FedEx recently announced two acquisitions related to third-party logistics (3PL) and information technology services, an indication of the impact of today’s Omni-channel commerce implications on customer and consumer fulfillment requirements. This news is significant because in our Supply Chain Matters 2015 Predictions for Industry Supply Chains, we predict other acquisitions surrounding the 3PL sector in the year to come.
The first and most prominent announcement was the acquisition of GENCO, a specialty 3PL that operates more than 130 warehouse and distribution facilities. GENCO is a premier North America 3PL based in Pittsburgh Pennsylvania with revenues of $1.6B. providing a rather diverse collection of forward and reverse logistics services including distribution, contract packaging, customer returns processing product refurbishment, disposition and recycling.
According to the FedEx announcement, GENCO has processed more than 600 million returned items annually for many leading brands. Today, returns processing and disposition is a big-deal for online fulfillment processes and having a one-stop logistics provider can provide significant benefits. As part of the recent fiscal earnings briefings with equity analysts last week, Fred Smith, Chairmen and CEO of FedEx acknowledged that in the past, his firm was not enamored with expanding its presence in the 3PL sector because it was perceived as a low margin business. What changed was the emergence of online and e-commerce and the empowered consumer, particularly in demanding a full range of services. Mike Glenn, President and CEO of FedEx Services indicated that GENCO will significantly expand FedEx services to include returns, test, repair and remarketing of products. Executives noted that they have admired GENCO for many years along with their belief that the culture is a perfect alignment. The transaction is subject to closing conditions including compliance with U.S. and Canadian antitrust law requirements.
The global package delivery firm further announced the acquisition of Bongo International, a provider of cross-border information technology services for retailers and online providers to fulfill needs from internationally-based consumers. Among this firm’s services are duty and tax collections, export compliance management, currency conversion and fraud protection. According to the announcement, Bongo, headquartered in St. Petersburg Florida, provides a customer base of over 2000 retailers across Europe, the United Kingdom and the United States. The IT firm was recently listed for the second year on Deloitte’s Technology Fast 500™, a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America.
The announcement indicates that Bongo will operate as a subsidiary of FedEx Trade Networks.
The added complexities and service needs inherent in Omni-channel and online commerce demand broader service and technology support requirements and retailers and shippers will increasingly demand a one-stop resources presence among 3PL’s. The above FedEx acquisition announcements by our lens are evidence of shifting markets for 3PL services. Individual 3PL’s will therefore be pressured to invest in broader services and technology services or risk losing business to larger more versatile players.