VALUE VISIBILITY EVOLUTION EXECUTION STRATEGY SYNERGY

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1 VALUE VISIBILITY EVOLUTION EXECUTION STRATEGY SYNERGY The Changing Face of 3rd PARTY LOGISTICS The third party logistics (3PL) industry is undergoing a huge transition. Currently competing in a highly fragmented, high growth market, 3PL providers will soon be swept up in a massive wave of consolidations. This trend will be driven by three factors: the increased demand for lead logistics providers, the emergence of new technology, and an increase in cash-rich buyers seeking logistics targets. Shippers need to start scrutinizing their 3PLs and decide how well these providers are positioned to survive in the new era. By Benjamin H. Gordon We are living in an unprecedented time of consolidation in the supply chain management industry. In the past three years, we have witnessed such mega-mergers as Deutsche Post-AEI-Danzas, UPS-Fritz, Kuehne & Nagel-USCO, and Exel-Mark VII. The conventional wisdom holds that these large deals, which were all completed from 1999 to 2001, are a relic of history and that no mergers of this magnitude remain to be done. But I will argue that the exact opposite is true. The logistics industry is actually in the early stages of a massive wave of even greater consolidation that will reward a small number of third-party logistics (3PL) companies with tremendous value. As shippers look to simplify their vendor base, as new technology allows large 3PLs to serve the midmarket cost effectively, and as acquisitions and investment capital fuel the growth of leading service providers, a handful of mega-winners will come to dominate the 3PL marketplace. These developments will also have a major impact on how 3PL users select and use their service providers. Smart shippers already treat their 3PLs as true business partners. They integrate 3PLs into their business and rely on them for critical supply chain functions. Given this dependency, it s all the more vital for shippers to understand their 3PLs longterm viability amidst a rapidly changing marketplace. As the 3PL landscape shifts, who will be the winners? How should users of these services respond? This article provides some answers, lay- Benjamin H. Gordon is managing director of BG Strategic Advisors, which provides advisory services in strategy, technology, and finance to logistics and supply chain companies. TERRY ALLEN 50 S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL

2 ing out a roadmap to help both providers and users of thirdparty services navigate a dynamic 3PL market. An Industry in Transition Modern third-party logistics providers have emerged recently as a result of transportation deregulation in the 1980s and the shipper emphasis on core competencies in the 1990s. As a result, outsourcing has taken off. In the last decade, according to research by investment banker Lazard Freres and BG Strategic Advisors, the 3PL category has grown at a rate greater than 20 percent per year. It has produced stock market darlings like Expeditors, CH Robinson, and Landstar. And it has spawned an entire industry of small and midsized logistics providers which number approximately 1,000 today. Many observers have predicted that the logistics provider industry will continue to expand at a rate of percent annually. A recent Lazard Freres study shows that M ARCH/APRIL

3 Third Party while 37 percent of high-volume shippers outsourced transportation in 2000, 73 percent expected to do so by As the outsourcing trend continues, the 3PL industry will benefit. Less frequently noted is the enormous fragmentation in the logistics industry. Exhibit 1 shows that all four of the core logistics sectors warehousing, transportation management, air/ocean freight forwarding, and dedicated contract carriage are growing at a rate of percent annually. Yet the exhibit also shows that the market share available for small companies (defined as all companies below the top 50) is between 30 and 80 percent. To put this in perspective, the parcel industry is growing at 4 percent, and the market share available for small companies is zero. Available Market Share for Companies Below Top 50 90% 80% 70% 60% 50% 40% 30% 20% 10% This combination of high growth and high fragmentation makes the logistics industry ripe for consolidation. A growing market supports a broad range of successful companies that attract expansion-minded buyers. At the same time, fragmentation translates into a plethora of small acquisition opportunities for larger, cash-rich companies. Further, as the market inevitably matures, businesses that were used to 20+ percent growth will likely supplement their organic operations with acquisitions. Within the individual sectors of the logistics industry, no one player dominates. For example, Exhibit 2 shows that Danzas/AEI, holds 60 percent of the revenues generated by the top seven companies in the sector of air and ocean freight forwarding. However, if the chart were to be expanded to include the U.S. revenues for all global freight forwarding companies, Danzas/AEI s market share would drop to less than 25 percent. Further, when calculated as a percentage of the overall logistics market, its true market share would drop to just six percent. The chart also shows that only two companies have greater than 2x relative market