Mid-Size 3PLs: What Does Not Kill You Makes You Stronger
Ah, conventional wisdom.
Not long ago, observers of the third-party logistics segment predicted the demise of many Tier II and Tier III 3PLs. Smaller players could not keep up with the increasing complexity required to serve customer demands, they said.
In addition, they predicted merger and acquisition activity would create a pool of large 3PLs dominating the segment and forcing smaller players out of the game.
Neither has happened.
Contradicting what observers expected, mid-size brokers, warehouses, and even carriers successfully evolved into logistics solutions providers, and have not only survived, but are prospering.
Why? Here are five reasons.
1. The economy stays strong. We are experiencing the “greatest global economic boom in history," according to a recent Fortune article. That economic expansion creates opportunities for all 3PLs. And, even when economies cool down, companies look to 3PLs to help them slash inventory.
2. Smaller players have capacity. As big as the national players are, they represent only a small portion of distribution center capacity in the United States.
3. Companies spend more money on 3PL services. In the United States, 3PL users currently direct 48 percent of total logistics expenditures to outsourcing, which is lower than the overall global average of 55 percent, according to a Georgia Institute of Technology study. If the United States follows the global trend, the market will continue to grow domestically. In fact, IL's latest research shows continuing growth in the size of the 3PL market.
4. The outsourcing concept enjoys growing acceptance, for at least some of today's transportation and logistics challenges.
5. Inbound logistics creates opportunity. Domestic 3PLs are benefiting from the growth in what ProLogis calls "import-driven warehousing" and we call inbound logistics. Following an inbound logistics philosophy creates overall savings, scalability, and growth opportunities. But along with that created value comes greater logistics complexity, which 3PLs can - and do - help disentangle.
Tier II and smaller 3PLs also spur growth by creating market sub-segments that the larger logistics players do not or cannot excel at.
One example is in the financial niche, where some 3PLs act as banks for their customers for longer periods than the more financially sophisticated players. By paying carriers quickly when shippers pay slowly, they are able to command capacity when it is scarce. Customers appreciate the float, and that makes them loyal.
Bottom line: if the demand is there, 3PLs - large, mid-size, or small - will continue to grow.