Logistics Consolidation Likely to Accelerate, Survey Finds
Survey finds that mergers and acquisitions in past two years will drive defensive response
Industry experts say a demand by companies for “one-stop” logistics service is helping drive consolidation. PHOTO: BLOOMBERG NEWS
SAN DIEGO—A recent wave of logistics industry mergers and acquisitions is likely to accelerate in the coming year, according to a survey of executives released Monday by Penske Logistics.
The survey found that many chief executive officers of third-party logistics operators, which arrange transportation and logistics services for retailers and manufacturers, expect to see defensive acquisitions growing in the wake of 10 major deals totaling $18 billion signed since early 2014.
XPO Logistics Inc. and Echo Global Logistics Inc. are leading the consolidation trend, which accelerated this year with United Parcel Service Inc.’s purchase of Coyote Logistics LLC and FedEx Corp.’s buy earlier in the year of GENCO.
“Once that starts happening, a little bit of domino theory kicks in,” said Northeastern University Professor Robert Lieb, author of the study, which was released at the Council of Supply Chain Management Professionals annual conference. “From a defensive standpoint, you’re thinking, ‘I need to buy one of these as well.’”
The executives surveyed—from 30 companies across North America, Asia and Europe—attributed the trend to pressure from customers for “one-stop shop” logistics service, with an increasing variety of shipping options in ever-widening geographic regions.
As global shipping becomes more complex, customers are beginning to “open the window, be more flexible and share information” with their logistics providers that they may have considered too sensitive to share in the past, said Shanton Wilcox of Capgemini. That has allowed logistics companies to get creative in handling an ongoing shortage of truck drivers, for example, Mr. Wilcox said.Also on Monday, Penske and Capgemini Consulting released the results of their annual State of Logistics Outsourcing Study. The researchers found the wave of mergers and acquisitions—together with tightening capacity in the industry and new technology with broader capabilities—is altering the competitive landscape.
Increasingly, shippers are agreeing to combine their shipments to lower costs, even in cases where they’re sharing a vehicle with competitors’ goods. “The barriers are finally starting to break down,” he said.
Researchers said that puts pressure on third-party logistics companies to develop technology that can integrate various kinds of service while providing visibility into the supply chain and speeding up delivery. “Information technology is a facilitator of logistics services, and now it’s really viewed as an essential component of what (third-party logistics companies) need to be able to manage on behalf of their customers,” said Penn State professor C. John Langley Jr., one of the study’s authors. A good tech system is now considered a “core competency” of these companies, Mr. Langley said.
One potential competitor close to cracking that nut is ride-share provider Uber Technologies Inc., according to findings of the executive survey. Uber could soon pose a significant threat to smaller-volume logistics providers, researchers said.
Although executives said congestion on the West Coast that began in 2014 during labor negotiations with the dockworkers’ union caused major delays, but they don’t think shippers will broadly change their reliance on those ports as a result. But executives said infrastructure issues across Asia, along with the economic decline in China, could create difficulties in the coming year.
