, there are plenty of 3PLs that didn’t come from either sector. The integrators, like DHL FEDEX, and UPS are also asset heavy as are companies like Ryder that evolved out of the equipment leasing sector. Still, there is a new generation of 3PLs that are emerging that were designed from the bottom up to function as 3PLs. Companies like XPO and Flexport were designed to be 3PLs from their inception. A few other 3PLs are spinoffs from other sectors (Jusda was a spinoff from sourcing giant Foxconn), while a number of others came into existence through mergers. Still others are subsidiaries of larger companies operating in different segments of the supply chain. For example, California Cartage (which evolved out of the trucking side) is a subsidiary of NFI, another company with trucking roots. More recently, Maersk, the world’s largest ocean carrier, has added Vandergrift Logistics (Maersk Customs Services USA, Inc. [MCS USA] effective January 18, 2021) to a group that already includes Damco as it builds out its own 3PL division.

Because of the evolution of the 3PL industry, a large number of the sector’s companies are privately held – companies that started out as mom and pop shops and evolved into larger but still privately held units. C.H. Powell, A.N. Deringer, John S. James, DJS International, Burris Logistics or Mallory Alexander all have evolved from family roots. But being a “privately held” 3PL also means that private equity firms are more and more often the principal shareholder. The interest from private equity firms and other private investment vehicles accelerated in the mid-2000s almost in parallel with the growth in interest in Fintech.

The road that Mode Transportation took to becoming a 3PL shows on one hand how convoluted the process to evolving into a 3PL may be but equally how the need for freight management systems has pushed the development of the sector. Back in 1999, Ocean Group acquired Mark VII Transportation and a year later merged with Excel PLC, renaming the company Exel Transportation Services. In 2011 Exel became an independently operating subsidiary of the Hub Group, an IMC operating under the new name Mode Transportation. Mode in 2018 was acquired by York Capital Management for nearly $240 million. In 2018 Mode merged with SunteckTTS operating under the Mode brand name. The interesting feature of the journey is how at each step the company added more services to its portfolio and emerged as a $2 billion plus 3PL. Interestingly, Hub itself has done much the same, going from a prominent IMC into a 3PL.

Mode’s journey to becoming a 3PL might have had a few more twists than most but merger and acquisition are a major feature in the process for many 3PLs. Examples abound of 3PLs adding merger strategic assets to their mix. Back in 2019, Burris Logistics acquired Trinity Logistics in the merger of two family owned enterprises. As mergers go, the combining of the two family firms made a lot of common sense. The acquisition instanteously added services and revenue to Burris and boosted the company’s ability to compete for customers in the increasingly crowded 3PL sector. Deals like the Burris-Trinity merger are part of the wider trend of mid-sized 3PLs to coalesce and scale up to compete with the international mega-3PLs that have emerged.

New Challenges for 3PLs

The COVID-19 pandemic and the recent surge in inbound shipments to the US West Coast have been the latest tests for the industry. COVID-19 has multi-tiered impact on the supply chain with the pandemic itself disrupting manning levels; initially crippling factories both at the sourcing sites and at home, followed by lockdowns and changes in consumer buying habits. Now with the lockdowns easing and vaccines being administered [the global distribution probably the greatest logistics under takings since WWII], a new challenge has arisen. A massive surge in demand for consumer goods from Asia to Europe and the U.S. has ships sitting at anchor awaiting to unload on the West Coast and dire equipment shortages around the globe. Additionally, the BREXIT supply chain conundrum has exacerbated the pandemic’s impacts.

Taken collectively, these events have tested the resilience of the 3PL business model – a model largely built to improve ROIs and efficiencies, where system redundancy is equated to inefficiency.

Nonetheless, the 3PLs have generally held well through this period. Christian Weber,

team leader Corporate Public Relations for Dascher, in an emailed response to the AJOT, wrote, “All in all, Dachser´s business model proved to be extremely robust and adaptable during the COVID-19 pandemic. Our European Logistics business line remained stable throughout the year, although being impacted by the strict lockdowns in some European countries in April and May 2020. After that we have seen a solid recovery with healthy growth rates that lasted until the end of the year.” Weber added that “The Dachser Food Logistics business line, on the other hand, was subject to greater fluctuations due to the lockdowns in the catering, hotel, and events sectors but was able to expand its business in other areas.”

Overall, the Dascher experience was pretty similar to the 3PL sector which has been able to ride out the pandemic’s adversity through agility. 3PLs by their nature are agile business organizations. For instance, in late February Geodis chartered for exclusive operation a 1,000 TEU vessel to shift 435 forty-foot boxes from Shanghai to Hamburg as a work-around to the problem of customers finding space on regularly scheduled ocean carriers. It was a radical solution but as Onno Boots, GEODIS’ regional president and CEO for Asia Pacific said of the situation, “These market forces have created variable and unforeseen spikes in demand for Asian goods.” Adding “… As an adaptable and innovative service provider, GEODIS is permanently looking for alternatives including rail, ocean and air products that fulfil this aim for shippers on the increasingly volatile Far East West Bound (FEWB) trade lane.”

And of course, in the end the real goal for a 3PL, the one for which all the technology is committed, is to be able to adapt to the times, to the shippers’ needs – even when it means chartering a ship.

View the full Top 50 list in Issue #722