EU blues
Given
that most of the mega 3PLs are based in the European Union, economists are
suggesting that Darwinian tendencies will prevail and the smaller companies
will be acquired before the year is out.
“Hopefully,
easing inflation, improving global growth, a relatively competitive Euro, and
containment of Eurozone sovereign debt tensions will help the economic activity
stabilize in the second half of 2012,” says Howard Archer, IHS Global Insight’s
chief European economist. “But much will depend on events in Greece and their
repercussions.”
IHS
currently forecasts Eurozone GDP to contract by around 0.5 percent overall in
2012, and economists fear that renewed contraction is very much in the cards
for the second quarter. In its most recent survey of purchasing managers, the
evidence has been largely disappointing.
“The
Eurozone is still facing major headwinds, including increased fiscal tightening
in many countries and markedly rising unemployment,” says Archer. “Elevated oil
prices have kept inflation sticky, maintaining a significant squeeze on
consumer’s purchasing power while also hurting companies’ margins. On top of
this, relatively muted global growth is limiting export orders.”
It is
worth noting, however, that despite global economic concerns, mergers and
acquisitions within the transport and logistics industry remained strong, as
the number of deals increased almost 5 percent through the third quarter of
2011 compared to same period in 2010.
According
to Transport Intelligence (Ti), a London-based think tank, the current global
total deal value in 3PL and contract logistics compared to 2010 is down by
almost 40 percent. “This suggests that smaller, more specialized logistics providers
appear to have been targets of acquisitions throughout 2011,” says Ti analyst
Cathy Roberson.
“The
majority of the acquisitions made were in Asia and other emerging markets;
however, the European and the U.S. merger and acquisition market remained
fairly strong.”
Leading
academic experts say much the same thing about global 3PL resiliency. For John
Langley, clinical professor of supply chain management at Penn State
University, the fact that so many major players remain in the mix at all is
testament to the strength of the sector.
“It’s
clear that contract logistics is a global business that can’t be brought down
by regional economic decline,” says Langely. The process of outsourcing product
flow management, storage, and related information transfer services—usually
under long-term contract—remains the objective of increasing efficiency and
control no matter where it’s being done.”
Modest growth forecast
Principals
at Armstrong & Associates maintain that growth in the sector will be
sustained, but sluggish. “After surveying our 3PL tracking group and seeing the
final 2011 results, our initial estimate of 12.9 percent growth in the
international transportation management [ITM] segment has been revised down,”
says consultancy president Evan Armstrong.
“With
the European economy in decline and Asia cooling, ocean freight revenues
expanded slightly, but could barely counteract the decline in airfreight
revenues.”
Armstrong
notes that this is more of a continuation of 2010, with domestic transportation
management doing well and the value-added warehousing and distribution segment
remaining steady. “Beyond that, dedicated contract carriage, which is the most
mature of the 3PL market segments, should be able to grow 4 percent as
providers keep a lid on capacity and manage fleet asset additions.”
At the
same time, Armstrong expects ITM net revenues to grow 3 percent in 2012.
Domestic transportation management should continue to lead the way, with
approximately 10 percent net revenue growth this year.
“It’s a
good time to be an integrated 3PL with business in multiple 3PL segments,” says
Armstrong. “Most large 3PLs have internal lead logistics providers [LLP] groups
that tend to focus on process re-engineering, continuous improvement, and
information technology deployment for improved ‘control tower’ supply chain
management.”
Part of
Armstrong’s forecast also suggests that most global 3PLs will conduct modal
shifts away from airfreight and express modes to lower cost transportation
alternatives to save money through the tepid economic recovery. “Tighter
inbound transportation control and overall network optimization means that
providers that can meet the required service standards will continue to be the
3PL leaders,” he adds.
This may
explain why there was no change among the seven leading global 3PLs in this
year’s ranking. Like 2011, DHL Supply Chain & Global Forwarding leveraged
its extensive integrated global footprint. Armstrong says that Kuehne + Nagle
is still the largest “pure” ocean freight forwarder with over 2.9 million
twenty-foot containers (TEUs) managed in 2011.
“C.H.
Robinson Worldwide continues to expand globally and has added operations in
Mumbai and Shanghai,” says Armstrong. “While still growing, one must remember
that only 8 percent of Robinson’s revenues are derived outside of the United
States.”
Advancing
companies include Norbert Dentressangle, which is continuing to expand beyond
Europe, and Toll Holdings, which has expanded its Southeast Asia operations and
overall global network. Armstrong says that Agility has had the most dramatic
decline, dropping from number 16 to number 21 mainly due to past legal
complications with U.S. government clients.
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