OCTOBER 14, 2014 WHAT S NEXT FOR TRUCKLOAD 3PL BROKERAGE PRICING INDUSTRIALS TEAM A CALL WITH Evan Armstrong
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State of the 3PL Industry - Focus on Domestic Transportation Management Website: www.3plogistics.com
Founded in 1980; Supply Chain Market Research and Consulting Services Approximately 25,000 Newsletter Subscribers Current Market Research: Who's Who in Logistics and Supply Chain Management Over 400 Detailed 3PL Profiles; 6,800+ 3PL Customer Relationships Trends in 3PL/Customer Relationships "3PL Brand Recognition, RFP Activity and Expected Profit Margins for 3PLs Trending Up: 3PL Market Predictions for 2014 and 2013 Results" The Business of Warehousing in North America 2 Market Size, Major 3PLs, Benchmarking Costs, Prices and Practices 2 nd Annual 3PL Value Creation Summit, Chicago: October 28-30, 2014 http://www.infocastinc.com/events/3pl Articles & Press Coverage: Air Cargo World, American Shipper, Global Trade, Journal of Commerce, Logistics Management, Logistics Quarterly, Modern Materials Handling, Transport Topics, Wall Street Journal Consulting Services: 3PL M&A Advisory, 3PL Operational Due Diligence, 3PL Strategic Planning, Logistics Outsourcing, Logistics Provider Contracting & Negotiation, Systems Evaluation & Selection, Expert Witness About Armstrong & Associates, Inc. Over 30 strategic planning engagements and 14 closed Investment/M&A deals. Global Resources: U.S. Organization; Eric Xiang, Wuhan China; Latin America, Japan and South Korea Alliance Partners 2
http://www.3plogistics.com/site_visits.htm A&A has reviewed operations of over 100 3PLs. 3
2013 Logistics Costs by Key Regions and Countries as a % of GDP 20.0% 18.0% 17.3% 16.0% 14.0% 12.0% 13.0% 11.9% 10.9% 10.0% 9.2% 8.8% 8.5% 8.5% 8.0% 6.0% 4.0% 2.0% 0.0% Greater China India South America Asia Pacific (ex. Greater China and Japan) Europe North America Japan United States 4
2013 Global Logistics Costs by Mode or Function (US$ Billions) 5
Drivers of Global 3PL Market Growth Low-Cost Country Sourcing Regulatory Compliance Off-Shoring & Outsourced Mfg. Cost Reductions Focus on Core Competencies Regulatory Compliance Expanding IT Requirements Need Regional & Local Market Expertise 3PLs provide the infrastructure necessary to support increasingly complex supply chains involved in global trade. 6
3PLs Expanding Role in the Global Supply Chain Manufacturing Ports Suppliers Customers Distribution Centers Repair Center Customs Carriers Transportation Services: Air Brokerage Operations Dedicated Contract Carriage Freight Forwarding Home Delivery Just-In-time (JIT) Less-than-Truckload (LTL) Sourcing Package Delivery Ocean Shipping Rail Rail TOFC/COFC Small Package Specialized Truckload TRANSPORTATION MANAGEMENT SERVICES Transportation Planning Transportation Execution: Freight Bill Payment: Carrier Mgmt and Contracting Contract File Maintenance Pre-Audit Inbound Shipment Planning Exception handling Post-Audit Outbound Shipment Planning Load Tendering Performed In-house End-to-End Matching Loss/Damage Claims Outsourced Mode Conversion/Optimization Tracking & Tracing Value-Added Services Call Centers Lot Control Reverse Logistics Cross Docking Merge In Transit Store Support Customization Manufacturing Support Sequencing/Metering Inventory Control/Vendor Mgmt Pick/Pack Specialty Packaging KanBan Pool Distribution Sub Assembly Kitting Repair/Refurbish Labeling Returnable Container Mgmt OTHER 3PL SERVICES, SKILLS & HANDLING Consulting/Process Reengineering Purchase Order Mgmt Bulk Commodities Factoring/Financial Services Project Logistics Hazardous Materials Installation/Removal Quality Control Food Grade/Sterile Order Management Union Services Temperature Controlled 7 3PLs are rapidly expanding services to connect global supply chains, taking on more work tasks that shippers don t view as core competencies, providing greater value through economies of scale.
