Tuesday 24th Nov 2020 - Logistics & Supply Chain

3PL market is ripe for consolidation

For many years, it’s been axiomatic for third party logistics providers that the best place to recruit new customers is from the own account sector – those retailers and manufacturers that have historically chosen to handle their logistics in-house.

Malory Davies FCILT, Editor.

Malory Davies FCILT, Editor.

The logic is that any self-respecting 3PL should be able to improve service levels and produce significant savings in a very short period. Not only that, it should be able to show improvements across the life of the contracts.

Winning a contract from another 3PL is a much tougher prospect. The predecessor can be expected to have harvested the low hanging fruit, so the scope for improvement will be smaller – and the customer will probably be looking for a more competitive rate.

So it is something of a surprise to find that over half the new business won by 3PLs in the past six months has come from customers that have switched from other service providers.

The statistic comes from the latest UK Logistics Confidence Index, which is commissioned by Barclays and Moore Stephens.

Only nine per cent of operators say their main source of new business has been customers renewing existing contracts, a drop of ten per cent since the last survey in second half of 2014. However, a third of firms say that current customers expanding has been their primary source of new contracts.

Many of the operators surveyed highlighted over-capacity in the market, combined with price challenges from larger multi-national providers for the increase in competition.

Operators also pointed to a continuing squeeze on prices by customers as well as competitors. The results suggest that major retailers and manufacturers are increasingly likely to shop around to meet their price and service expectations, rather than renewing contracts automatically with the result, that for many respondents, customers’ pricing expectations are becoming increasingly demanding.

Given the tough nature of the market, it would be surprising if confidence had not been affected – but the impact appears to have been surprisingly small – down just a couple of points from the last half year to a still respectable 69.2. And four out of five of the operators surveyed expect to see business conditions improve over the next half year.

Rob Riddleston, head of transport & logistics at Barclays, points out that three quarters of the businesses are planning significant capital expenditure over the next six months. “Such investment is critical to winning new business and with margins increasingly being squeezed, the survey would suggest that operators are looking to invest now to realise the rewards to be had in this vitally important business sector.”

But there is another consideration. Improving business conditions, market over-capacity, a squeeze on margins – they all suggest that the 3PL market is ripe for another round of consolidation. We have already seen two major deals in the past few weeks: FedEx/TNT and XPO/Norbert Dentressangle.

There are certainly more deals to be done. Perhaps there will be some indications of who will be next at the 3PL Conference which starts in Birmingham tomorrow.

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