Mid-Size 3Pls: What does not Kill You Makes You Stronger

Written July 2007

by Keith Biondo
Publisher Inbound Logistics Magazine

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 complexityrequired to serve customer demands, they said. In addition, they predictedmerger and acquisition activity would create a pool of large 3PLs dominatingthe segment and forcing smaller players out of the game.

Neither has happened.

Contradicting what observers expected, mid-size brokers, warehouses, andeven carriers successfully evolved into logistics solutions providers, and havenot only survived, but are prospering. Why? Here are five reasons.

1. the economy stays strong. We are experiencing the “greatest global economicboom in history,” according to a recent Fortune article. That economicexpansion creates opportunities for all 3PLs. And, even when economies cooldown, companies look to 3PLs to help them slash inventory.



2. smaller players have capacity. As big as the national players are, they representonly a small portion of distribution center capacity in the United States.



3. companies spend more money on 3pL services. In the United States, 3PLusers currently direct 48 percent of total logistics expenditures to outsourcing,which is lower than the overall global average of 55 percent, accordingto a Georgia Institute of Technology study. If the United States follows theglobal trend, the market will continue to grow domestically. In fact, IL’s latestresearch shows continuing growth in the size of the 3PL market (see page99 for details).



4. the outsourcing concept enjoys growing acceptance, for at least some oftoday’s transportation and logistics challenges.



5. inbound logistics creates opportunity. Domestic 3PLs are benefiting fromthe growth in what ProLogis calls “import-driven warehousing” and we callinbound logistics. Following an inbound logistics philosophy creates overallsavings, scalability, and growth opportunities. But along with that createdvalue comes greater logistics complexity, which 3PLs can – and do – help disentangle.

Tier II and smaller 3PLs also spur growth by creating market sub-segmentsthat the larger logistics players do not or cannot excel at. One example is inthe financial niche, where some 3PLs act as banks for their customers for longerperiods than the more financially sophisticated players. By paying carriersquickly when shippers pay slowly, they are able to command capacity when itis scarce. Customers appreciate the float, and that makes them loyal.

Bottom line: if the demand is there, 3PLs – large, mid-size, or small – willcontinue to grow. For details, check out our expanded 3PL coverage starting on page 63 or here and here.