2013 3PL Revenue by Key Regions and Countries (US$ Billions) $200.0 $180.0 $160.0 $140.0 $176.2 $158.1 $146.4 $134.8 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $66.5 $54.3 $44.9 $17.4 $- North America Europe United States Greater China Asia Pacific (ex. Greater China and Japan) Japan South America India 8
3PL Revenue Growth (CAGR by Region) 12.0% 10.0% 9.6% 8.0% 8.6% 8.8% 8.1% 6.0% 4.0% 4.8% 6.4% 5.5% 5.8% 5.7% 4.5% 5.0% 3.7% 3.8% 2.0% 1.5% 1.4% 1.2% 0.0% India Greater China United States Asia Pacific (ex. Greater China and Japan) North America South America Japan Europe 2010-2013 2013-2016E 9
Gross Logistics 2013 Rank Third-Party Logistics Provider (3PL) Revenue (US$ Millions)* 1 DHL Supply Chain & Global Forwarding 31,432 2 Kuehne + Nagel 22,587 3 DB Schenker Logistics 19,732 4 Nippon Express 17,317 5 C.H. Robinson Worldwide 12,752 6 CEVA Logistics 8,517 7 DSV 8,140 8 Sinotrans 7,738 9 Panalpina 7,293 10 SDV (Bolloré Group) 7,263 11 DACHSER 6,627 12 Toll Holdings 6,266 13 Expeditors International of Washington 6,080 14 Geodis 5,828 15 UPS Supply Chain Solutions 5,492 16 GEFCO 5,300 17 J.B. Hunt (JBI, DCS & ICS) 5,224 18 UTi Worldwide 4,441 19 Agility 4,415 20 Yusen Logistics 4,042 21 IMPERIAL Logistics 3,923 22 Hellmann Worldwide Logistics 3,433 23 Hub Group 3,374 24 Damco 3,212 25 Burris Logistics 3,119 Top 50 Global 3PLs *Revenues are company reported or A&A estimates and have been converted to US$ using the annual average exchange rate. 10 Gross Logistics 2013 Rank Third-Party Logistics Provider (3PL) Revenue (US$ Millions)* 26 Schneider Logistics & Dedicated 2,850 27 Norbert Dentressangle 2,782 28 Kintetsu World Express 2,718 29 Kerry Logistics 2,575 30 Pantos Logistics 2,546 31 Sankyu 2,293 32 Ryder Supply Chain Solutions 2,280 33 FIEGE Group 2,090 34 Coyote Logistics 2,000 34 XPO Logistics 2,000 35 BDP International 1,900 36 NNR Global Logistics 1,745 37 Wincanton 1,695 38 Total Quality Logistics 1,621 39 Logwin 1,620 40 Nissin Corporation/Nissin Group 1,611 41 APL Logistics 1,586 42 Americold 1,580 43 Menlo Worldwide Logistics 1,540 44 GENCO 1,509 45 BLG Logistics Group 1,470 46 Transplace 1,400 47 FedEx SupplyChain/FedEx Trade Networks 1,387 48 Landstar 1,301 49 OHL 1,290
Top Global Fortune 500 Buyers of 3PL Services 51 53 50 45 41 42 40 37 37 33 33 32 32 30 30 Source: Armstrong & Associates, Inc. Report Trends in 3PL/Customer Relationships - 2013 (An analysis of 6,398 3PL/Customer relationships). 11
Transportation and Warehousing Services Dominate 3PL Demand Transportation Management 23.7% 4,172 Warehousing Value-Added TM or WM 19.6% 18.8% 3,455 3,312 Integrated Solutions International 9.5% 8.1% 1,422 1,677 Supply Chain Management Dedicated Contract Carriage Other Intermodal Lead Logistics Provider 5.6% 4.5% 4.1% 3.3% 3.0% 979 785 727 573 521 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Primary 3PL services provided are led by transportation management (23.7%), warehousing (19.6%) and value-added services (18.8%). Source: Armstrong & Associates, Inc. Report Trends in 3PL/Customer Relationships - 2013 (An analysis of 6,398 3PL/Customer relationships). 12
