Fragmentation in the 3PL Industry

In most industries, there are brands or companies that are viewed as the clear leaders. However, in the third-party logistics (3PL) sector, the state of the industry is fragmented. Despite fragmentation in the market, there are 3PLs that have created focused models within a particular niche. The Apparel Logistics Group is one of these players with a comprehensive set of 3PL services for apparel, footwear and accessory vendors . Below, we’ll take a look at why fragmentation has occurred and what it means for the industry at large.

The Industry Is Worth Billions

According to a recent press release, the 3PL industry has a massive collective worth. In fact, it will surpass $1,100 billion by 2024 . In order to remain key players in that industry, some of the most recognized companies have begun acquiring other entities to compensate for shortcomings. Mergers are common in the 3PL sector, as separate companies realize they could pool their strengths by joining with other businesses and working toward a common goal.

Large-Scale Mergers and Acquisitions Have Occurred Only Recently

Although you may be under the impression that mergers and acquisitions in the 3PL industry have been occurring constantly for decades, that’s not true. Research gathered by polling the CEOs at prominent 3PL companies indicates that kind of activity in the sector was relatively slow between 2008 and 2014 .

There are several reasons for this. To begin with, some of the CEOs had previously experienced integration problems after merging with other 3PL companies and decided to be cautious due to fears of going through the same issues again. Cost was another factor that caused them to balk. Even as some of them eyed other companies with the intention of possibly acquiring them, there was a perception that doing so would be too expensive.

It was also true that CEOs decided not to pursue acquisitions or mergers because they thought their businesses were already large enough. More specifically, they were not willing to grow the business by teaming up with other companies unless doing so would allow them to enjoy quick success in a niche market or expand their geographic presence.

Collective Skills Can Reduce the Effect of the Industry’s Fragmentation

You may be wondering why there was a flurry of mergers and acquisitions that occurred after the 2014 survey mentioned above. The CEOs indicated that they felt pressure from top clients to provide more services. Clients likely recognized the fragmented state of the industry and did not want to deal with several companies for various similar needs. That request for additional services made it necessary for 3PLs to find other companies that possessed the necessary capabilities and team up with them to deliver these services.

Newly-merged companies have responded by offering a full assortment of 3PL services, often catering to certain industries, such as apparel. Providers can increasingly give customers all or most of the assistance they need, whether by relying on in-house workers or outsourced contractors.

Fragmentation Has Created Global Supply Chains

Before the 3PL industry became so fragmented, it was sufficient to rely on regional manufacturing clusters made up of specialized factories. Now, there are global supply chains whereby each regional entity feeds into them based on its respective strengths within that part of the world.

Clearly, the 3PL industry is much different now than in past decades. To learn more about how The Apparel Logistics Group could help you succeed within the clothing sector, fill out our consultation form today.

Posted: 2/7/2018 5:08:20 PM by Global Administrator | with 0 comments

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