share in their sectors Exel in warehousing and Danzas/AEI in freight forwarding. But even those two combined enjoy less than ten percent market share in the overall outsourced logistics market. Historically, winners have stayed in their corners. Danzas/AEI enjoys strength in freight forwarding, Schneider and Penske head up asset-based transportation, Exel stands out in warehousing, and various players compete for leadership in asset-light surface transportation and software. No one company currently enjoys a top-two market share position in more than one sector. In the last three years, however, consolidation in the 0% -10% -20% EXHIBIT 1 The Market Today: High-Growth but Extremely Fragmented Slow-Growth, Fragmented Slow-Growth, Consolidated Parcel High-Growth, Fragmented High-Growth, Consolidated 0% 5% 10% 15% 20% 25% 30% Annual Market Growth Rate Source: Armstrong & Associates, BG Strategic Advisors Analysis Air/Ocean Value-Added Warehousing Transportation Management Dedicated (DCC) industry has accelerated across both modes and geographies (see Exhibit 2). Domestically, the UPS acquisition of Fritz allowed the transportation and warehousing giant to add expertise and scale in a new mode (freight forwarding). Similarly, the Exel acquisition of Mark VII enabled a warehousing and freight-forwarding leader to add domestic surface transportation management. By the same token, global powerhouses have sought to acquire platforms in the United States. Deutsche Post s purchase of AEI/Danzas, Kuehne & Nagel s merger with USCO, and APL s acquisition of GATX all reflect this cross-geography trend. The Consolidation Drivers There are three main sources of this powerful consolidation: shippers quest for lead logistics providers (LLPs), new gamechanging technologies, and the emergence of deep-pocketed logistics acquirers. The Shipper Quest for LLPs First, shippers need for greater accountability and control over their outsourced activities has given rise to a new type of logistics management company the lead logistics provider (LLP). These large LLPs are emerging as the supply chain masters for their customers. They offer shippers a wide range of outsourcing services through a single point of contact. They also provide broad geographical coverage as well as sophisticated technology capabilities. Typically, the LLPs rely on a network of smaller 3PL subcontractors to deliver these services. Pioneers in using LLPs include giants such as General Motors and Nortel, which both chose recently to outsource billions of dollars in logistics spending. GM sought an LLP 52 S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL

4 with the technology capabilities to cut dealer order-entry cycles from 60 days down to 15. (See the sidebar on page 56.) Nortel was looking for a logistics partner to help it free up hundreds of millions of dollars in working capital and inventory. Few companies can meet the broad range of requirements demanded by these large initiatives. Those that can possess a broad range of capabilities, including: Multimodal expertise across services including truckload, less than truckload, intermodal, air, ocean, and warehousing. Global geographic scope across all locations relevant to the client s supply chain. Complex management skills to perform master contracting solutions, where the LLP manages other, smaller 3PLs in subcontracting relationships. Analytical know-how to provide shippers with a thoughtful, strategy-led approach that identifies opportunities for outsourcing to add value. Powerful technology systems to manage massive flows of data, synthesize them into meaningful reports, and recommend courses of action. The financial resources to provide solutions such as the upfront purchase of a shipper s logistics division, combined with a willingness to enter into risk and reward-sharing contracts. The few companies that can meet these requirements are part of an elite group less than a dozen worldwide. As large shippers continue to seek providers who possess LLP-level capabilities, third-party providers will feel the pressure to expand the scale of their operations. EXHIBIT 2 3PL Industry: Consolidation Across Modes and Geographies U.S. Market Map: Top 50 Companies Total = $27 Billion for the Top 50 Deutsche Post International Acquirors Kuehne & Nagel APL Uti/Standard Merger Exel/Mark VII Merger Fritz/UPS Merger 2001e Revenues ($M) 100% 80% 60% 40% $7.2B Airborne BAX UTi Expeditors Fritz EGL Danzas AEI $6.7B Other Werner Dedicated Swift US&T JB Hunt Dedicated USF Ryder Dedicated north American Schneider Dedicated $6.7B $4.5 $2.3B Other NFI Standard Kenco DSC Genco USCO CAT APL (GATX) Tibbett & Britten TNT / CTI Other NFI Transplace Hub Group Exel (Mark VII) Schneider FedEx CH Robinson Menlo Ryder EXE Manhattan Associates Descartes Manugistics 20% Penske Exel Americas UPS i2 0% 0% 20% 40% 60% 80% 100% Air/Ocean Asset-Based Trasportation Value-Added Warehouse Non-Asset-Based Surface Transportation Software S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL

