DHL turns over almost £42 billion a year. UPS and FedEx are up there as well at £38 billon and £30 billion respectively. And it is easy when focusing on these giant corporations to lose sight of the fact that the third party logistics market is still very fragmented.
Our Top 50 report highlights the issue: only the top10 logistics providers have sales of more than £500m. And the company coming in at number 50 has sales of some £82m. The rest of the market is made up of hundreds of small operators.
Not only that, as Kevin Appleton, managing director of Yusen in the UK, told delegates at the 3PL conference last month: over the past few years, there has been no significant growth in the 3PL share of the market. “Has growth stalled, or even reversed?” he asked. Appleton argued that 3PLs had grown by fixing customers’ problems – but the attributes that had got them to this point wouldn’t necessarily keep them there. 3PLs need to look again at their strategy – in particular, they need to decide whether they are going to be specialist providers or generalists, he argued.
Of course, this is happening against a background of dramatic change. US corporation XPO has agreed a deal to take over Norbert Dentressangle, when FedEx is working on a deal to take over TNT. Only a few months ago, a major domestic parcel carrier, City Link went into administration and UK Mail decided to get out of the pallets market.
The average profit margin among our leading 3PLs rose to 3.1 per cent in 2013-14, but there are still a number of loss-makers – and margins are tighter among express operators and freight forwarders.
Put these factors together and they point to further consolidation in the market. I suspect though that it will be led by players outside of the UK or even Europe. Unless there is a specific reason for the takeover, a domestic operator buying a rival simply adds more relatively low margin turnover. Foreign companies can take into account the strategic value of having a European business.
There has been significant merger activity in the Far East as national or regional companies aim to become global players. Japan Post is in the process of taking over Australian group Toll. And earlier this year Kintetsu reached an agreement to buy APL Logistics from Neptune Orient Lines. Perhaps the next moves by such large Asian players will involve expanding their activities in Europe.