Third party logistics companies (3PLs) are often in the news these days – but for reasons quite different than they were 10 years ago.
This thought occurred to me while I was skimming recent news items in some of the top logistics industry trade publications. I decided to start counting and classifying the types of stories about specific 3PLs. Close to 75% were related to either acquisitions, financial performance, lawsuits or problems with labor contracts. The remaining 25% or so were about value delivered for customers or service expansion.
With consolidation, 3PLs are getting bigger and dealing with big-company, public-company kinds of issues. It’s the reality of our 3PL industry today. But this growth and progress must be managed in a way that does not deflect focus away from the reason we exist – to serve the customer.
Bigger industry, competing priorities
The size of the U.S. 3PL market today is about $213 billion and, from 2017 to 2018, that market grew at a rate of more than 15% (Armstrong & Associates). That’s about the same as the growth rate for eCommerce sales. The market’s not only bigger, it’s far more sophisticated, with providers going well beyond basic warehousing and transportation tasks to activities that touch the entire supply chain, from product assembly to contract packaging services to product repair work.
Most importantly, 3PLs are driving value – 91% of 3PL customers rate their relationships as successful (2019 State of Logistics Outsourcing Report).
It’s all good. But bigger can come with baggage – if you’re not careful.
As my down and dirty headline analysis suggests, new priorities are grabbing the focus of larger, public 3PLs. Priorities like courting Wall Street, managing to quarterly expectations, and M&A evaluations. 3PL customers need to recognize that they are now competing with these new focus areas and must make sure that they – customers – continue to occupy that top spot on the 3PL executive’s priority list.
Two Types of Entrepreneurs
There is another positive industry trend that bears watching and that’s the influx of venture capital to support the development of tech-enabled logistics solutions – “FreightTech” to use the investor term. In 2018, FreightTech firms collected more than $6 billion in VC funding, with U.S. logistics businesses raising about $1.2 billion of that total.
I just came back from BGSA’s excellent Supply Chain Conference 2020, where investors gathered with top 3PLs, as well as start-ups seeking funding. More and more entrepreneurs are putting a bulls-eye on inefficient logistics processes and developing disruptive solutions that solve shipper problems faster and better.
It’s an exciting time. But this is another trend that can have a dark side.
With the vast and recent influx of money, there is a little bit of a “gold rush” feel to the “FreightTech” side of today’s 3PL industry. Entrepreneurs see the logistics space as one that is ripe for disruption. The formula for some:
- identify a problem;
- build a higher-tech mousetrap;
- fine-tune the investor pitch;
- move on to the next thing.
This type of entrepreneur is interested in solving a customer problem – but for some it’s simply a means to a financial end.
Contrast that with the approach of another entrepreneur, Gene Kane, who ran Kane Is Able for over fifty years. He took a company with a few trucks confined to the Northeast region of Pennsylvania (before 1980 deregulation) and expanded it into a national warehousing, contract packaging, and dedicated transportation provider. His formula:
- adhere to a core set of values, the KANE Code;
- treat customers like family.
Gene and the FreightTech disrupters represent two types of entrepreneurs and two different approaches to ramping up a business. Both can be wildly successful. But only one is grounded in a long-term commitment to the customer.
Chasing Growth While Staying Customer-Centric
To grow, all 3PLs need capital. Harkness Capital Partners recently invested in KANE and is providing the capital to support the company’s growth agenda. It’s venture funding in pursuit of growth, just as in the FreightTech space.
But Harkness wasn’t drawn only by the payout potential of tech innovation, which KANE employs. They were drawn to the history, stability, and operational expertise of the company. They are investing in the growth-propelling power of day-to-day service excellence and strong customer relationships.
That’s not front-page news, I guess. But maybe it should be.