5 Third Party The Vector and Nortel LLP contracts are particularly important because they may be early adopter models for the rest of the industry. As Exhibit 3 shows, what the largest companies of the Fortune 100 do, the rest of the market tends to follow over time. Just as automotive giants like GM and Ford led the way toward outsourcing in the early 1990s, so too may the adoption of LLPs provide a model for midsized companies in the coming decade. The lead logistics provider movement will create two key consequences for 3PLs. First, it will increasingly reward those large companies that can meet the stringent requirements demanded by shippers. Second, it will have a ripple effect on the 3PLs that are forced to serve as subcontractors to the LLPs. These smaller providers face a distinct risk of margin compression, technology compliance, reduction in growth opportunities, and outright termination at the hands of LLPs. New Game-Changing Technologies The second major factor driving consolidation is technology. A growing number of shippers are coming to rely on their 3PLs for sophisticated and costly technology solutions. Many leading-edge 3PLs specialize in understanding new technologies and use them to bring substantial value to shippers. Users increasingly rely on their logistics providers for expertise in complex technologies such as transportation management systems (TMS), warehousing management systems (WMS), supply chain event management (SCEM), and international trade logistics systems (ITLS). Shippers can benefit from tapping the knowledge that 3PLs gain from working with multiple customers. A logistics provider may purchase a TMS and implement it for 20 different accounts. Through this experience, it can gain valuable expertise on how to get the most productivity out of the technology. In addition, tech-savvy 3PLs can provide their shippers with a better understanding of the latest technologies. Shippers, for their part, can gain powerful cost advantages by leveraging a service provider s purchasing power to gain volume discounts and by paying only for those modules they need. Not surprisingly, technology has become a key component in many Fortune 1000 companies decision to outsource logistics. As Exhibit 4 shows, companies that can afford the upfront investments in technology systems can achieve powerful savings in the form of operational efficiencies. For a 3PL generating more than $10 million in revenues, for example, a Web-based, fullyautomated system can cut the cost of a transportation transaction by over 80 percent. Those 3PLs that cannot afford such technology investments will suffer a crippling competitive disadvantage. Sophisticated systems are becoming a powerful lever for separating the strong from the weak. I know of one situation where CH Robinson displaced a mid-sized freight broker by providing the Fortune 500 customer with a sophisticated order management system (OMS). The OMS integrated directly into the customer s ERP system. Once CH Robinson had control of the customers orders, it was able to route them wherever it deemed appropriate. Not surprisingly, they Five-Year Forecast Growth Rate 20% 15% 10% 5% Less-Penetrated Higher-Growth 0 EXHIBIT 3 What GM and Nortel Do Today, The Midmarket May Do Tomorrow Fortune Fully-Penetrated Slower-Growth 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of Fortune 500 Companies Using Outsourcing As midmarket outsourcing grows, large logistics companies will pursue aggressively. Source: Armstrong & Associates, BG Strategic Advisors were channeled, more often than not, to CH Robinson internally for brokerage execution. By the same token, a major factor in GM s outsourcing decision was Vector s ability to provide global supply chain visibility. The technology bar will only continue to rise. UPS, for example, has made aggressive investments in building out a logistics and technology-consulting group with a mix of thirdparty and proprietary solutions. It helps that UPS has invested more than $11 billion in technology over the past 10 years. Very few companies will have the resources and wherewithal to keep up with these giants and their investments. The next battleground for technology adoption in logistics will be the midmarket. Web-based transportation and warehousing management systems now enable large 3PL companies to reach smaller customers. Schneider provides a good example of this capability. Historically, this large service provider would not do business with midsized companies. As Schneider s former Senior Vice President of Business Development Bob DeVos recounted, If you were under $50 million in freight spend, I didn t even take your call. But now, with its Web-based SUMIT system in place, Schneider expects to serve a much broader range of customers more cost effectively. As the Schneider example shows, technology lowers the threshold size of customers that big 3PLs can reach. This only intensifies the pressures on midsized logistics companies to keep pace with new technology offerings. Deep-Pocketed Acquirers The third driver of consolidation is the emergence of cashrich buyers seeking logistics targets. In the last three years alone, we have seen such major acquisitions as: Kuehne & Nagel buying USCO for $400 million. UPS buying Fritz for $500 million. 54 S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL

