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Key Takeaways from the 3PL Value Creation Summit 2016 hosted by Armstrong & Associates, Inc.

Rafael Granato
by Rafael Granato on Nov 2, 2016 10:57:39 AM

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The fourth annual 3PL Value Creation Summit was held in Illinois from the 18th to the 20th of October 2016, held by Armstrong & Associates and Infocast. In this supply chain summit, 3PL, investment, and technology industry leaders participated in powerful and inspiring panel discussions. Below, we offer you a summary of the main takeaways from these discussions.

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The Growth of 3PL

  • The third-party logistics solutions market is expected to show modest growth for the rest of 2016.
  • 3PL services that a few years ago were value-adds are now presumed elements of the base service.
  • At the time of the supply chain summit, three-year terms are the norm for 3PL with some five-year terms due to integration costs. Eight months between contracts is standard.
  • The focus of large 3PLs is on targeted customer acquisitions and giving customers higher value.
  • Developing strong programs for recruitment and training is key for creating customer value and encouraging 3PL growth.

Company Mergers & Acquisitions

  • We have had a good seller’s market this year.
  • By the time of the supply chain summit, the main 2016 M&A deals have already been done and we expect that 2017 will see transactions mostly under $100 million. A realistic transaction is an EBIT of $10 million with most deals having EBITDA multiples of 8-12x and up to 11-12x in the best-case scenario.
  • There is a large amount of capital available for strategic acquisitions and private equity investments.
  • With 3PL acquisitions, businesses need to look out for the following red flags:
    • Homegrown IT systems
    • Complicated finance books
    • Manager conflicts
    • Mismatched investor and management cultures

Online Commerce (eCommerce)

  • At the time of the supply chain summit, Amazon represents a key competitor for 3PLs with infrastructure development for its fulfillment business.
    • Handling small parcel quantity outbound orders takes a much larger distribution infrastructure than it does to purchase goods from a physical store.
  • Consumers expect to be able to return goods from anywhere to a central source.
  • Expectations for quick and reliable delivery continue to increase. This is due in part to Amazon PrimeNow’s free two-hour delivery to select markets.

Developments in Technology

  • Critical technologies for the third-party logistics solutions market in the short-term are IT capability and scale.
  • 3D printing is changing the treatment of service parts logistics. At the time of the supply chain summit, UPS is investing heavily in this technology with 60 3D printer sites in its U.S. network.
  • Three minor trends in healthcare are having an effect on business and technology:
    • Patients are now consumers.
    • Several Fortune 50 companies are getting involved in healthcare with innovations such as Novartis and Google’s “smart contact lenses.”
    • People are living longer.
  • Kiva Systems (Amazon Robotics) and other material handling robots are appearing more and more in high-end markets.
  • The Uberization of Transportation is expected to have only a small impact on current transportation methods, with the term Digital Freight Matching showing the highest functionality in an analysis of 27 apps.
  • PINC was featured at the supply chain summit as leading the way in drone use for logistics. This innovative system uses drones to perform cycle counting in warehouses as part of its Yard Management System.
  • Autonomous trucks have begun to appear on the road with Uber’s Otto. We expect their use to increase substantially over the next 5-10 years. Self-driving taxis are being tested by GM/Lyft and many people are asking regulatory questions about this new technology.
  • The aggregation of data from several different sources into one system or application is happening and is referred to as “Big Data.”
  • Cloud-based systems and applications with a specific job to do have been increasing. It was mentioned at the supply chain summit that 3PLs can work to work these systems into an integrated interface for greater internal and commercial value.
  • 3PL businesses are now bearing greater technology risk than shippers.

International Transportation Management (ITM)

  • We expect ITM to continue to show slow growth with an overall revenue growth of 4-5%.
  • We are continuing to see carrier overcapacity.
  • Ideas presented at the supply chain summit for creating better value for customers include combined air-ground and sea-ground shipping solutions.

The Management of Domestic Warehousing and Transportation

  • Policies from the U.S. Department of Transportation regarding driver working hours and restart funds are expected to be disruptive and increase costs by a few percentage points.
  • eCommerce is pushing growth.
  • Omni-channel fulfillment methods continue to be popular.
  • The growth of warehousing varies by region and ranges from flat to doubles digits.
  • 60-65% of the cost of warehousing is tied up in labor management. Temporary workers now cost more.
  • 60% of customers use multiple 3PL services.
  • We have seen above average growth in domestic transportation management for manufacturing and last mile eCommerce.
  • Of the four main 3PL areas mentioned at the supply chain summit, domestic transportation management is the strongest.

Contact PINC for Leading Warehouse Solutions

PINC is a world-class third-party logistics solutions company that is constantly pursuing innovations for increased customer value. Our pioneering technologies have made us leaders in the supply chain industry—as seen in the findings of this supply chain summit—and our software is the choice of leading global brands.

Contact us for cutting-edge solutions to optimize your company’s supply chain today.

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Rafael Granato
Written by Rafael Granato
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