Rise of the “mega third party logistics (3PL)”

The consolidation of the major logistics services continues. A.P. Moeller-Maersk, the largest ocean carrier group, recently announced the acquisition of U.S.-based Pilot and gave notice of more purchases of transport and warehousing assets to come soon.

A.P. Moeller-Maersk management spoke publicly about the fact that their major customers spend many times their ocean freight bill on domestic transportation. Thus, they’re going to spend a good portion of their billions in profits from the recent debacle in ocean service—shortage plus higher prices result in big profits in any market—on domestic third-party logistics (3PL) services so they can be a “full-service 3PL.”

I would call that a “mega 3PL.”

Maersk is not alone. Amazon, Walmart, and project44 in the United States, as well as many overseas firms, are gobbling up logistics providers and vertically integrating as quickly as possible. These firms are not acting defensively. In fact, they’re proactively consolidating a myriad of services under a single brand.

The last year has clearly demonstrated that tight markets result in extraordinary profits for the few majors in the market. From ocean to rail to pipe to airlines to highway carriers, the big folks are getting bigger—and doing it quickly.

A second lesson is that there are many modes and networks in the supply chain of your customer, and when one is hurting another mode or network is selected. Currently, the U.S. government is pushing a “make it here” initiative, so domestic freight should grow.

Skill in analysis and data management are enabling this new mega-system to operate, or it will when they pull it all together. I would suggest that they look to their brethren in global parcel for advice. You must learn your customer’s business to understand their network options. The railroads have learned this to their benefit. Fewer, bigger customers are easier to manage, and the more customer networks you can optimize the more net revenue.

The third lesson learned is that if you’re big enough globally, even a pandemic, war or natural disaster can be good for business. There’s always a segment of your business enjoying a profitable market. For example, when products are not moving, they’re in your warehouse system paying rent. In essence, you can become “too big to fail” as some transport companies have already been designated

The fourth lesson learned is that there’s a new generation of logistics buyers, and they’re conscious of brands and social networks. They use the internet to buy everything. One webpage or app for shipping globally is what everybody is working on—something that will undoubtedly be a popular choice for multi-tasking buyers. A few brands and fewer organizations will own all the assets that will perform those key functions behind the scenes.

The fifth lesson learned is to “capture your customer’s wallet.” Generally, an ocean carrier sees perhaps 1% to 2% of a consumer products company’s annual spending. Domestic transportation is perhaps 4% to 7%. If you want a close partnership with major companies, you want to be the big spend category.

You think a CFO would fail to take a call from a senior executive at the logistics vendor they pay 5% or 6% of gross sales to? As usual, the folks at Maersk are on to something.