6 Deutsche Post buying AEI for $1.2 billion. Deutsche Post buying Danzas for $1.2 billion. TPG buying CTI for $650 million. APL buying GATX for $210 million. In many cases, large European players have pursued U.S. platforms in order to expand their geographic coverage and tap into the high-growth U.S. market, which at 20 percent is expanding at more than double the rates of Europe. For instance, Kuehne & Nagel (K&N) was seeking a leader in U.S. value-added warehousing with a focus on the high technology and telecommunications industries. With USCO, K&N gained instant scale and credibility in North America. Similarly, the Dutch post office, TPG, wanted a top position in automotive logistics and found what they were looking for in CTI. Global buyers have paid premiums as high as 19 times cash flow in a bid to establish beachheads in the $1 trillion U.S. supply chain market. North American buyers have tended to pay lower prices than their European counterparts but still find substantial value in acquisitions that can provide leadership in complementary services. For instance, UPS acquired Fritz in order to bolster its global freight-forwarding network. Conversely, UTi acquired Standard in October 2002 to add valueadded warehousing capabilities to its forwarding expertise. These major acquisitions will only continue. In a rapidly evolving marketplace, time can be more important than money. Buyers will continue to be attracted by the ability to gain new customers, geographies, services, technologies, and talented managers, which they can realize more quickly through an acquisition than by organic growth. Further, wealthy buyers UPS alone generates $2 billion in annual cash flow possess ample resources to fund major investments in the market. One particularly interesting trend is the recent emergence of the private equity firm in this space. These firms tend to invest in private companies where they see unique opportunities for growth and profitability. Many private equity firms today are excited about the logistics services market because they see an $50 $40 $30 $20 $10 0 EXHIBIT 4 The Power of Technology to Cut Costs and Improve Efficiencies $42 Phone/Fax $21 Dispatch System $14 TMS: Traditional $8 TMS: Web-Based Cost of a Transportation Transaction, Fully-Loaded Source: BGSA analysis. Assumptions: $100,000 fully loaded cost per rep, 240 working days/year, 10 loads/day phone/fax, 20 loads/day dispatch, 30 loads/day TMS (trad.), 50 loads/day TMS (Web) opportunity to (1) consolidate markets that exhibit economies of scale in marketing, purchasing, and technology; and (2) accelerate the growth of leading companies in niche markets. In the last four years, top-tier investment firms have stepped into the logistics sector. Recent examples include: Eos Partners investment in NewBreed, a warehousingbased company that has evolved into sophisticated supply chain network design and implementation for customers like the U.S. Postal Service, Verizon Wireless, and Siemens Medical Solutions. GTCR s investment in Cardinal, a leading transportation management company focused on dedicated delivery and logistics consulting for companies like 7-Eleven and Home Depot. Code Hennessy and Simmons multiple investments in May, a top regional warehousing and logistics company, and Mail Contractors of America, the largest private transporter of bulk mail for the U.S. Post Office. Heritage Partners investment in APX, which provides package delivery, package sortation, and direct delivery solutions at a postage discount of approximately percent of typical post office rates. Many of these private-equity-backed logistics companies are growing revenues and profits at greater than 30 percent through organic expansion and acquisitions. We can expect to see more of these investments. With $120 billion in private equity capital sitting on the sidelines, a record level of funding exists. My discussions with more than 20 investment firms in the past year suggest that a substantial amount of that capital will be deployed in the supply chain marketplace. This infusion of smart capital from private equity investors will accelerate the acquisition and consolidation trend. If private equity investors commit 5 percent of their total capital to the sector and continue to grow their portfolio companies at 30 percent annually, within 10 years their companies could control $64 billion in logistics services. This would amount to more than 20 percent of the expected market for Where will it end? Again, a comparative industry analysis may help to frame this question. In 10 years, the logistics sector may end up looking like other, more mature transportation markets. In 1971, when Fred Smith launched Federal Express, the parcel industry was extremely fragmented. The top two players back then represented less than 20 percent of the total market. Today, FedEx and UPS have successfully consolidated the parcel market, and combined they own a commanding 80+ percent market share. A similar pattern is likely to emerge in the 3PL industry. Implications for 3PLs: The Winners? companies that can successfully position their businesses to benefit from these trends will enjoy an exciting future. These will be the companies with broad multimodal capabilities, geographic scope, and technological leadership. For the majority of companies in this industry, however, S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL

7 Third Party one overriding question emerges: What can you do if you are not FedEx, UPS, or Deutsche Post? If you re not a multibillion dollar company, but you do have the size, capabilities, and ambition to continue profitable growth in midst of this marketplace, how should you evolve to maximize your opportunity? Smart, midsized companies have two main options. First, they can invest aggressively in niche strategies and technologies that create differentiation and drive growth. Second, they can find a big brother with deep pockets and position the business for a merger or sale. Successful models exist for both options. NewBreed, Cardinal, May, MCA, and APX are all examples of private equity-backed companies that pursued a differentiated, technology-led strategy and raised capital to build out their model. All five companies have deployed large amounts of funding to build sophisticated technology systems and national networks. Today, each is a formidable competitor in its target market. USCO and RoadLink USA represent variations on the second option. In USCO s case, the warehousing company saw an opportunity to meet its customers needs for worldwide solutions and found a global merger partner in Kuehne & Nagel. In RoadLink USA s case, several intermodal drayage companies joined forces to compete more effectively. They are now able In December of 2000, General Motors announced that it was forming a joint venture with Menlo called Vector SCM (supply chain management). This $6 billion startup would handle all of GM s outsourced logistics, serving as the primary point of contact for dozens of 3PLs that once worked with GM directly. Vector was a massive deal costing more than 600 times the average logistics-outsourcing contract of $10,000 and representing nearly 10 percent of the entire $65 billion outsourced logistics industry to date. GM performed exhaustive analyses of several major logistics companies before selecting Menlo, a division of CNF. The two companies now share board seats and equity stakes. GM s motivation included the desire to slash dealer car-purchase and ordering cycles from 60 days down to 15. (These efficiencies are highlighted in the accompanying graphic.) The efficiencies are driven by a logistics technology platform known as Vector Vision. With this integrated system, GM is seeking to create a clearer view of its global logistics operations and a truly electronic supply chain. The system allows them to perform realtime modifications at all steps in the car delivery process. This will enable us to know exactly what is in transit, identify a vehicle that matches a customer s order, and redirect it from its original destination of a dealer s inventory to a customer instead, explains Harold Kutner, Group Vice President of GM s Worldwide Purchasing and Production Control &. Vector, and initiatives like it, will continue to push the industry toward consolidation for several reasons. The Vector mandate is to provide their customers with a single point of contact; superior tracking, routing, billing, and management systems through pooled resources; and higher overall service levels. There is a third option: do nothing. However, while midsized logistics companies may continue to enjoy growth and profitability for the next two to four years, the longer-term market dynamics will require continual evolution and reinvestment to ensure differentiation and growth. The status quo is not a winning choice in the long run. Implications for 3PL Users: What to Do? For users, the increasing consolidation of the 3PL industry has profound implications on choosing and using service providers. Smart shippers already monitor their logistics partners on the basis of daily operational metrics, such as on-time delivery rates and costs per ton-mile. But with the landmark changes in the marketplace, they will need to do even more. Specifically, they will need to analyze their 3PLs strategic positioning, ability to invest in the future, and viability. Some new key questions 3PL users should be asking center on the following: Business needs: How are your company s needs changing, and what impact does that have on how you select a 3PL? For example, a company pursuing low-cost manufacturing may choose to source raw materials from Asia, in which GM s Big Outsourcing Push driven by specialized, sophisticated technological systems that few companies can afford. In addition, those midsized logistics companies that used to work directly with GM will now be forced into subcontracting relationships with Vector. Over time, these 3PLs may see narrower margins, reduced growth opportunities, and the risk of being switched out of large accounts. As a result, outsourcing arrangements like Vector may have a major ripple effect on the 3PL industry. Before Vector Vision Order Cycle Fragmented view of their global logistics operations With Vector Vision Order Cycle 15 Days Source: Line 56, Manufacturing.net GM's Vector Vision Untimely inventory information Long delivery times to dealers Accuracte and reliable delivery Single system to capture all EDI (electronic data interchange) links Better management of all material and finished vehicles in the GM pipeline 60 Days 56 S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL

8 case the choice of a freight forwarding partner specializing in Asian-U.S. trade lanes will be a critical strategic decision. A shipper focused on economic value-added (EVA) may seek to maximize high returns off of low capital invested, which could lead it to select a 3PL willing and able to purchase its logistics assets in exchange for a long-term contract. Lead logistics provider: Will your business be better served by a lead logistics provider, a series of best-of-breed providers by geography or service offering, or the status quo? GM and Nortel concluded that a LLP would provide accountability, technologybased visibility solutions to reduce inventory, and aggressive reductions in the working capital that would free up hundreds of millions of dollars in cash. In contrast, others have found that a strategy of several regional bestof-breed players provides many of the benefits of an LLP without the risks of complete dependency on one party. Technology: Can your current 3PL(s) keep up with the fast pace of technology innovation that your business will require over the next two to four years? companies are already expected to provide expertise in such technologies as TMS, WMS, SCEM, and ITLS systems. As supply chain technology continues to develop further, shippers will turn to 3PLs for advice on new categories such as radio-frequency identification (RFID) tags, which can provide continuous tracking of inventory at the SKU level. Finally, post-sept. 11 security requirements, such as the ocean carrier 24-hour rule, are fueling demand for new tracking and monitoring systems. Top 3PLs will be expected to provide clients with expertise on all of these fronts. In effect, these logistics providers will need to evolve into supply chain consulting firms that can also provide execution capabilities. Scope: Does your 3PL have the scope of services and locations that you will need in the future? As shippers look for integrated supply chain solutions, 3PLs are developing sophisticated service combinations. For example, NFI Industries is adding contract-manufacturing capabilities to augment its warehousing and transportation operations. Jacobson Companies has added not just co-packing but also temporary staffing services. These value-added services enable a 3PL to solve larger problems for their clients. Capital: Will your 3PL have the resources to reinvest in continued growth? Standard, a highly-regarded regional warehousing company, evaluated its Fortune 500 customer needs and assessed the likely capital requirements for continued success. Standard concluded that it should merge with a larger company that could provide the resources to fund expansion. As shippers demand expanded geographical coverage and services, 3PLs will be pressed to make the necessary investments, or alternatively select the right merger Those 3PLs that cannot afford investments in sophisticated technology will suffer a crippling competitive disadvantage. partner, in order to develop these capabilities. Viability: Ultimately, does your 3PL have what it takes to survive and succeed in the coming era of consolidation? Amidst the changing customer priorities, increasing competitive intensity, and marketplace volatility, many companies will be unable to move forward. Will your 3PL be one of them? For a frightening example of the risks involved in avoiding these questions, just look at the recent failures of freight bill audit and payment companies like STI, United Traffic Management Systems, and Computrex. Large companies like Formica, ATOFINA, Bridgestone/Firestone, Pella, QVC, and dozens of other Fortune 500 customers chose these companies partly on the basis of low prices. They lost millions of dollars in the ensuing bankruptcies. The more likely risk is that a shipper will pick a 3PL that lacks the resources and vision to evolve in an increasingly dynamic industry. For instance, a provider that does not make the necessary investments in a productivity-enhancing TMS, WMS, or SCEM system may place its customers at a competitive disadvantage. Similarly, a shipper may choose a 3PL that is unwilling or unable to expand into new geographies and needed service offerings. In the long run, these strategic factors can dwarf operational metrics in terms of their impact on a shipper s business. Asking the Hard Questions The 3PL market today stands at a crossroads. As shippers demand broader solutions, technology companies bring innovations to market, and a flood of capital chases differentiated companies, the pace of change promises only to accelerate. These dynamics will pose major challenges and opportunities to both users and service providers, demanding the attention of all supply chain professionals. To emerge as winners, 3PLs will need to carve out a differentiated square on the chessboard. Consolidation is an unmistakable reality. The choice raise capital to pursue a niche strategy, sell to a larger player, or harvest the business is not easy. However, just as UPS and FedEx achieved domination in the once-fragmented parcel industry, today s logistics providers who pick a unique strategy and make the necessary investments can be big winners going forward. Shippers also face important decisions. Should you pick a global logistics partner, a series of regional 3PLs, or a matrix of best-of-breed providers by service offering? Does your 3PL understand what drives value in your business? Is your partner well positioned to succeed amidst the changing marketplace? Shippers who understand changing market requirements and pick winning 3PLs can develop superior supply chain strategies that deliver a powerful competitive edge. S UPPLY C HAIN M ANAGEMENT R EVIEW M ARCH/APRIL