Number of Services per 3PL Customer Relationship On average, larger companies with more complex supply chains rely on 3PLs for a wider range of services. Source: Armstrong & Associates, Inc. Report Trends in 3PL/Customer Relationships - 2013 (An analysis of 6,398 3PL/Customer relationships). 13
Most Important 3PL Services by Industry Service Rank Major Industry First Second Third Automotive Trans. Mgmt. (23.2%) Value-Added (18.7%) Warehousing (18.3%) Consumer Goods Warehousing (22.1%) Trans. Mgmt. (21.8%) Value-Added (20.3%) Elements Trans. Mgmt. (27.8%) Value-Added (17.0%) Warehousing (16.2%) Food, Groceries Trans. Mgmt. (25.9%) Warehousing (21.6%) Value-Added (18.4%) Healthcare Trans. Mgmt. (22.1%) Warehousing (21.8%) Value-Added (20.3%) Industrial Trans. Mgmt. (27.0%) Warehousing (16.7%) Value-Added (16.1%) Other Trans. Mgmt. (28.0%) Warehousing (18.3%) Value-Added (17.0%) Retailing Trans. Mgmt. (21.7%) Value-Added (20.3%) Warehousing (20.0%) Technological Trans. Mgmt. (20.7%) Warehousing (20.4%) Value-Added (19.6%) Overall demand of transportation management services has grown since 2008 and it is now ranked slightly above warehousing services for the Healthcare and Technological industries. Source: Armstrong & Associates, Inc. Report Trends in 3PL/Customer Relationships - 2013 (An analysis of 6,398 3PL/Customer relationships). 14
Gross Revenue/Turnover U.S. 3PL Market 1996 2014E (US$ Billions) $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 $30.8 $34.2 $39.6 $45.3 $56.6 $65.3 1996 2013 CAGR = 9.6% $71.1 $76.9 $89.4 $127.0 $127.3 $133.8$141.8 $113.6 $119.0 $103.7 $107.1 $154.0 $146.4 Year 15
(US$ Millions) Growth by U.S. 3PL Market Segment 2013 Gross Revenue (US$ Billions) 2013 Net Revenue (US$ Billions) % Change 2014E vs. 2013 Net Revenue 1995-2013 CAGR 3PL Market Segment Domestic Transportation Management 49.2 7.1 7.5% 11.0% International Transportation Management 46.2 18.0 4.5% 13.4% Dedicated Contract Carriage 12.0 11.8 4.0% 7.1% Value-Added Warehousing & Distribution 35.9 27.7 3.5% 12.9% Total 143.3 64.6 4.3% 11.2% 31,000 29,000 27,000 25,000 23,000 21,000 19,000 17,000 15,000 13,000 11,000 9,000 7,000 5,000 3,000 1,000 Value-Added Warehousing & Distribution (VAWD) Dedicated Contract Carriage (DCC) International Transportation Management (ITM) Domestic Transportation Management (DTM) 16
U.S. 3PL Market Momentum 17
Top 30 DTM/Freight Brokers Ranked by Net Revenue $10,727 CHRW Net Revenue = $1.7B; Next 29 = $2.7B \ 18
Trucking Company Cost Categories Transportation Costing and Lane Balance Drives Pricing 19
Headhaul versus Backhaul Traditional Backhaul Lane Imbalances: NE to MW S. FL to MW/NE Seasonal Lane Imbalances: Retail holiday inventory build Produce season Christmas tree season Mulch season Summer/winter product demand Other Lane Imbalances: Port disruptions Weather 20
Trucking Capacity & Seasonality Trucking Capacity & Seasonality % of Capacity 140 120 100 80 60 40 20 0 J F M A M J J A S O N D Month Capac ity Demand 21 Copyright 2014 Armstrong & Associates, Inc.
