3PL & Fulfillment Services Rollup
Does anyone have experience with platform investments or rollups in the 3PL or fulfillment services space? It's a very fragmented space and ecommerce is driving growth there so it seems interesting. Would really appreciate some perspective from those who have done or looked at deals in this space. Is it a good industry to go after? What's the good, the bad, the ugly, etc...?
Just go study XPO Logistics.
My background is freight/logistics & personally I am not sure where a lot of these 3PL consolidation plays will go. Unless you have a good industry niche/secret sauce via a tech-enablement of some sort, it's 100% a commodity play. Differentiation is a real challenge. Everyone uses the same WMS, CRM, YMS platforms. Clearly tons of capital is chasing these deals, so I could be the moron here...
Re: XPO, I agree it's a great example/history to read up on. However, their meat and potatoes came from rolling up LTL/FTL truck brokerages which are also incredibly commoditized. There is no moat, it's a job that can be done (and is frequently done) by anyone with a phone and a willingness to harass truckers and dispatchers. Someone smarter than me will probably post some exceptions to what I have said, but unless you have a real differentiator (eg. biopharma cold chain 3PL or a specific end market where site location is crucial - thinking cold storage 3PL in the PNW doing hops or apples or produce) I struggle to see how you can really blow it out of the water.
Customs brokers I think are a more interesting logistics adjacent play with similar dynamics to how XPO began. Similarly commoditized, but very fragmented & low tech/paper/PDF heavy in most cases. Again, if you have a market/freight modality that you're covering well, expect to have more success/margins so forth.
You see lots of 3PLs post insane growth numbers. I personally think its misleading. It's just like evaluating a commodity trading house based on their revenue. Revenue can be volatile, it's margin generation that's the #1 KPI. 3PLs make much of their money marking up freight & if freight goes up due to supply/demand their revenue goes up, but margins do not change (mathematically shrinking). As we are in a soft freight market, 3PL revenues are down vs. 2yrs ago even if nothing about their business has changed/added more customers.
Agreed with Throwway.
My fund has a 3PL platform. It’s a tough business. It’s not as sticky with customers as you might think - we’ve seen a ton of price shopping and churn, particularly given the high inflationary environment that has a lot of companies reassessing spend, even if it means short term operational headaches. Even if your service is fantastic, ultimately clients will choose to go with a larger, international 3PL who can act as a single throat to choke and enable international scale with ease. We’re also seeing the larger strategics increasingly drop their pants to win big clients (they know sponsors won’t match the play given the shorter timeframe to work with).
With that said, I think where 3PL can be interesting is if you’re in a niche and can sign up emerging brands that you can grow alongside of. Still a slog to win given the commoditized nature of 3PL, but if you’re specialized/niche enough and have a great outbound process then it could work. Expect clients to eventually churn once they hit a certain scale.
Quia velit suscipit reprehenderit odit sunt sit est aut. Ipsum incidunt alias nam voluptatem voluptas aperiam vero laudantium.
Ab fuga voluptas beatae aut et. Id explicabo iste ut tenetur ducimus rerum. Saepe autem voluptate vel dignissimos est ea neque pariatur. Amet nostrum sed ducimus.
Est non alias sapiente nam necessitatibus. Illum sunt qui et voluptatem. Corrupti consectetur voluptatem nisi hic et aperiam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...