Investments Are Reshaping Logistics Industry

An influx of new investment and surge in mergers and acquisitions are driving consolidation among logistics service providers and reshaping the industry’s landscape.

Two major industry players — FedEx Corp. and C.H. Robinson Worldwide — recently completed deals that moved each company up in the 2015 Transport Topics Top 50 listing of the largest logistics companies in North America.

Based on data compiled by TT, and with the aid of a variety of sources, more money has been spent to acquire trucking and logistics companies in the first 11 weeks of 2015 than in any of the past five years.

And the buying may be just getting started, industry and investment experts said.

“This is perhaps the strongest financial marketplace we’ve ever experienced,” said Ben Gordon of BG Strategic Advisors in West Palm Beach, Florida. “Smart companies are taking advantage of this opportunity.”

FedEx’s purchase of warehousing and distribution specialist Genco catapulted the Memphis, Tennessee-based company to No. 10 on this year’s list. FedEx SupplyChain and FedEx Trade Networks ranked No. 30 in 2014. Genco ranked No. 13.

Likewise, C.H. Robinson moved to No. 4 this year from No. 6 in 2014, in part because of its acquisition in January of online freight broker Freightquote.com.

Topping the Top 50 list is UPS Supply Chain Solutions, followed by J.B. Hunt Transport Services and Ryder Supply Chain Solutions.

Investors, meanwhile, continue to pour money into logistics companies.

Bradley Jacobs, chairman and CEO of XPO Logistics, said he expects two or three companies eventually to control 50% to 80% of the global market for logistics services. Global revenue for third-party logistics services was estimated to be $703.8 billion for 2013, according to Armstrong & Associates, a market research firm based in West Allis, Wisconsin.

Jacobs has acquired more than a dozen companies since 2011, including two previously ranked on the Top 50 — 3PD Inc. and New Breed Logistics — and has amassed more than $1 billion in capital from investors and banks to pay for additional acquisitions and to start up new businesses. He has had success as an investor in consolidating companies in the waste and equipment rental industries.

Transportation, Jacobs said, is the “last frontier” of business consolidation. XPO Logistics ranks No. 12 on the Top 50 this year.

While the consolidation trend is likely to create larger companies, most industry observers do not think it will hurt competition. Smaller companies, in fact, could play important roles as specialized logistics-service providers.

For example, Duane Long, chairman of Longistics Inc. in Raleigh, North Carolina, said he has carefully downsized his business in recent years to focus on pharmaceutical distribution.

“The main reason that companies of our size stay small is that in order to get the proper capital to grow, you have to give up ownership,” Long said.

“It’s an exciting time,” said Sean Coakley, senior vice president of Kenco Group Inc. in Chattanooga, Tennessee.

“We think being in the middle is a sweet spot. We have extensive capabilities [like big companies] but can provide a higher level of service [like small companies].”