New Kids on the Block
Consolidation of logistics providers is producing new 3PLs formed from pieces of merged companies
BY IAN PUTZGER
Reprinted from the Journal of Commerce, January 8, 2007
After CNF sold Menlo Worldwide Forwarding to UPS in late 2004, Menlo Chief Executive John Williford and some of his management colleagues decided there was room in the market for a midsize forwarder with a narrower focus.
So last February, Williford joined GTCR Rolder Rauner, a large private equity firm, in forming Golden Gate Logistics. The new company, based in Palo Alto, Calif., is a sign of the times.
In the wake of mega-mergers of freight forwarders, new logistics providers are emerging through a combination of old talent and new money.
Last June, Golden Gate acquired Global Link, an Atlanta-based ocean cargo agent that claims to be the eighth-largest non-vessel-operating common carrier in ocean cargo traffic from China to the U.S.
Golden Gate sees Global Link as the launching pad for its plan to use acquisitions and internal growth to establish a logistics company that focuses on ocean-based supply chains from Asia to North America. Golden Gate aims to combine an NVO operation with Asian logistics capabilities and port-based logistics activities, such as warehousing and cross-dock operations, in the U.S.
Unlike Menlo, Golden Gate is not striving for a global presence and has no ambitions in the aircargo sector. Williford said many importers are more interested in improving their transPacific supply chains than in forging global logistics deals. Marine cargo not only far exceeds air cargo in terms of volume but also offers more room for creative supply-chain solutions, he said.
How Golden Gate's capabilities will unfold will hinge on what acquisitions the company can put together. Williford plans to bring two new operators into the fold in 2007. He said negotiations are in progress with several potential parties, but he disclosed no details. Ultimately, he seeks a presence at all major U.S. ocean gateways, with the initial focus on the West Coast.
Global Link's revenue exceeds $200 million. Revenue targets for Golden Gate are somewhat fuzzy, because they will depend on future acquisitions, which will be based on their capabilities rather than their turnover, Williford said.
Golden Gate's emergence is no isolated phenomenon. Consolidation in the forwarding industry's top echelon has not only produced behemoths of unprecedented size and scope but has also spawned new companies built from the pieces of merged companies. During the past year, several new US.-based logistics providers with revenues exceeding $ 100 million were formed under logistics managers whose companies were involved in large mergers.
Last November saw the emergence of Summit Global Logistics, led by a group of P&O Nedlloyd managers around Robert Agresti. Agresti was executive vice president for North American trade at P&O Nedlloyd when the company was acquired last year by Maersk. After P&O Nedlloyd was sold, Agresti and other executives struck out on their own. He now is chairman, president and chief executive of Summit.
Having initially acquired AmeRussia, an NVO with bases in New Jersey and Russia, Summit secured financing for its business plan last year. Summit then acquired two logistics companies, FMI International and the TUG Logistics group, for some $163 million in November.
TUG has offices in six U.S. locations, a 50,000-squarefoot warehouse in California and an Asian network that comprises seven offices in China and Taiwan as well as more than 40 agents across the region. New Jersey-based FMI is an integrated logistics provider with operations at major U.S. ocean gateways, which include local and regional trucking operations involving some 240 tractors and more than 500 trailers.
Agresti and his team want to combine these elements to offer value-added logistics services to U.S. companies importing from Asia, particularly from China. TUGs Asian network gives Summit a strong presence in Asia, and the port-based activities of FMI allow transportation management and delivery to final destination with end-to-end visibility. While Summit offers services such as air cargo and pick and pack, the focus - as at Golden Gate - is on marine imports from Asia.
Connecticut-based IJS Global Logistics, another newcomer founded by former managers of a big forwarder that was merged into a larger company, aims for a more balanced approach between ocean and air cargo, but its current strength is predominantly on the airfreight side. Given the background of its management, this is hardly surprising. IJS management consists largely of former executives of Air Express International, a leading forwarder that was merged with Danzas International under the DHL banner in 1999.
IJS, which operated under the Inter-Jet Systems banner until 2005, was acquired the year before by Brynwood Partners, a Connecticut-based private equity fund, as part of a strategy to build a presence in the forwarding industry. IJS Chief Executive Giorgio Laccona said the goal is to turn IJS into a global, multimodal forwarder with annual revenue of $500 million and a work force of 1,200 to 1,500.
The new company has set a blistering expansion pace. In mid-December, it purchased Lupprian Cargo Express in Britain, its second European subsidiary, and opened an office in Chicago, its ninth in the United States. IJS has an office in Dubai and covers most of the Asia
Pacific region (with offices in China, Hong Kong, Taiwan, Bangkok and Manila and agency partnerships in other markets). This pace should continue through the coming months. "We expect to have the network in place in mid'07," Laccona said.
He said the AEI connection was by default, not design. The mega-mergers that have swept through the industry have freed up talented and experienced people "that are tired of the consolidation process and who feel they can do more in a small to medium-sized company."
Unlike the behemoths that dominate the forwarder scene, the new entrants pay closer attention to individual customers and have greater flexibility to come up with services tailored to their needs, Laccona said.
Companies such as Summit and Golden Gate also have a much narrower focus than the top logistics giants. This relates not only to their emphasis on ocean imports from Asia but also to the cultivation of specific industries. Through FMI, Summit has inherited a strong presence in footwear and apparel, while the acquisition of Global Link has given Golden Gate a sizable customer base in the furniture market. Williford said the company intends to cultivate vertical markets focused on specific industries. "Some customers want a one-stop shop," he said, "but lots of customers want the best provider for a particular problem."