Customer Relationship Type Types of Traditional DTM/Freight Broker Relationships Shipper Pricing Carrier Gross Profit Margin Market Risk Transactional Spot Market Spot Market Efficient Daily Supply & Demand (Short-Term) Spot Market Contractual Increasing Carrier Capacity Enterprise Contractual Spot Market Tightening Carrier Capacity (Long-Term) Contractual Contractual Significant Carrier Capacity Shifts Generally for Freight Brokers, Enterprise business provides volume and lane density, transactional customers drive margins. A note about FUM = Freight Under Management, Managed Transportation Primarily systematic network transportation management relationships Shipper holds contracts with core carriers Shipper contracts with a 3PL which gets a management fee Significant Network TM Providers: CHRW TMC, Menlo Worldwide, Penske, Ryder SCS, Transplace 22
After-Tax Net Income Margin Trends by 3PL Market Segment 25% 20% 20.3% 15% 10% 5% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 7.0% 12.2% 10.3% 4.5% 3.3% Year Value-Added Warehousing & Distribution (VAWD) - Asset-Based Dedicated Contract Carriage (DCC) - Asset-Based International Transportation Management (ITM) - Non-Asset Based Domestic Transportation Management (DTM) - Non-Asset Based 23
DTM Network Transportation Managers Characteristics of Leaders: Robust TMS for network transportation planning and execution. Heavy EDI/electronic systems interfaces. Some Buy/Sell side arrangements with significant of Freight Under Management. FUM = Freight Under Management, Managed Transportation. Shipper may hold contracts with core carriers. Shipper contracts with a 3PL based a management fee, yielding 5-7% gross margins. 24
The Cost Advantage of Mode Shifting The Advantage of Mode Shifting $400 $350 $300 Cost per CWT $250 $200 $150 $100 $50 $- Package LTL TL 25 Copyright 2014 Armstrong & Associates, Inc.
End To End Matching Utilization via End-to-End Matching 35% 30% % of MT Miles 25% 20% 15% 10% Median High Low 5% 0% 0 500 1000 1500 2000 Miles 26 Copyright 2014 Armstrong & Associates, Inc.
Typical TMS Optimization Daily Transportation Management Optimization Process Example Daily Transportation Management Optimization Process Example ORDER/SHIPMENT INPUT STRIPOUT/FILTER SHIPMENTS Rail box cars, UPS, expedited loads, etc. RUN CONSOLIDATION ROUTINE Package to LTL, LTL to TL Using real rates (mode shifting optimization) RUN MATHEMATICAL NETWORK FLOW To isolate TL carriers by available capacity RUN MIXED INTEGER PROGRAM To find end-to-end best routes EXPORT RESULTS For logistics engineer review 27
3PL Information Technology Trends I.T. is a top reason for companies outsourcing logistics. Solid I.T. is critical to remain competitive and strengthen a 3PLs brand. 3PLs are striving for an integrated core systems backbone that can be deployed quickly. Most 3PL systems suites incorporate purchased off-theshelf programs with proprietary applications. Business Intelligence, web connectivity, and automated data handling are increasingly important. Integration Layer Customer ERP/OMS Transportation Mgt. System (TMS) Warehouse Mgt. System (WMS) Yard Mgt. System (YMS) Visibility / Track & Trace Accounting/ Financials 28
Types of Off-The-Shelf Systems Daily Weeks to Months Months to Years Transportation Execution JDA/i2 -TM Oracle - OTM Infor/Caps Lean Logistics MercuryGate Manhattan -TP&E JDA/Manugistics RedPrairie - TM Tactical (Modeling & Procurement) CombineNet JDA/i2 -Trans. Modeler JDA/i2 -TBC Infor/Caps Lean Logistics Manhattan - TP Oracle - OTM Strategic (Network Design) JDA/i2 Strategist IBM ILOG/LogicTools Infor/SCM 29
Core 3PL Systems TMS 370 3PLs Surveyed, TMS with 2 or More 3PL Users TMS Brand Total Proprietary 223 No TMS 40 TMW/Innovative Computing 33 RedPrairie/JDA (Manugistics, i2) 28 MercuryGate 19 Oracle 18 Cargowise 8 Descartes/IES 8 McLeod 7 Infor 5 CSA Software 3 LeanLogistics 3 SAP 3 Accellos 2 Cargo 2000 2 GT Nexus 2 Manhattan Associates 2 Sterling Commerce 2 TransCore's Keypoint 2 30
Thank You! Milwaukee Wisconsin Office Evan Armstrong Armstrong & Associates, Inc. 10401 West Lincoln Avenue Suite 207 West Allis, WI 53227 USA 414-545-3838 Madison Wisconsin Office Richard Armstrong Armstrong & Associates, Inc. 3220 Syene Road Suite 201 Madison, WI 53713 USA 608-873-2110
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