Industry Tailwinds Push Shippers Toward Fewer, More Advanced Partners

Today's shippers have found themselves grappling with a variety of secular tailwinds, namely e-commerce growth, automation and outsourcing. While each of these factors existed before the coronavirus pandemic rocked the logistics industry last year, the impact of a global pandemic has accelerated preexisting trends and concerns. 

FreightWaves President George Abernathy recently sat down with GXO Logistics Chief Investment Officer Mark Manduca to discuss how GXO can help shippers navigate these challenges as it spins out from XPO Logistics XPO in the third quarter of this year.  

GXO exists to provide solutions to complex supply chain challenges globally, and it is the largest pure-play logistics provider in the world. The business consists of about 900 warehouses with 100,000 teammates across a variety of different regions around the globe. 

"Our business is remarkably simple and yet we provide solutions to some very complex problems," Manduca said. "We are best in class at stacking complex supply chain solutions for our customers, and we do it with precision and at speed. We manage what is inside the warehouse in essence."

The logistics industry is notorious for being fragmented and disconnected. Manduca believes this will change over the next few years. He predicts that companies will demand a full, scalable suite of services from their partners, leading to widespread consolidation and the emergence of a handful of clear leaders with considerable market share. GXO is well-positioned to provide that full spectrum of services, placing the company among the biggest and brightest.

"Logistics represents a small percentage – call it 2-3% – of any one particular customer's revenue, but if you pick the wrong provider to manage your supply chain, it actually affects 100% of your revenue, not just 3% of your cost," Manduca said. 

GXO is centered around providing solutions to some of the industry's strongest tailwinds. 

E-Commerce

E-commerce rates across the European and North American markets are currently sitting at around 20-30%, depending on the specific country in question. As e-commerce grows, logistics challenges become more complex. 

"In the past, 5-10% of items bought in stores would be returned. Today, in the world of e-commerce, you have around 30% of items being returned. The customer is seeing more and more complexity in its working capital," Manduca said. "In the old world, 1,000 T-shirts would arrive at a warehouse on a pallet and two pallets would leave: one to one store, one to another. Now, 1,000 separate cardboard boxes leave the warehouse. That requires an awful lot of complexity."

Shippers must rely on third-party logistics providers to help them navigate the changing e-commerce landscape. GXO is prepared to do exactly that, with about 40% of its revenue coming from omnichannel retail and e-commerce.

Automation

Automation is even more nascent than e-commerce. Warehouses are becoming more and more automated in order to improve efficiency, speed and safety. Automation is effectively transforming the logistics industry, and it is just getting started. 

All these tailwinds are intrinsically linked. Increased automation is needed to effectively navigate the world of e-commerce. Shippers will be relying on their 3PL partners to steer them toward the tools they need to succeed, making technological advancement a big topic at the contract bidding table.

"You can basically say warehouses are automated by about 5-6% throughout the entire industry," Manduca said. "Clearly we outperform that percentage number, but the industry still has a lot of runway to go with automation."

Outsourcing

Outsourcing is a hot topic across the logistics industry. More and more companies will need to embrace outsourcing as the demands of e-commerce and automation ramp up across the global supply chain. 

According to Manduca, about 70% of global supply chains have yet to be outsourced. That means companies like GXO still have a huge number of potential customers waiting to be acquired. 

"The addressable market is the outsourced market – representative of about $130 billion – but it's also the in-house market. That is potentially another $300 billion on top. That is potentially as much as a $430 billion opportunity," Manduca said. "That is just the organic opportunity, let alone the inorganic opportunity from natural consolidation as this very fragmented industry begins to consolidate."

Ultimately, Manduca believes that companies will be looking for best-in-class partners – partners that can provide everything from robotics to instant warehouse space halfway around the world – over the next few years. He also believes GXO is the best in class.

Image by Schäferle from Pixabay